Adjustable-rate risk is crucial question

Borrower mislead by interest-only sales pitch

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"I plan to pay off my home loan as soon as possible using an interest-only mortgage. Here are the figures provided by my loan officer: The payment on the 30-year, 5.5 percent fixed-rate mortgage is $567.79 for each $100,000 of loan, of which only $109.46 is reduction of principal. On the interest-only, the rate is 3 percent and the payment only $250. If I take the interest-only, but make the fixed-rate mortgage payment of $567.79, $317.79 of it will be applied to principal. This means that I will pay off my loan much sooner. Right?" I receive letters similar to this one every day, and the number of them seems to be increasing. The pitch is evidently very effective with more loan officers adopting it. Interest-only is hot, and one major reason why is that it is now being sold as a way to amortize a mortgage more quickly. A fascinating thing about the rapid amortization pitch is that it is the exact opposite of an earlier and still popular pitch for interest-only mortgages: that the lo...