Let’s look at a scenario. Congratulations, you have always wanted to own a home. But you do not have enough money saved to put down 20%. What can you do?
You are advised that you qualify for 2 mortgages. 1) An interest-only and the normal principal/interest payments. What does this look like?
Let’s go with a traditional 30-year mortgage. You get a 2-year interest-only and 28-year principal/interest; or 3-year interest-only and 27-year principal/interest; or 5-year interest-only and 25-year principal/interest, etc.
Keep in mind, the only money you borrowed from the lender is principal. After paying the lender 2-/3-/5-years of interest, only, how much equity have you built in your home? Are you still on that journey homeownership? When will you begin? You own your home when you receive a Removal of Lien Statement.
This is all you know about mortgages. You don’t have any choice. No, you have choices, but first you have to unlearn all the information you know about becoming a homeowner. Focus on paying back the principal as fast as possible. You will be surprise you can pay the principal in less than 10 years (or at least build a comfortable equity) and pay very little interest overall. Can this help your family build wealth over time?
