Most homeowners who take out interest only mortgages pay back some of the principal early, a survey commissioned by Wells Fargo Banks Consumer Credit Group. The New Mexico Business Weekly has the story. 

The nationwide survey of 1,300 homeowners was conducted in August 2005 by International Communications Research for Wells Fargo. It had a margin of error rate of plus or minus 2.7 percent, says Mary Berg, spokesperson for Wells Fargo (NYSE: WFC). San Francisco-based Wells Fargo operates 104 banking offices in New Mexico.

Of the 8 percent of homeowners with interest-only loans, 73 percent pay both principal and interest “at least some of the time” and of that 73 percent, 23 percent pay the principal in addition to interest all of the time. An additional 8 percent make principal payments as well as interest payments outside of the standard payment schedule. Only 25 percent pay only interest all of the time, says the bank’s study.

The primary reason given by respondents for choosing an interest-only loan was so they could direct their funds into higher return investments and lower their monthly payments, rather than buying a more expensive home.

Housing appreciates in different ways. If I was holding an interest only mortgage in a declining market, I would probably invest more of my capital in the house to keep it above water. However, if the housing market was appreciating rapidly, I would in turn invest in other things knowing that the home was appreciating and equity was being built. Giving control to the consumer is not a bad thing.

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