Interest Only for Working Capital?

Gary wants to move somewhere smaller and cheaper. What kind of loan should he get?

QUESTION: Gary is planning on moving into a smaller, cheaper home in a few years and wants to know if he should pay interest-only on his current house during that time.  This will give him more “working capital.”

ANSWER: No.  Here’s why: if you’re home was paid for, would you borrow against it so that you could have working capital over the next few years?  Then don’t do interest-only payments on your mortgage now.  You’re basically not paying on your house, you’re just paying interest.  When you sell your house, you’ll get the money at the closing if you’ve paid off your mortgage. 

Keep paying on your house, pay it off, get the equity when you sell it, buy the new house with cash and you’ll have some left over for working capital.

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