1% Mortgage Loans… What's The Catch? III

Equity is terrific and is certainly one of the many benefits to home ownership.  But investing in equity will get you a zero percent return. No one is going to cut you a check each month for the equity in your home.  As a matter of fact, if you wanted to get the equity out of your home you would have to sell your home or get a loan.  And you better qualify or you will not be able to get a loan.
So why not take a small piece of your equity each month, turn it into a tax deduction, and at the same time save $1,000 a month for your self? You will still have plenty of equity but with a 1% mortgage loan you will have cash AND equity. If you do this for any length of time you will come out way further ahead financially than if you did a regular 30 year fixed or an interest only mortgage loan.
By the way, if the deferred interest is a concern, try making bi-weekly payments.  Making a bi-weekly payment will reduce, and in some cases eliminate the deferred interest all together.  Which means your mortgage balance would not increase.
How to set the loan up correctly:
1)  The 1% payment option on these loans is only available for the first five years.  But you could actually keep one of these loans for 30 or 40 years.  If you select a 40 year loan your monthly payment will be lower but the payment options will not last for five years.  The name of the game is to keep the 1% payment for as long as possible.  So get a 30 year amortization.
2)  The 30 year, 15 year and interest only payments are tied to an index.  Select a slower moving index like the MTA (Monthly Treasury Average) instead of a faster moving index like the Libor (London Inter-Bank Offered Rate).
So how can you lose with a 1% mortgage loan? Answer- depreciation. If homes in your area are rapidly going down in value, deferred interest could cause you to become upside down in the home. But if your area is experiencing a 3% to 5% rate of appreciation and you save what you save by making the minimum payment, a 1% mortgage loan can have an incredibly positive impact on your financial future.