Guys lets get back to basics. Most of you here can skip this post.
When you hear people refer to a 30 year fixed rate loan, (amortized over 30 years) then the following applies; Your monthly payment is a combination of interest and principal. 30 years at 12 payments a year equals 360 payments. When you sign your loan docs you will see an amortization table. This table shows how much interest you pay each payment. You see that with each payment, you will see a bit more of the payment (a tiny tiny bit) be applied to principal compared to the previous payment. Why? Because the lenders want all or as much of the interest paid up front as possible.
Now I will refer to a 10 year interest only loan. This commonly means that you pay a FIXED rate that DOES NOT change or reset for 30 years. The difference is that for the first 10 years you do not pay any principal. You only pay interest. So your monthly payment for the first 10 years is lower then the loan I discussed above. Now after 10 years your payment will go up because you will start paying the principal.
What else is different? Well the biggest difference is the interest rate. The 30 year standard loan will be at a lower rate the then I/O loan. On the average 3/8% more. So your payment will be lower for the first 10 years of the I/O loan BUT over the life of the loan you will pay more sheer dollars in interest.
The moral? It makes NO SENSE AT ALL to get an I/O loan but to pay the principal on it for the first 10 years. Simply get the 30 year standard fixed rate loan and save some money.
