Interest Only Mortgages

When I was watching the Suze Orman show she said that adjustable rate interest only loans were a bad idea. What I'm wondering is, would a FIXED rate interest only be bad too? I'm wondering because and interest only loan would make it easier for us to afford to live here, and since I will start working again in 2 years my checks could go toward the principal. Any thoughts?

Re: Interest Only Mortgages

I wouldnt do it.

the amount of principal you are not paying each month is tacked on to the balance - so your mortgage balance is higher than when you purhcased the house...and since housing values are decreasing on LI - you may end up upside down on the mortgage.

Re: Interest Only Mortgages

Terrible Terrible Terrible. I have one - don't do it. We are in big trouble because the rate goes up and up and up and we put less and less and less principal as we go (because we can't afford it).

Re: Interest Only Mortgages

and there is a difference between an adjustable rate and an IO -

with some ARMs you pay principle each month, your rate changes according to the agreement.

with Interest Only - you pay only the interest payment.

Re: Interest Only Mortgages

We took an interest only mortgage 5.5% locked in for 10 years. We pay an extra $1000 per month towards the principle. However, DH's intention is to have the house paid off in less than 10 years. We've been in the house 1 year and have actually paid off half the mortgage - but that's only because DH sold his Condo (all profit as he did not carry a mortgage on it) and we both got really nice bonuses this year. And because we've paid so much of the principle down our payments have actually decreased $1000 per month. So now we actually pay $1500 extra towards the principle each month.

Re: Interest Only Mortgages

Re: Interest Only Mortgages

heres a good article by the home boards mascot, suze orman!

Suze

if you are going to pay principle every month, you might as well do a triaditional mortgage!

as pointed out - someone has a IO - but for someone who makes a standard, substantial bonus each year, an IO can make sense.

if you are salaried, usually an IO doesnt make sense.

Re: Interest Only Mortgages

Re: Interest Only Mortgages

i have an IO mortgage but put a lot of thought into it prior to choosing it. instead of paying equity, i invest the money at a rate that is equal to the interst rate on my IO mortgage. most likely the house will appreciate (mine has already), plus i deduct some of the interest.

not a wise mortgage for many though. if you are attractive to the IO mortgage simply because of the lower monthly payments, i would not advise selecting this type of mortgage.

Message edited 8/27/2006 9:05:16 AM.

Re: Interest Only Mortgages

This site sells IO's but also outlines the risks

"How can you measure your risk level?

It is extremely important to note that your risk level is not always judged by how you feel. Many factors go in to determining if an interest only loan is right for you. It is imperative that you understand the following points before searching for a loan officer:

A Loan Officer Should Not Be Your Only Advisor - Many mortgage professionals are only trained in one area of the financial sector and can not advise you If an interest-only loan is the best financing program for you and your family. He/she can answer your questions on interest only loan programs and help guide you towards making a better informed decision.


Loan Officers are not Financial Advisors - They are sales people. If you are seeking financial advice you need to seek the assistance of a trained professional such as a CPA, retirement planner or investment advisor.

Expect Service, Not Advice - The most you can hope to achieve by speaking with a loan officer is to gain more knowledge on how interest only loans work, get current rates and learn what advantages and disadvantages exist for these home loans.

It is a fact that if you are on a fixed income and are pretty sure that your income may not rise in the future then interest only loans will probably bear a much greater risk for you. As with all matters that have to with your finances you should consult a financial advisor who is aware of your unique situation before entering into any agreement with a mortgage lender. Never rely on the sole words of a loan officer."


Here's the website
IO's

Re: Interest Only Mortgages

We have one too
We only plan on being in our current home for 5 years or less, so it was our best choice. WE pay extra each month as well...whatever we have and the principal HAS gone down. We also have a small HELOC (about 18000) that we took out for the balance--thats 150 a month and we pay 200-250, depending on what we have.