9/19/2005
Advice from Nashville's leading Financial Aid Advisor Dave Ramsey
Dave Says
By Dave Ramsey
Author of:
Financial Peace and
The Total Money Makeover
"What about interest-only loans?"
Dear Dave,
What do you think about interest-only mortgages? The idea is that you invest what you would normally pay toward principal over time, and your house will increase in value regardless of principal pay-down. Your investment will grow and increase your overall net worth, as well as giving you flexibility in making payments toward the principal.
Taylor via email
Dear Taylor,
I understand the idea behind interest-only loans, and I think they’re stupid. The best thing you can do is become debt-free on your home as quickly as possible. Live like no one else, so that later you can live like no one else.
This is your HOME. This is where your kids live, and you’re talking about trying to be a day-trader with it and play some kind of shell game. Do NOT monkey around with your house on an interest-only loan. Pay the mortgage off, Taylor, as fast as you can. In all your “sophisticated” analysis you left out the fact that you have exponentially increased risk. And risk can be mathematically entered into the equation, making your supposed gains disappear. Never do an interest-only mortgage!
- Dave
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