Interest Only Loan-Time to sell??

Question

Let's say that you purchased you home for 200,000. You got a interest only loan and paid just interest for 4 years. You decide to sell and the value of your home now due to upgrades is now 235,000. Let's say you sell it for 35,000 more than what you purchased it for. Due to the fact that you have not paid principle do you get to see any of that 35,000 in equity?

Answer 1

ABSOLUTELY, but you also need to realize that any expenses you incur for the sale of the home will be deducted from the $35,000 (Realtor commission, closing fees, etc). And the bonus is that a month or two later you will get another check from ending your escrow accounts associated with the property

Answer 2

Many people mistakenly believe that because they have spent $35K on upgrades that the value of the home has been increased by $35K. This is rarely true.

Also, in many markets in the US the value of homes has gone down over what it was 4 years ago. People are having a very hard time selling homes that are not worth as much as they owe.

My advice to you would be to get an appraisal done. The appraiser will give you a price based on comparable homes in your area. A Realtor will do a CMA for free, but they often use out dated numbers to get a higher price, and therefore a higher commission.

Answer 3

If you have an interest only loan, the only money that you will see is for appretiation of the property, meaning the increase in the value of said property. If the property goes down in value, however, you could actually lose money on the home. You also need to account for closing costs when you are selling...if the amount you gain is less than the closing costs, you will again lose money on the transaction.

Answer 4

You really don't have equity in the home if the upgrades are the only thing you can base your selling price on. Besides you are coming into a balloon payment sometime soon and if that is what you are worried about its almost too late to sell.

Answer 5

If you actually sell it for $235K, then yes, you get that amount, minus sale expenses. Your loan balance would still be $200K and that would be taken first from the proceeds, then things like realtor's commission and any seller-paid closing costs. You'd get to keep whatever is left.

Answer 6

Maybe, maybe not. Depends on the balance of the mortgage at time of sale. If you can sell it for more than the mortgage balance, you're very lucky. There are alot of people out there that aren't able to. It's better to sell to pay off balance, to save your credit rating for future purchase.