Mellody Hobson: Interest-Only Mortgages
June 4, 2005 -- -- What is an interest-only mortgage?
With an interest-only mortgage, monthly payments are lower because the borrower is only paying off interest, not principal during the early years of the loan.
For example, according to The Boston Globe, the median home mortgage in the Greater Boston area is around $350,000. Under a traditional 30-year fixed-rate mortgage, a homeowner pays almost $1,800 each month. With the same mortgage under an interest-only arrangement, a homebuyer can expect a monthly mortgage payment of roughly $1,350. That translates into an annual savings of $5,400. Multiply this by five or seven years and people don't want to pass this deal up.
Why are they appealing?
These loans are appealing for a number of reasons:
Related Stories
ABC News Live