Interest Only Loans: Greater Savings or a New Pair of Shoes?

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Lower mortgage payments should not mean a new pair of shoes.

Over the past three years, interest-only loans have surged from under 1% to over 30% of all new home loan originations in some areas, leading many consumers to believe that interest-only financing is a great program for everyone.

However, consumers should understand that interest-only financing was originally created for the wealthy and with very good reason. You see, the wealthy understood that they could put the money saved from monthly payment obligations to work for higher rates of return in other financial instruments. These consumers were not looking to save a few hundred dollars to afford a home – many were simply taking advantage of a loan program that combined the tax advantages of a mortgage with increased cash flow of liquid funds for investing!

There is no question it’s hard to survive in this world at times when real estate values are appreciating 10%, 15%, even 20% a year in many markets; however, consumers with limited income must look at their long term goals to ensure preparedness for retirement and unexpected life changes.

Ask yourself a question? What are you doing with the money you are saving from a lower mortgage payment?

You may be surprised how few people actually use the savings to fund real assets such as IRA’s, a life insurance policy, or mutual funds. Often, the money merely goes toward living a richer lifestyle that is more than the consumer can really afford.

An interest-only loan can benefit many consumers; however many more should spend time considering how to use the difference for an investment in the future - rather than a new pair of shoes.

For more information on the benefits and risks of interest only loans, please visit


Established in 2002, is the premier destination for information on interest-only loans. With an annual reach of over 2 million unique visitors, provides current index rates, program information, online mortgage calculators and more, to both consumers and mortgage professionals. Please visit today!

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Alan Dunn
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