Actually, investing that money would be better than paying principal over the long-term. Paying principal on a 30 year amortized mortgage doesn’t make a hill of beans difference in a soft market - you still only pay a few hundred to principal anyway. Why NOT do interest only?
The problem is that they have no reserves, no rainy-day fund - and that would have still been true with a 30 year fixed mortgage.
> Why NOT do interest only?
> The problem is that they have no reserves, no rainy-day fund - and that would have still been true with a 30 year fixed mortgage.
You answered your own question: because an interest-only mortgage encourages people to ignore the other real financial consequences of a house. If they had calculated the payment they could afford, then gotten an interest-only mortgage where the payment matched the interest payment of the mortgage they could afford, and they invested the rest as you describe, that would be fine — but how many people do that? The purpose of an interest-only mortgage in the industry is to encourage people to buy bigger and more expensive homes that they would not be able to buy otherwise.
Yes, the people brought this on themselves — by taking the advice of people who had vested interests in making the deal go through, regardless of the consequences. But it sounds like this pair won’t have any actual problems — their horizon is far enough out, and they make a pile of money (apparently.) The real question would be somebody in the same situation who’s just barely making it, who took the same bad advice.
This is the same deal as the credit card companies. Yes it’s the responsibility of the people who buy things — but if the consumer is the Eve who ate the apple, the companies are playing the part of the serpent who talked her into it.
15 year mortgages make much more sense than 30s.
No, they problem is they still don’t know if they will be able to afford the Jumbo or if they will be able to refinance in 2010. Nice incomes or not, they still may lose their home.