another reason to not go in debt...

"the % this bank wants to write it currently is 8%. that is only for a 5yr fixed, then 20 year ARM. this sounds very bad to me, given the current interest rates, and if they go sky high in 5 years (and I am doubting they will stay or go lower), we'll then have to lock in a rate at that time no matter what. we want at least a 20, maybe 30 yr fixed, and plan to pay off early. so even writing it at 15 yrs would be a possiblity, if given the chance!!"

5 yr fixed and 20 yr ARM. No way, at any rate. And 8% on fixed are they kidding. I'd definately be shopping banks. If you have a good credit score and the house appraises for what it needs to, you shouldbn't be having a problem. I wish you luck. You need to get away from your bank. I don't think an interest only loan is ever a good thing. Around here we call them "Evergreen loans". They never change, never get paid off. And just look at folks who have ARM's, payments always go up (sometimes to an unaffrodable level) I know Bankrate.com recently quoted mortgage rates around 4.0%.
I was able to refi my 30 yr loan (@ 5.875%) down to 15 yr fixed @ 4.0%. Raises my payment a little bit, but I pay extra anyway now. Time is of the essence when you are about to turn 48 : )

i will NEVER do business in that bank again. and i am still making calls, well, right now waiting for return calls. this is no fun, and like i posted.... another (VERY GOOD) reason to no go into debt.

they played us good, using the fact we had never done this before to trip us up. and we went to church with these ppl!!!!