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Thelma Said:

How much can I expect back in a tax refund If I am deducting 100% of my interest only mortgage payment?

We Answered:

We would have to know how much you payed in to answer that. Assuming all of the $1200 mortage payment was interest and that none of that went to an escrow account for PMI or real esate taxes (which some of it probably did) you adjusted gross income would be $32,300 ($50,000-Itemized dedution 14,400-3,300 exemption).
That means you owe $4,626. Anything you paid in more than that would be a refund. If you paid in less than that over the year you would owe taxes.

Elaine Said:

Will a interest only mortgage loan effect my federal tax return?

We Answered:

No - you still get to deduct the mortgage interest and points (if any) if you itemize.

Marcia Said:

In my situation is an interest only mortgage right for me?

We Answered:

You neglected to mention the interest rate on your new loan. Is that because the broker isn't giving you a clear answer on it?

And I don't know what you owe on your existing mortgage, cars and credit cards, so I can't tell what your new payments would be either.

What are the closing costs?

What I do know is this: You sound like you will be financing close to 100% of the value of your home, at it's present value. If you are getting one loan, it's likely to be a "sub-prime" type of loan, which in almost every case would have a pre-payment penalty. The penalty period almost always is as long as the fixed-rate period. So, if you sell in 2-2.5 years, would the penalty apply? Sometimes they are required only if you refinance and not if you sell, sometimes if you sell also.

You have a good fixed rate loan right now. If you were to take out an equity loan, you might pay little to zero in closing costs, which could save you $7-10,000 right there. Which can easily offset the $200/mo. you're saving monthly for the next two years, even if you just put that cash in the bank and used it to pay the payments!

It really feels like you are being led down the wrong path. It's impossible to know for sure with the limited information here, but I'm 98% sure this is a bad idea, one that pays the mortgage broker and gives you little real benefit.

You are welcome to email me through here, I'd be happy to run through the fine points with you. Free expert advice at no cost to you, I'll give you my completely unbiased opinion, or how I usually put it, "If you were my mother, here's what you should do".

Tyler Said:

Whats the difference between paying Rent or paying an interest only mortgage?

We Answered:

If you can afford to switch to a Repayment mortgage then I would probably do that now, while interest rates are low. It will help in the long run to start paying off capital as soon as you're able to

Geraldine Said:

What is the difference betwee Principal & Interest and Interest only mortgage?

We Answered:

P&I is where you are paying both the interest and the capital of the loan. IO is where you are only paying the interest incurred by the loan. Obviously an IO loan will have lesser repayments but you are not actually paying anything off the property itself.

Frances Said:

Should I get an interest only mortgage instead of a regular mortgage?

We Answered:

I would never get a interest only loan. Can you not afford to pay back your student loan and the regular fixed 30? If so, do so and just cut back on the extra luxuries. If you pay interest only, you'd might as well rent because you are building almost no equity other than that which accumulates from market growth (which may be negative over the next few years). Also, many interest only loans have you make a payment that is sometimes less than the actual interest rate for the first two years. By year three you may have paid on 2.5% interest even though you were accumulating 6.5% interest and you end up with negative equity at a rate of 4% per year. So, I would stay clear of interest only loans.