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bikramaddict
mommy-to-be
Member since 8/06 4376 total posts
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Interest Only Vs. Principal and Interest
First we were leaning towards interest only, then we thought lets do principal plus interest. Although we don't plan to stay in our house forever, we figured paying the principal off at the same time could be our safety net in case we decided to stay.
Then our broker said we could do interest only, but pay the extra we'd be giving if were were doing a loan that included principal.
So which is better and why? Honest opinions, please.
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Posted 9/7/06 9:29 AM  |
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Prudential Douglas Elliman Real Estate
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SweetestOfPeas
J'taime Paris!
Member since 3/06 32345 total posts
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Re: Interest Only Vs. Principal and Interest
When we first started looking into mortgages (at the beginning of this year), IO seemed like the way to go. Now that the housing market has slowed down considerably, I would not go with an IO. Stick with a 30 year fixed. Don’t go with a loan that encourages you not to pay down the principle. JMO
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| Posted 9/7/06 10:04 AM |
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skew
LIF Adult
Member since 5/05 6794 total posts
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Re: Interest Only Vs. Principal and Interest
this has been debated MANY times. do a search and you will find a wealth of info and varyring opinions.
i have an IO mortgage. at the current time, have no plans to pay towards the principal. just doesn't make sense to me (again personal decision). i invest the $$ instead.
Message edited 9/7/2006 11:52:47 AM.
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| Posted 9/7/06 10:55 AM |
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kaklesmay
Love my baby boy!
Member since 9/05 1151 total posts
Name:
Kim
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Re: Interest Only Vs. Principal and Interest
Even if you have a 30 yr fixed you are not really making a dent in principal until after 10 years in the home. If you plan on living there for longer do a 30 yr, if you think you will move before then and want a lower monthly payment, you can do IO because you will basically have the same amount paid off-practically nothing.
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| Posted 9/7/06 11:08 AM |
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lululu
LIF Adult
Member since 7/05 9511 total posts
Name:
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Re: Interest Only Vs. Principal and Interest
Posted by kaklesmay
Even if you have a 30 yr fixed you are not really making a dent in principal until after 10 years in the home. If you plan on living there for longer do a 30 yr, if you think you will move before then and want a lower monthly payment, you can do IO because you will basically have the same amount paid off-practically nothing.
I agree.....
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| Posted 9/7/06 11:12 AM |
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mtg1970
We love summer!
Member since 5/05 1063 total posts
Name:
Teresa
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Re: Interest Only Vs. Principal and Interest
Posted by kaklesmay
Even if you have a 30 yr fixed you are not really making a dent in principal until after 10 years in the home. If you plan on living there for longer do a 30 yr, if you think you will move before then and want a lower monthly payment, you can do IO because you will basically have the same amount paid off-practically nothing.
I agree as well. We are doing an IO with the option to make extra payments at any time with no prepayment penalty. We too will eventually move and use the house as income (it is a legal 2)
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| Posted 9/7/06 11:35 AM |
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MegZee
My bunny
Member since 5/06 8777 total posts
Name:
Meaghan
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Re: Interest Only Vs. Principal and Interest
the IO interest rates adjust though dont they?
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| Posted 9/7/06 12:05 PM |
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MegZee
My bunny
Member since 5/06 8777 total posts
Name:
Meaghan
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Re: Interest Only Vs. Principal and Interest
and you never know what is gong to happen in the future....
housing prices are dropping imo, or at least not gaining at the rate they were in the past five years. so if you plan on selling in five years, you may have a problem that your house isnt going to appreciate as much as you want it to. (unless you are making the extra principal payments)
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| Posted 9/7/06 12:07 PM |
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lululu
LIF Adult
Member since 7/05 9511 total posts
Name:
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Re: Interest Only Vs. Principal and Interest
Posted by Meaghan729
the IO interest rates adjust though dont they?
Only if you get an IO ARM but I think you can get a regular IO without the ARM. I am not 100% on this though.
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| Posted 9/7/06 12:47 PM |
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lululu
LIF Adult
Member since 7/05 9511 total posts
Name:
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Re: Interest Only Vs. Principal and Interest
Posted by Meaghan729
and you never know what is gong to happen in the future....
housing prices are dropping imo, or at least not gaining at the rate they were in the past five years. so if you plan on selling in five years, you may have a problem that your house isnt going to appreciate as much as you want it to. (unless you are making the extra principal payments)
I see what you are saying - but because you pay so little towards principal in the early years anyway, a decline in the housing market will affect you whether you go with an IO or a conventional mortgage.....
I would be more concerned with an IO ARM (or even a non IO ARM) because if you cant sell AND interest rates go up dramatically, you could end up not being able to afford your home.....
