Interest-Only Mortgages

Reader Question: Can you explain interest-only mortgages? Are they a good idea?

dave_ramsey An interest-only mortgage is just what it sounds like. You’re paying only the interest on the loan, and none of what you actually owe. It’s a good way to stay in debt for the rest of your life, so they’re not a good idea.

Lots of people look at this product and say, “Wow, I’ll get a lower monthly payment, and then I can throw tons of cash at the principal.” Guess what, in most cases it doesn’t work out that way. Why not take out a good 15-year fixed rate mortgage and put a bunch of money toward the principal? Everyone thinks they have a great idea for tricking the system. But the only system that really works is to pay off debt as quickly as you can.
Interest-only mortgages are like adjustable rate mortgages and high fixed rate mortgages — they’re good things to stay away from completely!

Dave Ramsey

Dave is the author of The New York Times best-selling book Financial Peace. He is also the host of the nationally syndicated The Dave Ramsey Show, and is a regular guest on television. All of his financial counseling is based on biblical truths. You can hear Dave from 9 a.m. to 11 a.m., weekdays online at www.daveramsey.com. Send your questions toaskdave@daveramsey.com. He resides with his wife Sharon and their three children, Denise, Rachel, and Daniel, in Nashville, Tennessee.

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