| Interest Only Mortgage Loans |
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Nikita771
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| Interest Only Mortgage Loans |
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Does anyone have any personal experience with one of these loans?
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Tue Aug 30, 2005 12:40 am |
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joseanes
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| Re: Interest Only Mortgage Loans |
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quote:
Originally posted by Nikita771
Does anyone have any personal experience with one of these loans?
I don't, but feel very wary about them.
I worry that people will start taking more loans than they can handle.
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Tue Aug 30, 2005 4:31 pm |
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chiron
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Rather agree with joseanes there - it sounds "good" over the phone, and it can make some sense if you are financially very secure and say, moving out in 1-3 years (so does an ARM) but the idea of paying interest only sounds a lot like the sort of speculative borrowing that has caused other recessions or individual blowouts, and there's very likely a housing bubble of varying degrees of near-popping around the USA. Would sure suck to be over-extended, interest-only, and then stuck "upside down" on a large home loan. There's a lot of so-called flipping going on in some parts of the nation, and somebody somday is going to get their fingers burned.
PS - This advice brought to you by the idiot who refinanced and as a result got their interest:principal payment ratio back up to about 9:1 last year on a 30-yr conventional, yay.
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Tue Aug 30, 2005 6:03 pm |
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Lambert
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| Re: Interest Only Mortgage Loans |
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quote:
Originally posted by Nikita771
Does anyone have any personal experience with one of these loans?
I don't know much about the details of them, but something about paying interest only sounds really fishy to me.
Personally, when my wife and I decide to buy, we're going with a good old fashioned fixed rate loan, preferably a 15 year.
I still go for the K.I.S.S principle when it comes to money.
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Wed Aug 31, 2005 6:49 pm |
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grantchen
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It depends. In a real estate market that price continues goes up, IO program is a good choice for investors to leverage their ability to buy properties. In fact, a lot of investors did make a lot money in the last couple years by adopt the IO program or the more aggressive minimium payment program. However, if you believe the market bubble is gonna break, then choosing these programs will definitely make you pay more and lose money in future. Whatever choice you make, just remember that you are the only person who is responsible for your own decision.
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Thu Sep 01, 2005 2:52 pm |
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Lambert
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quote:
Originally posted by grantchen
It depends. In a real estate market that price continues goes up, IO program is a good choice for investors to leverage their ability to buy properties. In fact, a lot of investors did make a lot money in the last couple years by adopt the IO program or the more aggressive minimium payment program. However, if you believe the market bubble is gonna break, then choosing these programs will definitely make you pay more and lose money in future. Whatever choice you make, just remember that you are the only person who is responsible for your own decision.
Interesting thought.
Maybe some of you mortgage biz people out there can comment on this:
Anytime I hear/read a conversation about buying a house, the topic inevitably turns to investment and real estate in terms of making a profit, getting a good return on your investment. No one I know (friends and family) think that way. A house is not an investment or way to make money to most folks I know. It's simply a home to most people.
Perhaps I am about to show my ignorance in real estate if I am wrong, but aren't most people just looking for a place to live? Seems to me that while you certainly want a good deal, the average family is looking to put down roots and stay put, not turn a profit.
Hence my belief in the KISS principle even for home buying.
Anyone else have thoughts or info on the matter?
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Thu Sep 01, 2005 4:27 pm |
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grantchen
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quote:
Originally posted by Lambert
Interesting thought.
Maybe some of you mortgage biz people out there can comment on this:
Anytime I hear/read a conversation about buying a house, the topic inevitably turns to investment and real estate in terms of making a profit, getting a good return on your investment. No one I know (friends and family) think that way. A house is not an investment or way to make money to most folks I know. It's simply a home to most people.
Perhaps I am about to show my ignorance in real estate if I am wrong, but aren't most people just looking for a place to live? Seems to me that while you certainly want a good deal, the average family is looking to put down roots and stay put, not turn a profit.
Hence my belief in the KISS principle even for home buying.
Anyone else have thoughts or info on the matter?
Yes, most people buy a home just for living, not for profit. However, the profitablity is still a concern. Survey shows average American people move their residence 3 times within 10 years. When moving occurs, people usually sell their current home and buy a new home. If they can make some money from current home sale, they are able to afford a better home and better financial situation.
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Thu Sep 01, 2005 11:20 pm |
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sam1000
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Interest only makes no sense. You're not building any equity so why not just rent? At least with renting you're not tied down to a mortgage contract and can move anytime you like and also not exposed to any market downturns.
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Sat Sep 03, 2005 6:09 am |
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grantchen
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quote:
Originally posted by sam1000
Interest only makes no sense. You're not building any equity so why not just rent? At least with renting you're not tied down to a mortgage contract and can move anytime you like and also not exposed to any market downturns.