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| Posted 9/7/06 12:49 PM |
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MegZee
My bunny
Member since 5/06 8777 total posts
Name:
Meaghan
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Re: Interest Only Vs. Principal and Interest
Posted by lululu
Posted by Meaghan729
and you never know what is gong to happen in the future....
housing prices are dropping imo, or at least not gaining at the rate they were in the past five years. so if you plan on selling in five years, you may have a problem that your house isnt going to appreciate as much as you want it to. (unless you are making the extra principal payments)
I see what you are saying - but because you pay so little towards principal in the early years anyway, a decline in the housing market will affect you whether you go with an IO or a conventional mortgage.....
I would be more concerned with an IO ARM (or even a non IO ARM) because if you cant sell AND interest rates go up dramatically, you could end up not being able to afford your home.....
I agree.
and I ran an amortization schedule on a $300K mortgage at 6.5% 30 year fixed. You actually pay close to $20K towards principle over the first five years. I think its more than people think.
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| Posted 9/7/06 1:07 PM |
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Blu-ize
Plan B is Now Plan A
Member since 7/05 32475 total posts
Name:
Susan
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Re: Interest Only Vs. Principal and Interest
Posted by Meaghan729
Posted by lululu
Posted by Meaghan729
and you never know what is gong to happen in the future....
housing prices are dropping imo, or at least not gaining at the rate they were in the past five years. so if you plan on selling in five years, you may have a problem that your house isnt going to appreciate as much as you want it to. (unless you are making the extra principal payments)
I see what you are saying - but because you pay so little towards principal in the early years anyway, a decline in the housing market will affect you whether you go with an IO or a conventional mortgage.....
I would be more concerned with an IO ARM (or even a non IO ARM) because if you cant sell AND interest rates go up dramatically, you could end up not being able to afford your home.....
I agree.
and I ran an amortization schedule on a $300K mortgage at 6.5% 30 year fixed. You actually pay close to $20K towards principle over the first five years. I think its more than people think.
I agree. We have a 30 year fixed and we have refinanced once. We own it almost 4 years and the equity in the house just from us paying a regular mortgage payment and one extra a year is $12,000. We reduced our interest rate and rolled some old cc debt in and we still have $12K. We probably would have close to $20K if we didn't refi or get rid of some debt.
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| Posted 9/7/06 3:22 PM |
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sunnyplus3
:)
Member since 11/05 8749 total posts
Name:
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Re: Interest Only Vs. Principal and Interest
it is a personal choice, but here's a Link from the IO Loan website that outlines the risks & what types of buyers IO's are meant for. The most important thing to remember is loan officers & brokers are SALESPEOPLE not financial advisors.
LINK
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| Posted 9/7/06 8:54 PM |
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skew
LIF Adult
Member since 5/05 6794 total posts
Name:
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Re: Interest Only Vs. Principal and Interest
"Consumers who generally do not wish to tie up the equity in their home and would prefer to invest the extra money into markets of better return."
one of the MAIN reasons why i chose an IO loan. why dump money into equity when i can invest at an equal or higher rate of return? made NO SENSE to me to pay equity when i could be EARNING money instead. again, personal decision.
Message edited 9/7/2006 9:00:22 PM.
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| Posted 9/7/06 8:57 PM |
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sunnyplus3
:)
Member since 11/05 8749 total posts
Name:
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Re: Interest Only Vs. Principal and Interest
Posted by skew
"Consumers who generally do not wish to tie up the equity in their home and would prefer to invest the extra money into markets of better return."
one of the MAIN reasons why i chose an IO loan. why dump money into equity when i can invest at an equal or higher rate of return? made NO SENSE to me to pay equity when i could be EARNING money instead. again, personal decision.
You are clearly a planner & disciplined, that is why it works for you. Unfortunatley a lot of people are not clear on that & just count on appreciation. That's when the risk increases.
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| Posted 9/7/06 9:06 PM |
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skew
LIF Adult
Member since 5/05 6794 total posts
Name:
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Re: Interest Only Vs. Principal and Interest
Posted by KellyFG
Posted by skew
"Consumers who generally do not wish to tie up the equity in their home and would prefer to invest the extra money into markets of better return."
one of the MAIN reasons why i chose an IO loan. why dump money into equity when i can invest at an equal or higher rate of return? made NO SENSE to me to pay equity when i could be EARNING money instead. again, personal decision.
You are clearly a planner & disciplined, that is why it works for you. Unfortunatley a lot of people are not clear on that & just count on appreciation. That's when the risk increases.
i actaully am planning on appreciation as well. another reason why i think it doesn't make much sense to pay towards equity - house will "hopefully" earn money on its own (appreciation) whether equity is paid or not, plus investments will earn additional money.
of course there is no REAL certainty, just have to be willing to take a risk.
Message edited 9/7/2006 11:02:11 PM.
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| Posted 9/7/06 11:01 PM |
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