Principal, Interest or Both
When paying off a house, should you take out an interest-only mortgage or a regular mortgage?
Most financial experts agree that there is no reason to pay off the interest first unless you have special circumstances. Bankrate.com reported, "If there were such an animal as a typical interest-only borrower, it would be an executive who earns a moderate salary and whose main income is from bonuses once or twice a year," says Jim McFadden, program manager for private mortgage banking at Wells Fargo Bank.
With an interest-only mortgage, the homeowner pays off the interest first for a fixed term. After this term, they must refinance or pay off the principal. Payments will increase astronomically. Thus, the homeowner goes from easily affording monthly payments in the interest-only period to possibly not affording skyrocketing monthly payments in the principal period.
As Bankrate.com states, for normal wage earners, it is best to take out a normal mortgage, where you pay off both the interest and principal from the start. That way, your monthly payments always stay the same and you will be able to afford them. Further, if anything happens such as a job loss or other financial crises, you can count on your payments not increasing during a stressful period.