Interest only program allow low-income people to afford a larger home. In a market where home sales price goes up fast, your home equity still grows due to appreciation. That's why many investors take interest only program to leverage their purchasing power to earn more money. And in many cases, the difference between the mortgage payment for a homeowner and rent for a tenant is not big enough. Of course, you should take the risk that the real estate market goes down. In that case, you will lose money if you sell your home. You have to keep paying the mortgage payment or refinance if the contract allow you to do so.
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Sat Sep 03, 2005 3:13 pm |
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Rolo
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quote:
Originally posted by sam1000
Interest only makes no sense. You're not building any equity so why not just rent? At least with renting you're not tied down to a mortgage contract and can move anytime you like and also not exposed to any market downturns.
Slow down an consider all of the variables.
Renting is giving that money away for nothing tangible in return. Buying a house with an IO loan...well...you still own the house. If you have no equity (the house value = mortgage amount) then you are, at least, at zero. If you rent you are negative (monthly rent * months rented).
I have an IO loan on one of my houses, my primary residence in fact. I can pay it like a regular fixed mortgage if I want, but this way, I have options. I am investing the difference between my IO payment and my 30-year amortised payment for a return much greater than my mortgage rate. Positive cash flow. My 'equity' is my investment, which is much more liquid than a house.
How much equity could I possibly gain by paying the principal? In the first five years of a mortgage, how much principal is actually paid? A few thousand at best? The appreciation of the property will provide me equity which provides me two options when I move:
I can sell the house, pay off the loan, which is what I borrowed originally, and still have however much my property appreciated plus my investment I had been growing by not paying on the principal.
Or,
I can rent the house and the fact that my IO payment is low, increases my chances of my tennant paying my IO mortgage plus adding to my income, to which I roll into my current investment. My house is now an income generator thanks to the IO loan. My house becomes an ASSET (puts money in my pocket) rather than a liability (costs money).
Looking even further down the road, in any case, I will never, ever have to pay for that house because my estate will pay for it after my wife and I are dead, and we won't be needing that money anyway. (or the beneficiary of said house can continue the IO payments...and repeat...hehe)
Verstehe?
"Expect me when you see me."
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Sun Sep 04, 2005 6:31 pm |
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Lambert
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quote:
Originally posted by grantchen
Interest only program allow low-income people to afford a larger home. In a market where home sales price goes up fast, your home equity still grows due to appreciation. That's why many investors take interest only program to leverage their purchasing power to earn more money. And in many cases, the difference between the mortgage payment for a homeowner and rent for a tenant is not big enough. Of course, you should take the risk that the real estate market goes down. In that case, you will lose money if you sell your home. You have to keep paying the mortgage payment or refinance if the contract allow you to do so.
quote:
Originally posted by Rolo
Slow down an consider all of the variables.
Renting is giving that money away for nothing tangible in return. Buying a house with an IO loan...well...you still own the house. If you have no equity (the house value = mortgage amount) then you are, at least, at zero. If you rent you are negative (monthly rent * months rented).
I have an IO loan on one of my houses, my primary residence in fact. I can pay it like a regular fixed mortgage if I want, but this way, I have options. I am investing the difference between my IO payment and my 30-year amortised payment for a return much greater than my mortgage rate. Positive cash flow. My 'equity' is my investment, which is much more liquid than a house.
How much equity could I possibly gain by paying the principal? In the first five years of a mortgage, how much principal is actually paid? A few thousand at best? The appreciation of the property will provide me equity which provides me two options when I move:
I can sell the house, pay off the loan, which is what I borrowed originally, and still have however much my property appreciated plus my investment I had been growing by not paying on the principal.
Or,
I can rent the house and the fact that my IO payment is low, increases my chances of my tennant paying my IO mortgage plus adding to my income, to which I roll into my current investment. My house is now an income generator thanks to the IO loan. My house becomes an ASSET (puts money in my pocket) rather than a liability (costs money).
Looking even further down the road, in any case, I will never, ever have to pay for that house because my estate will pay for it after my wife and I are dead, and we won't be needing that money anyway. (or the beneficiary of said house can continue the IO payments...and repeat...hehe)
Verstehe?
Like I said. Does the average person just looking for a place to call "home" need to think that deeply? When you have job, wife, kids, extra cariculars, church or other social obligations, and all the stuff that comes with just living life day by day ... does the average joe really want or need to be looking that deeply and that complicated when buying something?
Sure, no one wants to lose money on their home, and certainly it's a good thing to make money on a home, but the IO loan sounds like too much of a headache for the guy just trying to put a roof over the heads of his family.
