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pros and cons of interest only loans
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given the current low interest rates - let's assume 4% - this might be a viable option for a lot of people.  let's also assume that your actual interest rate after figuring in tax considerations ends up at around 3%.  i think i am being pretty fair with the numbers. now every dollar that you save each month based on the savings and invest with a higher net return of greater than 3% will in fact be "free money".  you are basically betting on your ability to invest over the 3%.  even if using a conservative historical rate of return on the market you should net far better than 3%.  this money would be significant after 10 years.   let's say you earn an average of 8% on your money over the 10 years.  well you would have an extra $77k by doing interest only if you were paying on average of $500 a month towards interest on a conventional loan.  that is a pretty average house in the us.  who doesn't want $77k (more than you would have compared to just principal).  so after 10 years you have the same amount in principal plus $77k given that you take all of the saved money and invest it at the constraints above. i would suggest that people take interest only if they are willing to diligently put away the money as they had a conventional loan.  another scenario would be a wealthier home owner (that may be able to pay off house at any time) to reap the tax breaks and cheap money to invest. pros: cons: sidenote:  if people ask how viable is this.  well i have done this for 8 years.  i have earned an extra 110k.  i have smaller than $500 i put away each month since my house is about 30% owned but have earned almost 14% on average over the last 8 years.  my money gets put into an e-trade account automatically each month from there i funnel it into different funds (diversified by sector and region).  i literally spend a few minutes a month on this and i truly act like the money isn't there.  what is also nice is that the bank will account for about half of this as being a liquid asset when i have to renegotiate another loan.
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