When is it best to take a capital only mortgage and when is it best to take a with interest mortgage?

Question

Just realised I wrote that all wrong...I should've said 'interest only' or 'capital and interest'

Just realised I wrote that all wrong...I should've said 'interest only' or 'capital and interest'

Answer 1

Interest only mortgages are usually a sign that you're paying more than you should pay for any property, as in you cannot afford it. The interest rates are higher even if the payment is lower, and the end of the interest only period can often cause payments that rise 50%.

There are exceptions, but I would advise against anyone who's not a seriously sophisticated investor with significant cash reserves against an interest only loan.

The issue that causes interest only is cash flow. For all other concerns, the principal and interest loan with higher payments but lower interest rate is superior. So what happens to you when that temporary (always temporary - nobody does interest only for the life of the loan) advantage of lower monthly payments goes away?

If your answer was, "You become one of those poor victims who take a major loss due to a distress sale!" You win the Prize!

Answer 2

As housing market continues to slump, if you don't plan to delay your plan, please interview several and pick a good realtor or agent.

Bad ones will talk you into buying the largest property at your credit limit. Good ones will find you a good deal (Sellers are offering discount and incentives now).

Try to stay away from Adjustable Mortgage, because 30 year fix mortgage rate is very low right now. There is no reason to use Adjustable loans except fatter commission for loan agents.

Interests only loans are not good iether. Mortgage payment consists of two parts: interests and principal. Interests are like rent, which doesn't add to the equity to your house. It simply disappear as your pay it. If you want to use interests only loans, might as well rent, especially during market downturn, because housing price won't appreciate.

Finally, for tax benefits, talk to your CPA or tax accountant. Do not consult finance with realtors or agents. They get commissions when you sign the check!

Good luck!

http://biz.yahoo.com/brn/060909/19463.html


http://money.cnn.com/2006/09/08/real_estate/caught_in_the_bubble/index.htm?postversion=2006090814
http://money.cnn.com/2006/09/05/real_estate/Ofheo_home_prices/index.htm?postversion=2006090514

Answer 3

The only mortgage that you should ever get is a 15 year fixed-rate interest mortgage. It will cost you a couple hundred dollars more a month, but will actually save you tens of thousands of dollars less to close out than a 30 year mortgage. And the fixed rate means you don't leave yourself vulnerable to rising interest rates or volatile baloon payments.

Answer 4

The two types are principal plus interest (the usual where you are paying off your loan) and interest only (where you don't pay down your loan). In today's market where the prices are dropping, interest only is like a deathtrap. You will never come out OK.

Answer 5

Go for capital and interest every time. It may be more painful in the short term but at least you don't have to worry about any endowment shortfalls.