Kaizen Chaos

I read this article about interest only Mortgages and thought I’d share my thoughts. Typically, I would never, never, NEVER encourage an interest only mortgage. It’s about like renting since you are not decreasing your principal amount and therefore not increasing equity. Not to mention it’s dangerous when you’re in a volatile market. When property values are plummeting like they have been lately you could decide to sell your home and find that it appraises significantly lower than it did when you purchased it.

That being said, I found myself in a position where an interest only mortgage was my only option if I wanted to purchase the house I’m currently in. I was going through a divorce and had a house with my ex that I was trying to sell. Most banks wouldn’t give me a loan until I sold my other house because they were afraid I couldn’t handle two mortgages. I was stubborn and knew I could make it work and pay my bills. I’m sure they hear the same thing from everyone, but I know I am not one to bite off more than I can chew and get myself in financial trouble. I was determined. Eventually I found a bank that would give me an interest only mortgage that would convert once I sold my other house. Hallelujah! Yes, it made me a bit nervous, not knowing when we’d sell the other house and how long I’d be carrying 1.5 mortgage payments (one for my new house and my share of the old house) but it was a risk I was willing to take in order to start my new life.

Still, I REFUSED to pay interest only. I calculated what my payments would be if it was a “normal” mortgage and when I sent my payments in I sent in extra and had them apply it to the principal. So, a few months later when I finally did sell my old house I was already used to paying the regular mortgage payment on my new house. Win-win situation.

Unfortunately, there are lots of other stories that do not have such a happy ending. Too many people jumped on the opportunity to get an interest only mortgage on houses they could never afford. Now that the market has dropped and they are ready to move or refinance they are finding themselves in a world of trouble.That begs the question, whose fault is it? The bank or the borrower? 

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