Would you use this type of payment for your rental?
2006-12-09 08:16:39 · 6 answers · asked by Rachel T. 2 in Business & Finance ➔ Renting & Real Estate
There is no advantage. You're buying more house than you can afford.
Any house that is more than 25 percent of your take-home pay on a 15-year fixed rate mortgage is out of your price range.
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2006-12-09 08:25:16 · answer #1 · answered by Sir J 7 · 1⤊ 0⤋
Couple of disadvantages...One is the rate is slightly higher when you add an interest only option. The other is you will never pay the loan off unless you send in additional payments.
A couple advantages are... lower monthly payments than principle and interest payments. Another is if you were looking to obtain as much property as possible on a budget, this would allow that.
2006-12-09 16:31:38 · answer #2 · answered by homes_az 2 · 0⤊ 1⤋
The main advantage is that you keep your loan balance the same, while making the lowest possible payment possible.
The disadvantage is that you do not chip away at the principle balance of the loan; the balance just stays flat.
I think this type of loan is ideal for a rental property, since the equity will be building up anyways, using an interest-only payment will maximize your rental profits while keeping your loan balance the same.
Visit www.WestCoastHomeMortgage.com for more info on specific loan types.
2006-12-09 16:22:06 · answer #3 · answered by Anonymous · 1⤊ 1⤋
The advantage is that you are only paying on the inerest of the loan - which will equate to smaller monthly payments, and total control of your equity. In a traditional loan, you build equity in your house. A lot of people think this is a good thing - and it is if you are not an educated investor, and want to keep it somewhere safe where it won't be spent on liabilities (like that nice new pickup truck, or those jet skis, or a new RV...). However, if you are an educated investor, you know that your equity is money that is just sitting there. You are paying towards your equity, the bank is taking that money and investing it and making money off of it. It is not benefitting you - matter of fact, it may be losing value as inflation occurs over time. With an interest only loan, you have control of your equity until such time as it is necessary to start paying it back (after the loan interest is paid).
Understand, this is not a tool to be able to afford a larger house. Alan Greenspan pushed for us to have more options, because millions of dollars were being lost by the average American due to limited mortgage options. He did not intend for us to buy the biggest house we could using these tools - you could be setting yourself up for disaster. Especially if the value of your house drops - then you will be stuck with a house that you can't sell because you don't have enough money tucked away to make up the difference.
2006-12-09 16:32:06 · answer #4 · answered by Christopher B 6 · 1⤊ 1⤋
The advantage is a lower monthly payment. The disadvantage is the loan principle is never paid and you still owe the entire loan balance.
2006-12-09 16:21:32 · answer #5 · answered by Anonymous · 1⤊ 0⤋