My humble opinion
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Mon Sep 05, 2005 2:56 pm |
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Rolo
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quote:
Originally posted by Lambert
Like I said. Does the average person just looking for a place to call "home" need to think that deeply?
If one wants to be a good steward of his finances, yes.
quote:
Originally posted by Lambert
When you have job, wife, kids, extra cariculars, church or other social obligations, and all the stuff that comes with just living life day by day ...
All the more reason to be a better steward...your decisions affect others and if you life is more complex, then your managing it will be more complex.
quote:
Originally posted by Lambert
does the average joe really want or need to be looking that deeply and that complicated when buying something?
Well, we're not talking about buying a kitchen appliance here, we are talking about a financial decision that impacts lives permanently, not necessarily just for the life of the loan. We are talking about something that consumes 30-50% of one's income. I'm amazed that there is greater concern over gas prices (not very controllable, and we are talking pennies) than there is for financial planning (totally controllable and much more than pennies).
How much effort you put into money management directly effects how much you get out of it, be it the minimum requirement of a simple, basic financial schedule for one, or complex investments and day trading. If I have to work for 40 hours/week for 20+ years to earn money, I will make for darn-skippy-sure I am managing it properly so that I get the most out of it.
quote:
Originally posted by Lambert
but the IO loan sounds like too much of a headache for the guy just trying to put a roof over the heads of his family.
How is it a headache? It is identical to a regular fixed 30-year loan only with lower payments. At least this way, I have options; I can choose to pay it as a regular mortgage over 30 years, or do something else.
I cannot help but think that your reaction (and it is a popular one) is fear. Fear of the unknown. Since our society is so hush-hush about money, we are all pretty much ignorant on the topic and are therefore intimidated by it.
"Expect me when you see me."
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Mon Sep 05, 2005 4:26 pm |
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Lambert
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quote:
Originally posted by Rolo
I cannot help but think that your reaction (and it is a popular one) is fear. Fear of the unknown. Since our society is so hush-hush about money, we are all pretty much ignorant on the topic and are therefore intimidated by it.
I will freely admit that you are partially correct.
While fear can undoubtedly cause one to be closed off to potentially good options, it can also create a healthy sense of caution.
There are quite too many tales of people being persuaded into a financial situation that was quite effectively "sold" to them, when it really turns out to be what was best for the bank's profits and not the individual's future.
A large purchase like that of a house is especially when someone needs to start paying attention to that little voice of fear when a lender starts talking about a complex financial move.
And while i do whole heartedly agree with wanting to make every dollar count, personally, I have a hard time putting a price tag on peace of mind. In my experiences, simple usually equals more peace.
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Mon Sep 05, 2005 11:37 pm |
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Rolo
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quote:
Originally posted by Lambert
While fear can undoubtedly cause one to be closed off to potentially good options, it can also create a healthy sense of caution.
Oh yes! Prudence is a good thing. My issue with it is that, like you said, people close off options too quickly, before it is fully examined. "Willful ignorance" I call it.
quote:
Originally posted by Lambert
There are quite too many tales of people being persuaded into a financial situation that was quite effectively "sold" to them, when it really turns out to be what was best for the bank's profits and not the individual's future.
No argument here...but...that also happens with regular mortgages, too. Then there's ARMs (which I don't ever see myself getting an ARM).
But that just makes my case for the need of the consumer to educated himself and know what he is getting into. Personally, I cannot go blind carrying that much money.
Example: hehe..these "employee discounts" advertised now...bahaha...how many people think that is a good deal? I built a car forum, so I talk to many people who have the same car...several got employee discounts long before it was advertised "to the public"...and I paid ~$4K LESS then they did. Why? Because I spent ~$30 and did my reasearch.
Also, I spend less time buying a car...I don't argue with a salesman. I tell them what I want and what I am willing to pay over the phone. Within 4 dealers, you'll get it. I go and pick it up. Done. My wife couldn't believe it, "One day, you just woke up and decided to buy a car...you made a few phone calls...and that afternoon you just picked it up...like take-out food!"
quote:
Originally posted by Lambert
And while i do whole heartedly agree with wanting to make every dollar count, personally, I have a hard time putting a price tag on peace of mind. In my experiences, simple usually equals more peace.
That is most certainly true. However, I will throw this out there: "Complex is not, not simple".
"Expect me when you see me."
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Wed Sep 07, 2005 3:09 am |
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ushomeloans
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such long replies makes me dizzy. IO is great for self employed/variable income. It allows you to make lower payments. It also can allow someone to buy when they normally couldnt and gain equity if they make IO payments, which in an apartment you cant, plus every cent of the IO payment is tax deductable.
If you send me an e-mail I can help you find a specific loan for you, and explain why and all the pros and cons.
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Thu Sep 08, 2005 10:54 pm |
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