Long Term, Interest Only Mortgages?

I heard of a guy who got an interest only mortgage on his house where the rate is ficed for x number of years, then variable, but it is long term (20 years, I think) interest only payments. His rationale is that by the time the 20 years is up (or anytime before), he's going to sell the house and is perfectly happy with reaping just the appreciation without having built up any direct equity. Obviously, these things are designed to get people who can't afford shit into a property with lower payments, and then a lot of times the people get screwed because they hit hard times or can't handle the variables in the rate, but if you have the money to refinance with money down any time and want to buy a property as an investment and rent it out to pay the mortgage as it appreciates, what's wrong with this type of arrangement?

 

Nothing. It's what I have, but I pay extra every month to build up equity faster than I would with a "normal" loan. But the flexibility to not have to pay it is nice.

 

they are designed for property flipping.....you find a property in a growing area and purchase with interest only payments...cause the first 5 years aint nothing but interest anyways....the area grows you sell and walk away.....basically you get to hold use the equity money you would be paying for the time you own the house....say your payment was $2K a month.....interest only payments are around $1600 a month.....that makes sense to me....

long term it really don't make much sense.....

 

It sounds like as long as you don't plan on retiring there, long term is just as good as short, except if the rate becomes variable,.

 

I so disagree......long term interest only means you own nothing.....you are paying almost what the mortgage would be on a 30 year fixed...saving 1/4 of the payment and getting NOTHING in return...once the 5 years is up the payments toward princible start growing and the interest payments decrease.

It is a short term fix...unless you are doing like VP and paying on princible too.

 

I have a 10 year fixed int only that was a point lower than a 30 year fixed.

The rate is 5.125% and will be for 9 more years.

Over 10 years, I'm betting I can earn better than 5.125% in other investments, so instead of having my $$ tied up in a home, I can invest it and have it liquid. The goal is to have the entire mortgage amount in 10 years - if the rates are high - I'll pay the mortgage off. If not - I'll re-fi another INT only and keep my pile growing at a higher rate than the debt, and also maintaining a high tax deduction. In the meantime, I have 9 more years.

Over 10 years on a 30 year fixed, I'd have paid $86k off of my debt. In 1 year since I bought the loan, my equity has increased over $100k. I would have paid off about $6k. In the same year, I have invested about $30k into moderately conservative equities and bonds specifically to offset higher rates if needed. Something about knowing I might need to be ready in 9 years has made me much more excited about investing vs. spending.

It's a game. In 10 years my property taxes will likely be doubled, and in the 30 years I'd have on a fixed loan, my property taxes will be higher than my mortgage was.

I had a talk with a buddy about investment property - not homes. I have no problem having a large mortgage at a low rate on my residence. I would only pay cash for an investment property - I'm too conservative to accept the risk of negative cashflow.

I have to say, at this point, the INT only mortgage for 10 years is one of the best financial decisions I've ever made - next to selling every stock I owned ( non retirement ) summer of 2000 and owning 2 corporations.

However, in 9 years if the combination of:

mortgage rates are double, equity and bond markets crashed, and my dirt has depreciated - I'm fucked.

Then again - I'd be fucked with a 30 year fixed just the same.

 

let's be nosy.....how much are you saving a month with interest only....I am saving about $550.

 

I've been a mortgage broker for years....I do these all the time. Probably the most popular product I'm seeing now is the 30 Year Fixed Rate...with the first 10 Years IO...I think it's a killer product. Most people refinance or move every 6 years.

If you are buying a home that's worth 300,000 and you are putting down 20%(using this number so a second mortgage doesn't have to come into play in my example) and want to pay NO points...30 Year Fixed...your rate would be 6.625% (yes...rates have gone up THAT much as of late...this is actually a GOOD compared to my competitors). Payment would be $1536.75 per month for 30 years...An IO product would be 6.75% $1350 per month. If you pay principal, the loan is recast each month for the first 10 Years. AFTER the intitial 10 years, your remaining balance remains at 6.75% and is principal + interest amortized over the remaining 20 Years.

Would I use an IO product in parts of Atlanta? Southern California? HELL NO...but the lenders actually have placed restrictions on some parts of the country. MY next mortgage will be IO.

And if anyone wants to refinance or buy a house...I'm your man...send me a PM (shameless plug).

 

we need a financial forum..........i love listening/reading this stuff

 

muslams don't pay interest.