what do you think about interest only loans?

Answer 1

Interest only loans?

It all depends on your situation, and how long you REALLY expect to be in the house.

Now think about it for a minute, how long have your friends been their house? How many of your friends have changed houses in the last 5 or 10 years? How many of them have refinanced in the last 5 years?

How old are you (just think about it I don’t need an answer)? Most of the folks I know that have had their houses for 15 years or more bought them when they were in their late 30’s or older.

Now lets talk about the differences between a 30 year fixed rate and an interest only note.

What most of the other responders have pointed out that you aren’t building equity in an interest only note. True enough, but consider this a $300,000, 30 year fixed rate note @6.5 interest after 5 years you will owe $280,833.26, after 10 years - $254,329.14 and of the $1,896.20 payment you will be making (Principal and Interest - P&I) still $1,380.41 is interest. True it’s better than the first payment where $1,625.00 is just interest.

On the interest only note (lets assume that the interest rate is fixed) the payment is only $1,625.00 – BUT you can probably write the full amount off (mortgage interest, no principal amount). You get the $271.20 for living. Now true when you move or refi there will be a higher balance (depending on how long it’s been since you took out this loan). But you have had the extra $$ to live on and have received a better tax write off in the mean time.

Last consideration, think about this after 30 years. Assume you bought a house 30 years ago. You would have paid? Lets say $60,000 and today it’s worth $250,000. One way you would own the house free and clear and the other you would only owe $60,000 – on a $250,000 house.

Now we both know that this won’t happen, but if you took the extra money that you saved by using the interest only option and invested it over the 30 years, how close to the $60,000 do you think you could have gotten. If you saved it for 10 years and used that as a down payment to buy a rental property that you rented out for the next 20 years how well off would you be at the end?

And in the end there is no perfect answer. You have to choose what fits your lifestyle and long term goals best. AND remember, if they change you have the option to refi and change your loan to fit.

If you are talking about your first house either might fit your situation, if this will be your retirement home and the rest of your finances are in order, well then I'd probably go with the fully amortized loan.

Good luck

Answer 2

My wife is a mortgage banker and interest only loans are good if you plan on being in the home for a very short time, or plan on refinancing quickly. Otherwise, it's a BAD idea. Too often, people get interest only loans so they can get into a more expensive home, but when the rates change and they can't keep up, they wind up in foreclosure. It's a good way to go for a short term application, but you certainly don't want to keep that loan full term.

Answer 3

Depends upon the type of market you are in and what you plan upon doing with property in an area with high app. 8% plus it's a great idea for flipping even living in for a few years.
Less then 4% app. You may find youself in a situation in two years when you need to sell that you owe as much as the building is worth.
using it to get a larger home in hopes that you will be able to afford the whole payment in a few years can work but most interest only loans ballon after five years so you will have to refinance or sell.
Basically they are good for short term(six mons to two years) investments only.

Answer 4

Great option in today's market. The big bonus is that the interest on your mortgage is tax deductible, so your entire payment except for insurance is tax deductible! In many places in the USA your property will appreciate fast enough to make it worth your while.
Many of you are confusing interest only loans with adjustable rate and negative amortization loans. You can have a 10 year interest only ARM. I don't consider 10 years a short time.

Answer 5

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Answer 6

They are a waste of time. You are never paying principal on your house. You will have that loan forever. They are just a marketing ploy to get people into houses that they can't afford anyway.

Answer 7

The road to financial nightmares is paved with interest only loans. Run away! Run away!

Answer 8

its good for 100% financing deals to help lower your payments. Only use it if you plan on doing a refi in 2-5 years. then go into a fixed.

Answer 9

Good if you are in a good market and don't plan on being on the property long. Other than that, its a crapshoot.

Answer 10

It's for suckers who want to live beyond their means and never actually own anything...sorry, but it's a sucker's bet.