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Finance allah shmoop what is an interest only mortgage Well

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simply put it's when you only pay the rent on

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the dough you borrowed you don't pay down the principal

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you owe like if you have a three hundred thousand

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dollars mortgage at six percent interest you're paying eighteen grand

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a year to rent that money in six percent times

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three hundred rands eighteen grand a year But the principal

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you borrowed is likely due in thirty years So in

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theory anyway if it were a normal mortgage you'd want

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to pay down the principal little bit a month as

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you go along like averaging ten grand a year in

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principle pay down over thirty years That's times ten grand

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right three hundred grand their total owning your home at

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the end yeah yeah priceless that's what holmes work So

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why would you want an interest only mortgage Well for

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one thing the monthly payments or less so maybe you

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could afford morehouse If on a thirty year three hundred

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thousand dollar loan at six percent you're paying interest only

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while you're writing a check each month for eighteen thousand

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divided by twelve or fifteen hundred bucks maybe that's all

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You can afford well the extra five hundred bucks arm

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or you'd right toe pay down your principles Just not

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something you can really do right now Maybe after three

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years of scrimping and saving well you'll be able to

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start paying down that principal reducing risk and making life

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easier all the way around But right now you can't

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afford it so the only thing you can do is

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do the interest only dance Well the other reason you

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might want an interest only mortgages that interest costs are

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tax deductible Principal pay down costs are not so if

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in a given mortgage payment of say eighteen hundred bucks

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a month where three hundred of it is principal pay

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down and fifteen hundred of it is interest well on

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ly the fifteen hundred is tax deductible That three hundred

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of pay down is not And if you're a forty

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percent taxpayer the government is essentially picking up the tax

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savings on the fifteen hundred times a forty percent at

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six hundred dollars in interest You're paying such that they

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quote feel unquote like the fifteen hundred is really only

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about nine hundred a month in cost to you the

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three hundred bucks and principal paydown feels like a full

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three hundred dollars So some people seeking tio optimize their

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tax deductions live in the world of interest only mortgages

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and let the government for a change You know work 00:02:26.24 --> [endTime] for them How's that feel same all Take it

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