looking to cut down my monthly payments on home loan. i will probably be living in the house for a max of 5 years. is an interest only mortgage financially wise? i have about 100K equity in home.
2007-03-05 04:32:53 · 7 answers · asked by roxiemack 1 in Business & Finance ➔ Renting & Real Estate
as long as you pay all the interest due, you won't lose any equity on an interest only loan. if you really need to cut your monthly expenses, this can be a great option.
2007-03-05 07:00:13 · answer #1 · answered by Anonymous · 0⤊ 0⤋
Well, stop and take a look at what you are doing here.
You'll probably spend $3-5K at least on the refinancing costs, most likely being added to your balance. It could be much higher.
And from that day on, until you sell, your balance will remain at the same level.
How much are you really saving? $200? $500? Will you change your spending habits or simply find new ways to burn the money?
Please remember, much of what you are saving by taking the interest only loan is what you are actually NOT saving by paying down the mortgage balance every month. It's no different than putting that money in the bank. Second, you lose most of that benefit by increasing your loan amount to cover the closing costs.
Is there other debts being consolidated? Could you achieve most or all of the monthly savings by simply getting a lower rate home equity loan? At least with that, you pay little to no closing costs, keep paying principal on your mortgage, and will probably be able to save close to the same amount monthly.
A truly ethical loan officer should be able to clearly show you the true cost of this refinance over the next 5 years. In the end, I doubt it would be your best solution.
Are you even dropping in interest rate? If not, you are just losing money on this right out of the gate.
2007-03-05 04:48:16 · answer #2 · answered by Yanswersmonitorsarenazis 5 · 0⤊ 0⤋
Interest only loans are almost never a good idea. If you are trying to cut down your mortgage payment in order to afford a more extravegant lifestyle, then you are undermining your financial well-being and lengthening the amount of time it will take you to become financially independent (where passive income from investments exceeds your desired expenses).
The only time I'd do an interest only loan is if I was close to paying off the mortgage. I'd get an interest only loan but pay 3-4 times the required payment, thereby paying off the home in a few short years and saving thousands of dollars (if not tens of thousands) in interest. Even if you DO have both the desire and the discipline to save/invest the money you wouldn't be spending on your mortgage payment, it's a dangerous set-up.
Also--What if you can't sell in 5 years? What if interest rates skyrocket? What if you can't refinance because something beyond your control shakes you financially and/or ruins your credit?
2007-03-05 05:04:58 · answer #3 · answered by lizzgeorge 4 · 0⤊ 0⤋
You may be interested in this new program. It works well with a 30, 20, or 15 year mortgage. I am currently using a HELOC (home equity line of credit) with a new software program that helps build equity fast, and will payoff my home and other loans in less than half the time without refinancing, and without extra payments. It is saving me thousands in interest, and pays off home in less than half the years. Those who take an honest look at all the facts and figures from a reputable source will find that this system truly creates a significant advantage for homeowners. E-mail me if interested.
2007-03-05 13:37:37 · answer #4 · answered by marshae 1 · 0⤊ 0⤋
interest only can be a great deal-or a terrible one. There are lots of factors to consider, such as:
* what your current rate is vs what rate you can get to refi
*what kind of credit you have
*current value of your home vs market "trends" in your area...in some areas property can actually lose value!
*equity you have in the home
*TRUE advantage of the loan - meaning this: is the new loan TRULY beneficial to you? Do you save enough over the 1st two years to absorb the closing costs? Can you pay some other debt off in the process and lower your payments even more?
2007-03-05 04:51:42 · answer #5 · answered by SuperMom22 3 · 0⤊ 0⤋
I would normally never recommend a interest only loan. But, in your case if you truly have $100,000.00 in equity and plan on moving in 5-years, it is a good way to lower your monthly payment.
2007-03-05 04:44:13 · answer #6 · answered by ? 7 · 0⤊ 0⤋
It's probably okay; as long as you're not in an area that has experienced unusually high appreciation. Lots of folks on either coast and other high-growth areas are experiencing a downturn in home prices. Take a good look at your financial situation and assess how much of a loss you can afford to take upon selling.
2007-03-05 04:43:14 · answer #7 · answered by Rob D 5 · 0⤊ 1⤋