AgentMortgage

Interest-only loans often sold on false promises

Costs and risks higher than comparable fixed-rate loans
Published on Jun 30, 2008

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by CareyBot

One of the fairy tales borrowers frequently hear is that a loan carrying an interest-only (IO) option is priced better than the same loan without the option. It is a fairy tale because the IO allows the borrower to avoid paying down the loan balance, which makes it riskier to the investor, and greater risk should mean a higher price.

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