Interest Only Mortgage Loan
Started by jb2
Interest only will keep your payment lower, and you should be able to deduct it all...
The potential problem lies in the fact that you pay NO principal during the repayment period, so unless the property appreciates by at LEAST enough for you to cover your expenses and realtor fees, you have the potential of actually losing money...
I'm not sure, but the interest rate might be higher as well...
5/1 will lock you at a lower rate than a conventional loan for 5 years, then after that it will be adjustable (usually limited to no more than 2 points up or down) on a yearly basis after that...
Interest only might be trouble, but I'll be honest and say that of all the different types of mortgages available, I'm least familiar with them.
The potential problem lies in the fact that you pay NO principal during the repayment period, so unless the property appreciates by at LEAST enough for you to cover your expenses and realtor fees, you have the potential of actually losing money...
I'm not sure, but the interest rate might be higher as well...
5/1 will lock you at a lower rate than a conventional loan for 5 years, then after that it will be adjustable (usually limited to no more than 2 points up or down) on a yearly basis after that...
Interest only might be trouble, but I'll be honest and say that of all the different types of mortgages available, I'm least familiar with them.
As the previous poster notes, the big problem is that you aren't building an equity. If you buy a home using an interest only loan you are essentially leasing it it. If your house does not appreciate while you own it, you could get nailed at closing. Think about this: you buy a 200K house, at closing you will need 12K just for real estate agen fees at closing. Thus if your house does not appreciate by 6% you will need another pool of money. With interest rates rising, the housing markey may cool off.
Ed
Ed
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edmadison said:
go with America's Choice when buying a home, there is $0 in realtor fees. If you finance the closing costs into the mortgage and pay just the interest on the mortgage you should be okay (as far as actually not losing money goes.)
MS05' said:
Maybe I can finance my next car for 8 years too.
You don't sound too RE savvy.
Get it now, pay later = recipe for disaster.
MS05' said:
The buyer never pays realtor fees (unless the seller demands it). The listing agent is typically paid 6% by the seller.
Ed
I would probably go for a 3/1 ARM or 5/1 ARM if I was headed to residency or something where I knew I would be in a specific place for a specific amount of time...that way, you get a low interest rate, decent payment, and still get a little equity so there is wiggle room when you are ready to sell....(basically, if you need to sell fast, this option might give you more flexibility in the offers you would take in the future)...
There are some good articles on the interest-only loans at bankrate.com...
There are some good articles on the interest-only loans at bankrate.com...
OrthoFixation said:
no kidding, the OP's question was how do I set this up so I pay only interest.
i wouldn't recommend financing your car for eight years either, however if you're in a 3 year residency and are paying a mortgage too, it's not such a bad idea. You'll pay low monthly amount (less than a 4 or 5 year finance) which will give you more disposable income during residency, then you could pay of the resultant PNI after you become an attending and make the big $. This becomes more complicated for those in 3yr or > residencies...
edmadison said:
Correct. If I were selling my home and knew ahead of time that the realtor was going to take 6% and let's say my house is worth $100,000 and I sold it using a realtor, my net profit would be $94,000. Knowing this ahead of time, I would put up an asking price of 106,000 to adjust for that loss that's if I wanted to break even, which I'm sure is never the true case). Using a group without a listing agent side steps this "mental increase" in the asking price. Therefore, the buyer saves this 6% deduction and "in theory" the house is cheaper and in our $100,000 example, the buyer doesn't have to finance that extra $6,000 into his/her mortgage.
MS05' said:
Ideally that is good logic. However, the buyer is going to pay the "market price" You can place any price you want, but it doesn't mean that it will sell for that much. If you have a set moving date the pressure will be on you to set a realistic selling price.
Ed
edmadison said:
Exactly. A market price is set by a willing seller AND buyer that agree to a price. The worst mistake you can make is to price your out of line with market values when it goes on the market. That first 30 days gets a lot of lookers, but not if its overpriced.
Just b/c you would like to recover costs doesn't make it so.
If the OP doesn't have 20-40% down payment, I would definately advise against interest only financing, especially near 100%. What happens if the market takes a short downturn? Then you'd have to come up with cash at closing just to get on with your life. Or maybe learn about the joys of renting your home to someone that typically won't take care of it. Paying a RE management service to handle all of this while your in the new city with the post-res job.
If cash flow is so tight that you want an interest only loan, then just rent and avoid the possible pitfalls.
An ARM can be good for short term financing, just don't finance 98%, 100% or 125%. That will place you in a precarious position. RE markets don't always go up. Especially when measured over short periods of time.
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