Money magazine, January 2008, pages 60 - 61, "Retirement Plan Interrupted":
Single person, age 21, makes $77,000 a year as a school psychologist (southern California),
purchases a $600,000 duplex.
7.8x her current salary.
For 3% down.
With a 40 year fixed 5.1% loan.
With the first 10 years being interest only.
Her payment now is $3,000 / month. It will go up to $4,000 / month after the interest only portion expires.
Math follows:
With the interest only, her monthy payment is 46.8% of her gross income.
When she starts paying principal (how old-fashioned!
), her monthly payment will be 62.3% of her current gross income! (hmmm, no heart attack emoticon...) Granted, that is ten years in the future.
She is renting out the second unit for $1,100 / month, which changes the percentages to 29.6% and 45.2%. Still not something I'd recommend.
Of course, ten years ago, the general perception (not here, general American society) would have been that she's a freakin' genius. Now, with prices down 3% (oops, equity gone!) and expected to drop 9% next year (oops, NW just went from $83,000 to $29,000!), not so much...