<p>Dstark, I do not claim to be in the loan business, even though itstoomuch has said that he and I are (???). Supposedly interest-only loans allow you to free much more of your mony to use for other purposes, like paying for college, or buying another property, and your principal never goes up. Yet, (supposedly) you can make a principal payment, randomly, when you wish. I am sure there are unscrupulous lenders out there, and I would be very careful with something like that. It may be good if you are getting a fabulous return on your “saved principal payments”. Also, interest-only loans are a type of ARM, so right around the time you have to start making principal payments, (5 years?), the interest rate may be adjusted up 2%. So now is the big shock, of a monthly payment that includes principal +even higher interest. This is not for you and me.</p>
<p>I cite this example by a lender, makes it look good, but his fine print was not even visible to my naked and naive eye.</p>
<p>Interest-Only Loan vs. 30-Year Fixed Loan 5-Year Savings</p>
<p>Example 1: $450,000 loan
Loan Type Monthly Payments
30-Year Fixed Loan @ 5.625% $2,590 Principal + Interest
5-Year Interest-Only ARM
(30 Years) @ 4.875% $1828</p>
<p>Monthly Savings: $762
5-Year Savings: $45,900</p>
<p>Example 2: $230,000 loan
Loan Type Monthly Payments
30-Year Fixed Loan @ 5.5% $1,306 Principal + Interest
5-Year Interest-Only ARM
(30 Years) @ 4.25% $815</p>
<p>Monthly Savings: $491
5-Year Savings: $29,700</p>