Interest Only Home Loan

**disneysteve** · 10-16-2009, 07:50 AM

Why are you considering this?

**arthurb999** · 10-16-2009, 08:49 AM

Generally a terrible idea

*end of thread*

**disneysteve** · 10-16-2009, 08:50 AM

Originally posted by arthurb999 View Post

Generally a terrible idea

*end of thread*

LOL! That pretty much sums it up.

**EconoMutt** · 10-16-2009, 09:55 AM

Originally posted by disneysteve View Post

Why are you considering this?

Lower monthly payments.
No escrow required
Very low interest - Interest at Prime Rate 3.25%
No closing costs

**maat55** · 10-16-2009, 10:07 AM

Originally posted by EconoMutt View Post

Lower monthly payments.
No escrow required
Very low interest - Interest at Prime Rate 3.25%
No closing costs

IMO, interest only loans are only good for shorterm investment loans. You should not do this on your primary residence. Interest rates have nowhere to go but up and they will.

**disneysteve** · 10-16-2009, 10:19 AM

Originally posted by EconoMutt View Post

Lower monthly payments.
No escrow required
Very low interest - Interest at Prime Rate 3.25%
No closing costs

Of course the payments are lower. You are paying zero principal and not getting any closer to actually owning the home. At some point, though, the interest-only period ends and you need to start making the real payments that are part interest and part principal. I'm guessing that the rate jumps at that point. As maat55 pointed out, rates will be rising in the coming years. The time to lock in a low fixed rate for 30 years is NOW.

**MonkeyMama** · 10-16-2009, 11:17 AM

I'll put interest-only loans in the same category as ARMs. Can be useful, if you have the means, to leverage property. MEaning, if you are wealthy!

Otherwise, a terrible idea. Considering the state of real estate, not sure why you would want an interest only loan. Where it could make a tiny bit of sense to leverage during times of rising prices, it makes absolutely no sense today.

& for the people I know who did get interest only loans in times of rising prices, they didn't sell their homes at the peak. Now they are stuck, under water, on interest-only loans. What a nightmare.

Agreed with DS - if you can't afford a home with a 30-year mortgage today, forget about it. IT just has trouble written all over it.

**disneysteve** · 10-16-2009, 11:28 AM

Originally posted by MonkeyMama View Post

Agreed with DS - if you can't afford a home with a 30-year mortgage today, forget about it. IT just has trouble written all over it.

Interest-only loans became very popular during the real estate bubble. People bought houses that they couldn't afford using an IO loan with the plan of flipping the house a couple of years later before the principal payments started. It worked out great for the people who saw values rise and were able to get out in time. Lots of people, though, got trapped and were stuck with homes that saw the value fall by the time the principal payments started. Bad news when that happens.

**EconoMutt** · 10-16-2009, 12:25 PM

Real Estate in our area is relatively stable.
I've already got a loan, but was thinking of refinancing with an interest only.
It would temporarily cut my interest rate in half,reduce the monthly payment
and let me save property tax on my own. It would not be required in the monthly payment as it is in my current loan.
I'm in commissioned sales, so it's nice to have the flexibility in payment amount.

**maat55** · 10-16-2009, 12:29 PM

Originally posted by EconoMutt View Post

Real Estate in our area is relatively stable.
I've already got a loan, but was thinking of refinancing with an interest only.
It would temporarily cut my interest rate in half,reduce the monthly payment
and let me save property tax on my own. It would not be required in the monthly payment as it is in my current loan.
I'm in commissioned sales, so it's nice to have the flexibility in payment amount.

I tried the same thing when I bought the house I'm in now, my interest rate skyrocketed and I was forced to refi within 10 months.

**creditcardfree** · 10-16-2009, 02:33 PM

Originally posted by EconoMutt View Post

Real Estate in our area is relatively stable.
I've already got a loan, but was thinking of refinancing with an interest only.
It would temporarily cut my interest rate in half,reduce the monthly payment
and let me save property tax on my own. It would not be required in the monthly payment as it is in my current loan.
I'm in commissioned sales, so it's nice to have the flexibility in payment amount.

An emergency fund can help when you have a dip in income. Start there before risking your home for payment flexibility.

I agree with everyone else. Do not get an interest only loan.

**EconoMutt** · 10-16-2009, 03:45 PM

Originally posted by creditcardfree View Post

An emergency fund can help when you have a dip in income. Start there before risking your home for payment flexibility.

I agree with everyone else. Do not get an interest only loan.

You're right. I'm going to wait until I get at least three month's expenses saved before dealing with my loan.

**creditcardfree** · 10-17-2009, 09:09 AM

Originally posted by EconoMutt View Post

You're right. I'm going to wait until I get at least three month's expenses saved before dealing with my loan.

I hope you can get your EF funded quick! Good luck.

**minnie1928** · 10-17-2009, 09:54 AM

Have you contacted your current lender to see if you are able to discontinue escrow on your loan payment? I think if you have 20% equity that many places will let you escrow on your own. Although, that percentage may have increased in light of the current RE market.

FWIW, I did this back in July and had no problem doing it.

Interest Only Home Loan