This is a good question. I was thinking of getting a 10yr I/O variable rate mortage for the home I just purchased. I would have saved about $350 month for 10 years, which ended up being about 42k. I did put 20% down on this house, and bought the house at about 30% off peak(Bank owned, put in a lowball offer). I felt that by going interest only, after 10 years, I would be fine, and the house would appraise for about what I paid for it. I would still have the 20% of equity in the house that I initally put in there. So I would have not much problem refi’ing.
Well after much thought, I elected to lock in a 30 yr fixed at 6%. I made this decision based on the assumptions the rate may be up to 8% or higher, and who knows if this housing market will recover in 10 years.
