Real Estate

Interest only mortgage pros & cons

  • Last Updated:
  • Jun 6th, 2020 11:27 pm
[OP]
Jr. Member
Apr 15, 2009
181 posts
199 upvotes
toronto

Interest only mortgage pros & cons

My wife and I bought a house fairly late in life. Still long time ago so we have roughly 80% equity in it. Now approaching retirement we are questioning should we go for interest only mortgage. With today’s rates this would free up significant money monthly allowing us to enjoy further real estate appreciation, still live in the house and yet we could afford bunch of other things we currently can’t as we pay mortgage. We still would have another 8-9 years of payments if we continued with regular mortgage payments.
Upside is pretty clear, did I miss something?
Downsides - I can’t think of any- give me the disaster scenarios?
Thank you all!
13 replies
Sr. Member
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Jul 25, 2015
633 posts
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Burnaby, BC
If I was in your situation, instead of dragging your mortgage till the last year, I would pay that 20% right now. Forget the low interest. It's only 20% left. The interest you will save it will go a long way on your retirement. And no more loss of income to the mortgage. All the income made and pension will be all yours. But that's my opinion. You do whatever you think its right for you.
Deal Fanatic
Feb 22, 2011
7310 posts
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Toronto
The downside is that you get used to a lifestyle you can't afford and then have to sell your house in retirement if your income goes down. It's easy to say that won't happen but habits die hard.
[OP]
Jr. Member
Apr 15, 2009
181 posts
199 upvotes
toronto
you must have thought that I carry mortgage for fun, but if it wasn't fun, I'd just pay it of?
So then you're telling me it's no fun.. just pay it of.
Silly.. I have mortgage becuase I can't pay of 20% right now. Did it occur to you that while it's ony 20% it could be hundreds of thousands of dollars?
Member
Mar 2, 2017
437 posts
552 upvotes
Markham
mstefa wrote: My wife and I bought a house fairly late in life. Still long time ago so we have roughly 80% equity in it. Now approaching retirement we are questioning should we go for interest only mortgage. With today’s rates this would free up significant money monthly allowing us to enjoy further real estate appreciation, still live in the house and yet we could afford bunch of other things we currently can’t as we pay mortgage. We still would have another 8-9 years of payments if we continued with regular mortgage payments.
Upside is pretty clear, did I miss something?
Downsides - I can’t think of any- give me the disaster scenarios?
Thank you all!
How long do you plan to be alive for? Start here.

Dipping into equity late in your life to sustain lifestyle when your peak earning years are over is a bad idea if your home is your only real asset. Impossible to comment not knowing your exact situation, health, life expectancy, savings, retirement, other debts, etc.
Realtor, Investor, CPA
Deal Addict
Jan 1, 2017
1187 posts
1026 upvotes
There is no interest only mortgage product out there unless you use your HELOC to pay off your mortgage but then you will be paying a higher interest rate than an actual mortgage.
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Feb 2, 2014
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Toronto
ProductGuy wrote: There is no interest only mortgage product out there unless you use your HELOC to pay off your mortgage but then you will be paying a higher interest rate than an actual mortgage.
There are a few lenders that offer interest only mortgages, but the rates are much higher than their amortized loans.
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative
Deal Addict
Apr 5, 2016
4631 posts
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Calgary/Vancouver
ProductGuy wrote: There is no interest only mortgage product out there unless you use your HELOC to pay off your mortgage but then you will be paying a higher interest rate than an actual mortgage.
Check out Home Equity Bank and Equitable Bank. Another word for this mortgage is Reverse Mortgage.
Current Fido and Rogers customer.
Ex Koodo customer.
Sr. Member
Sep 16, 2009
658 posts
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CdnRealEstateGuy wrote: There are a few lenders that offer interest only mortgages, but the rates are much higher than their amortized loans.
Out of curioisity - How much are the rates? If 5 yr fixed is at 2.25 (say) what would corresponding interest only rate be? As a ballpark.
[OP]
Jr. Member
Apr 15, 2009
181 posts
199 upvotes
toronto
bomber17 wrote: Check out Home Equity Bank and Equitable Bank. Another word for this mortgage is Reverse Mortgage.
I believe reverse mortgage is something else.
[OP]
Jr. Member
Apr 15, 2009
181 posts
199 upvotes
toronto
oasis2002 wrote: Out of curioisity - How much are the rates? If 5 yr fixed is at 2.25 (say) what would corresponding interest only rate be? As a ballpark.
Another way of doing this and stay within the conventional mortgage.. take 25 or 30 year amortization instead of 5 or 10 years that I would normally take, would also free a lot of funds ..so I could splurge :)
[OP]
Jr. Member
Apr 15, 2009
181 posts
199 upvotes
toronto
RichmondCA wrote: How long do you plan to be alive for? Start here.

Dipping into equity late in your life to sustain lifestyle when your peak earning years are over is a bad idea if your home is your only real asset. Impossible to comment not knowing your exact situation, health, life expectancy, savings, retirement, other debts, etc.
The plan was not to dip into equity.. rather not to build more equity. as far as how long we plan to live... Very long :) not sure if that matters as I am not sure we are the ones making that decision. Also, the exact situation is this: Once retired, we're ok. But currently, we could spend more money while still working. Having a mortgage when we're 75 makes no difference. we won't be spending that money we could spend now.
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Feb 2, 2014
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oasis2002 wrote: Out of curioisity - How much are the rates? If 5 yr fixed is at 2.25 (say) what would corresponding interest only rate be? As a ballpark.
4% 5-year fixed
Kevin Somnauth, CFA
Principal Broker - First Toronto Mortgage - MA (Ontario #13176, BC #X301007)
Real Estate Salesperson - Century 21 Innovative

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