We have an Iterest Only 80/20 Loan that is a 5/1 ARM. It is our first home and is a condo and we have lived there 1 1/2 years. Our interest rates are 6.1% and 7.5%. We are planning on selling within the next 3 years max. I've heard you only pay interest anyways your first few years anyways so this loan is ok?Should I refinance? How does all of that work?
2007-02-28 08:10:02 · 6 answers · asked by tinnisk 1 in Business & Finance ➔ Renting & Real Estate
Absolutely do NOT refinance. Both rates are perfectly good, and will remain so as long as you own the property.
Taking a new 5/1 IO loan today, you'd end up with an almost identical rate. 30 year fixed, about the same too.
So, if you can't save money by refinancing to a lower rate, which you can't, and you'll be out of the home before your rate adjusts, there is no possibility of saving any money.
And you can always add extra to your current mortgage to pay down the principal. Even if you have a prepayment penalty, they only kick in if you pay more than 20% of balance in a single year.
Your loans are good. Leave them be.
2007-02-28 08:59:23 · answer #1 · answered by Yanswersmonitorsarenazis 5 · 0⤊ 0⤋
This loan probably was not that good when you got it, but for now it seems OK. At least if you tried to refinance it you would not get anything better. The fact that this is an interest only loan still does not prevent you from paying a little bit of principal, and I highly recommend you start doing it. Whenever you have any extra money send it to the loan that has 7.5% interest. If both interest rates are fixed for time being, then do not try to refi them, just pay a little extra whenever you can. It makes a lot of sense. Say if you pay $100 extra on the loan with 7.5%, then next month you pay $.62 of interest less. Then you pay another $100, so in one year you will be paying $7.50 less in interest every month. So, if you keep making the same payment (with extra 100) the principal will go down 108.00 every month, actually that number will get better every single month. When you sell you place 3 years later, you will owe about 4,000 less, hence get that much more at closing, and will have more for down payment on your next house.
P.S. It is a common misconception that you only pay interest first couple of years on your mortgage. You pay interest on amount you owe, everything else goes to principal. So, when you owe more -- more goes to interest and less to principal, as balance goes down and payment stays the same, less goes to interest and more to principal.
2007-02-28 08:31:17 · answer #2 · answered by Alexander K 3 · 0⤊ 0⤋
Sounds like you have a good loan. If you want to pay extra toward the principal you can do that in any month to bring down the principal balance. But if you are planning on selling within the next 3 years it is not that big of a deal. You will want to check on the current value of your home to ensure you have equity as there will be cost involved in the sale. I wouldn't refinance as you won't get a significantly lower rate and it wouldn't be cost effective at this point in the game.
2007-02-28 09:19:44 · answer #3 · answered by flamingojohn 4 · 0⤊ 0⤋
Only if you can get a better rate that is sufficient to offset the cost of the refi, which is very unlikely, and probably impossible, since you plan on being there for such a short time. Since you are going to sell before your floater adjusts, you don't have to worry about interest rate risk.
The people who say that IOs are a bad idea are too stupid to realize that the mortgagor almost always has the right of prepayment- in whole or part. This lets you payoff as much or as little principal as you want each month. Consequently, if you don't want to pay off any part of your loan, that is your choice.
The people who say that ARMs are bad- even when interest rates are expected to rise are too stupid understand basic fixed income mathematics, let alone more complex theories of interest rates.
Finally, most people are too stupid to figure out if and when to start/continue paying extra principal. All else being equal, you pay off your debt with the highest marginal or opportunity cost first- even if that means paying nothing extra on your first mortgage.
2007-02-28 08:31:46 · answer #4 · answered by Homer J. Simpson 6 · 0⤊ 0⤋
Interest only loans are not the best to have, however, if you are planning to refinance or sell the house in the next couple of years, then it is fine. Just be aware that you are not contributing anything at all to the equity in your home.
2007-02-28 08:14:34 · answer #5 · answered by lyllyan 6 · 0⤊ 0⤋
A credit is consistent with a 12 month interest and is going up 5 to 10% according to month offering you're paying on time. you're able to pay off all credit taking part in cards as a fashion to start to rebuild your credit. there is not any way getting around it.
2016-10-16 23:15:08 · answer #6 · answered by ? 4 · 0⤊ 0⤋