I am thinking about investing in a rental home (I will be renting it out), but due to the fact that I am a novice, I do not know if I should go for a interest-only loan. What are the advantages/disadvantages?
Anything will help. Thanks.
2006-12-11 03:20:56 · 5 answers · asked by oasisdaniel 2 in Business & Finance ➔ Renting & Real Estate
Interest rates are often variable with Interest only loans. If your payment is $500 a month on an interest only and $700 on a 30 year fixed, when interest rates go up your payment could increase to $700 a month (or more), so you could be making the same payment and not gaining equity in a paid of mortgage.
Also, you will be in debt forever. $500 a month for the rest of your life is...
In investment property you should strive for cash flow and equity, all of which is achieved greatest when your property is paid for.
2006-12-11 03:31:49 · answer #1 · answered by CP 4 · 0⤊ 0⤋
It is a good loan if you choose the length wisely. If you plan on holding on to the property till retirement then you should get a 30 yr. fixed. If you plan on holding for 5 years with a positive cash flow then sell; it is a great idea to get a 5 or 10 yr interest only. Why would you pay a higher interest rate on a 30 yr plus and a higher payment if you plan on investing for the short term.
2006-12-11 03:56:12 · answer #2 · answered by tianaramal 4 · 0⤊ 0⤋
Interest only mortgages can be a great help to someone who is looking to minimize monthly payments, but beware. An interest only loan will fully ammortize in 60 months or 5 years, depending on the particular product your mortgage consultant advises you to purchase. Be sure that you have a plan to refinance after the 5 years, or that you will be able to make the payments at that time.
2006-12-11 03:34:06 · answer #3 · answered by mortgage_loan_98 1 · 0⤊ 0⤋
Advantages - your payment initially will be very low compared to fixed rate mortgage so if you decide to rent the property out your monthly cash flow will be higher.
Disadvantages - after the adjustable rate period your payment will balloon up to where you won't see any cash flow and you will be forced to sell or exchange the property, if you can't, then you'd be stuck with high payments.
Hope this helped
2006-12-11 03:26:00 · answer #4 · answered by romasuave1 2 · 0⤊ 0⤋
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2016-12-30 06:30:50 · answer #5 · answered by Anonymous · 0⤊ 0⤋