Interest-Only vs. Principal & Interest: The Price of Procrastination

The Illusion of Affordability

HELOCs are seductive. The ability to borrow $50,000 and only pay $350/month makes them feel like "free money." This is the "Interest-Only" trap.

When you make an interest-only payment, you are renting the money. You aren't buying your freedom. 10 years later, you still owe the bank $50,000.

Scenario A: The Minimum Payer

• Loan: $50,000
• Rate: 8%
• Payment: $333/month (Interest Only)
• Total Paid over 10 Years: $39,960
• Balance Remaining: $50,000
• True Cost: You paid $40k and accomplished nothing.

Scenario B: The Principal Attacker

• Loan: $50,000
• Rate: 8%
• Payment: $600/month (Principal + Interest)
• Result: Loan is paid off in ~10 years.
• Total Interest Paid: ~$23,000
• Savings: You saved $17,000 in interest compared to paying minimums for eternity.

When Does Interest-Only Make Sense?

It is not always bad. It is a tool.

• Flippers: If you are buying a house to fix and sell in 6 months, interest-only maximizes your cash flow during the project. You pay the principal when the house sells.
• Short-Term Cash Flow Crunch: If you lost your job, switching to interest-only for 3 months can save your budget. Just don't stay there.

The Hybrid Strategy

Commit to a "Fixed Payment" in your own mind. If the minimum is $333, set your auto-pay to $500. It doesn't hurt much, but that extra $167 attacks the principal relentlessly, reducing your daily interest accrual.