Interest Only Home Loan

[EconoMutt]

Don't do it!! You might as well just rent instead of doing this? The real estate market really hasn't recovered that much so you would be screwing yourself.

This loan would allow for principal pay downs. It just gives the option to pay interest only.

[wxman611]

Don't do it!! You might as well just rent instead of doing this? The real estate market really hasn't recovered that much so you would be screwing yourself.

[EconoMutt]

I didn't think that that product is even available now.

I found a credit union that offers a HELOC with an interest only pay back.
I wasn't even aware they offered it until they asked if I preferred an interest only payment.

[wincrasher]

I didn't think that that product is even available now.

[TurnDebtIntoDebt]

It's not really a good idea. Only if you plan on staying in the home for about two to 5 years it might be ok. But there is still risks involved.

[EconoMutt]

I've casually contacted the lender and asked.
They said that escrow was required.
I think I will explore that option further.
In other words, I'll ask for a supervisor instead of talking to the part time customer service rep.
Thanks for the suggestion.

** No PMI

[buildmybudget]

That's right, as long as you have reached a certain level of equity(I believe 20%, as minnie said) you can escrow on your own. Also, I think at that level you won't have to continue paying PMI either. Perhaps if you sink your extra commissions into your principal balance, you can get rid of PMI and take over your escrow...and avoid the colossally bad decision to refi interest only.

[minnie1928]

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.

[creditcardfree]

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.

[EconoMutt]

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]

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.

[maat55]

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.

[EconoMutt]

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.

[disneysteve]

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.

[MonkeyMama]

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.