Interest only loans?

[silverram03]

Getting ready to buy my first house and was just curious how this works, as it may be a viable option until my truck is paid off.

 

[FATCAT]

I'm supprised that P. T. Barnum didn't think this type of mortgage up over a 100 years ago. Its the same thing as renting, except you THINK you own the house. I would NEVER IN A MILLION years go with this type of mortgage ... you have no equity at all!



The only ones who benifit with this type of morgage is the bank.

I would recommend (and its my opinion and we all know what they are worth), either waiting to pay off the truck and save some more money for a down payment a few years from now -OR- and this would hurt, but it depends on how much you want a home ... sell the truck and pay off what you owe on it and used the rest as a down payment towards a real equity building mortgage.

 

[Timbeaux38]

'The only good reason I can think of to get one of these loans is if you have some good money down, the house is in a growing area, and you only plan to stay 2-4 years. You will not loose money on the agent's commission when you sell, because the value of the property will have increased.

 

[RustyJC]

I would never take one of these loans out (I own what I have), but not mentioned at this point is the tax advantage of being able to deduct mortgage interest and real estate taxes from Federal income taxes versus no deductability for renting.



Rusty

 

[scootergmc]

TIMBEAUX's got the idea...



I have one. But it has catches. Of course, I don't plan on living in this same residence more than 4 years. My house has gone up in value about $150,000 since buying it in 2002. I don't recommend it for a first loan, I recommend it after a re-fi when you KNOW housing prices have/are going up in the area and they will stay there and you're not going to live there for the rest of your life. That's what I did.

 

[tractorface]

I don't have one but...

Wish I had done it! Some of you guys don't live in areas with explosive housing prices. I am still kicking myself for not doing it. I have huge equity because of two previous home sales and should have done an intrest only to free up enough cash to buy another just to sell. Now if your doing it to pay for something like a truck, sell the truck. I agree if used as a Credit card it is a bad idea unless you are confident the prices are increasing dramatically (which they have been in many areas) Think about it. I live in MD but was very close to buying a new house in Boulder City because I wanted to move. That thing has gone up 100% plus since 99'. If Intrest only was an option I would have made a killing.

 

[silverram03]

Thanks for all the replies. As for selling the truck, forget it. At the current rate im saving it will be paid for in December. And I will still have enough for 5% down in my current price range. I just wanted to see if everyone thought the same as I did about this type of program.

 

[PRyker]

I think an interest only loan is good for folks who want to consolidate debt. Say you have two credit cards, two car loans and a personal loan. You can get an interest only loan for ONLY the amount you owe on your exisiting mortgage. It will reduce your payments considerably. Now take the additional cash left over each month that you would of used on the original higher payment mortgage and pay Ccards and other loans off more quickly. Once you are debt free with the exception of the interest only loan then you can refi it with a conventional loan at the lowest rate possible since you now have no debt and a good credit score. Or just pay as much as possible extra each month towards the principle.



I thought interest only was crap too until I found out you can still pay the principle, you just have to add it to the monthly payment and specify it is for principle only.



Phil

 

[mgoncalves]

I thought interest only was crap too until I found out you can still pay the principle, you just have to add it to the monthly payment and specify it is for principle only.



Phil

That's the key. You can pay off an interest only loan just as fast as a conventional loan if you want to. They are not a scam.



Matt

 

[JSykes]

I am closing on my house (re-finance due to divorce) Friday and going with a 6 month LIBOR interest only loan. I plan on remaining in this house for another 2-3 years.



A 30 Year Conventional Fixed with 5. 375% interest has $176 applied to the principal every month. Now taking the same total payment for the 30 year and applying it to a 6 month LIBOR at 3. 625%, I will be applying $339 to the principal every month. I know they interest rate will vary, but I will still be applying almost twice as much money per month to the principal as compared to a 30 Year. Not a bad deal in my opinion.



True, the key is to make the payment to the principal every month. Otherwise, you gain nothing. Not sure how I would like an interest only loan for a full 15 to 30 year term. Will have to do a cost analysis on it.