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Finance: What is Interest Only Mortgage? 17 Views
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Description:
An interest-only mortgage is a mortgage on which you only pay the rent on money borrowed, rather than on the principal.
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Transcript
- 00:00
Finance allah shmoop what is an interest only mortgage Well
- 00:07
simply put it's when you only pay the rent on
- 00:10
the dough you borrowed you don't pay down the principal
- 00:14
you owe like if you have a three hundred thousand
- 00:16
dollars mortgage at six percent interest you're paying eighteen grand
Full Transcript
- 00:19
a year to rent that money in six percent times
- 00:22
three hundred rands eighteen grand a year But the principal
- 00:25
you borrowed is likely due in thirty years So in
- 00:28
theory anyway if it were a normal mortgage you'd want
- 00:32
to pay down the principal little bit a month as
- 00:34
you go along like averaging ten grand a year in
- 00:37
principle pay down over thirty years That's times ten grand
- 00:41
right three hundred grand their total owning your home at
- 00:44
the end yeah yeah priceless that's what holmes work So
- 00:47
why would you want an interest only mortgage Well for
- 00:51
one thing the monthly payments or less so maybe you
- 00:54
could afford morehouse If on a thirty year three hundred
- 00:57
thousand dollar loan at six percent you're paying interest only
- 01:00
while you're writing a check each month for eighteen thousand
- 01:03
divided by twelve or fifteen hundred bucks maybe that's all
- 01:06
You can afford well the extra five hundred bucks arm
- 01:09
or you'd right toe pay down your principles Just not
- 01:12
something you can really do right now Maybe after three
- 01:15
years of scrimping and saving well you'll be able to
- 01:18
start paying down that principal reducing risk and making life
- 01:21
easier all the way around But right now you can't
- 01:24
afford it so the only thing you can do is
- 01:26
do the interest only dance Well the other reason you
- 01:28
might want an interest only mortgages that interest costs are
- 01:31
tax deductible Principal pay down costs are not so if
- 01:37
in a given mortgage payment of say eighteen hundred bucks
- 01:40
a month where three hundred of it is principal pay
- 01:43
down and fifteen hundred of it is interest well on
- 01:47
ly the fifteen hundred is tax deductible That three hundred
- 01:51
of pay down is not And if you're a forty
- 01:53
percent taxpayer the government is essentially picking up the tax
- 01:58
savings on the fifteen hundred times a forty percent at
- 02:02
six hundred dollars in interest You're paying such that they
- 02:05
quote feel unquote like the fifteen hundred is really only
- 02:10
about nine hundred a month in cost to you the
- 02:13
three hundred bucks and principal paydown feels like a full
- 02:16
three hundred dollars So some people seeking tio optimize their
- 02:19
tax deductions live in the world of interest only mortgages
- 02:23
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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