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Interest only mortage - A good or bad deal!

Posted on: 17th Sep, 2005 02:46 am
Is an interest only mortgage a good or bad deal?
Hi Bob
Welcome to MortgageFit forum.

An interest-only mortgage requires the payment of interest within a short period of time after which the borrower should pay the principal along with the interest. The borrower also has the option of refinancing the existing mortgage or paying off the entire loan balance in a lump-sum amount. So this kind of a home loan helps those who wish to buy a large home of a higher purchase price. It also helps borrowers willing to earn profit through investments. Moreover, this sort of a mortgage also helps consumers pay off high-cost debts which are not tax deductible.

Interest only home loans are specially suited to the needs of borrowers whose income may increase after a few years, or who earn mainly through bonuses. But it is not suitable for ordinary wage earners who borrow a moderate amount of loan and don't have any plan for making investments. This is because such borrowers will not be able to make large monthly payments (including principal and interest) after the interest-only period ends. So whether an interest only home loan is a good deal or not a better one, depends on your financial position and loan repaying ability.

Hope we have able to guide you.

Regards
Caron.
Posted on: 17th Sep, 2005 05:04 am
Other than lower payments is there any other advantages of intrest-only mortgage?
Posted on: 18th Sep, 2005 09:43 pm
Hi Jacob,

Welcome to the MortgageFit Forums.

Most people who take interest-only mortgage wish to save money and utilize the funds for other investments. Moreover, if you are staying in a rented house, you are actually giving money away. But if you buy a house with interest-only mortgage, then you pay for the loan as well as save cash due to your interest payments being 100% tax deductible. Further, this type of a mortgage becomes affordable with high interest rates if you are able to make enough profit from your investment. This will help you to pay off the mortgage as well as keep the rest in your account.

Thanks,
Jessica
Posted on: 18th Sep, 2005 10:20 pm
Homes in our area (south florida) average 260,000 and above. Both me and my husband annual income is 50,000. Should we consider a 5/1 ARM interest only loan to afford a home?
Posted on: 13th Oct, 2005 09:08 pm
hi donna,

welcome to mortgagefit forums.

i find that you have good income level and with it if you have good credit score, then getting a 5/1 arm interest-only loan will not be difficult. generally interest-only is not a good option for those who do not expect their income to grow over the next 3 to 5 years before the loan starts amortizing. it is also not a favorable option for someone who is not disciplined about putting the savings into another investment.

in 5/1 arm, the interest rate remains fixed for the first 5 years after which it adjusts every year. it is certainly cheaper when compared to the cost and interest payments required for a 30-year fixed mortgage. i think you should avoid interest-only option if you are considering a 5/1 arm to afford a home. this is because if situation changes, that is, you face any problems in your work area and you are forced to terminate your employment, then you may not be able to afford the payments if the interest-only period ends before you can get another job.

moreover, the rates of arm keep rising; hence you may have to make large monthly payments after the 5 year period ends. since you have a good income level, you may easily afford to pay the interest as well as principal amount, but in case you wish to relocate then you will have to either refinance the loan or make a balloon payment to clear all your dues. therefore i would suggest that you may go for a 5/1 arm but without the interest-only option. what i would further advice is that you contact some lenders and find out what type of loan programs are on offer. also, try to look for the loan programs that you feel can be paid off suitably and also shop around for suitable rates as these widely vary from one lender to another.

hope this information will help you.

please feel free to write back in case you have any other query. please feel free for further consultation or queries.

thanks,
caron.
Posted on: 14th Oct, 2005 02:37 am
My wife and I live in SW Florida. Trying to build house for $400.000. We have combined income of $60,000 and both have credit scores in 800's. If we are diligent about applying extra money toward principal, are we good candidates for this type of loan?
Posted on: 14th Oct, 2005 05:37 am
Hi Trent

To me, your credit score looks cool to have any type of loan.

You can obtain any loan program with best rate. You have extremely good credit score.

So just talk to any lender and you loan approval will be done in seconds.

Niicss
Posted on: 14th Oct, 2005 07:56 am
Hello Trent

Your credit score is very good and you can get a best offer in the industry.

You can signup with us, We have the community of lenders and after your signup, minimum information will be passed to the lenders and you will be presented with various loan program and you choose the best.

You will have the option of choosing the lender as per your suitability and all your loan process formalities will be done in a best possible way.

Hope to see you as our community member.

For MortgageFit

Samantha
Posted on: 14th Oct, 2005 08:05 am
Trent,
With your fico scores you should not have any problem with getting a good rate and a good loan. While ARM's are ok, the rates are not as competitive as it was a few years ago. ARM's and fixed rates are pretty similar now. But only you can determine which situation is best fit for you and your family. If you are seriously looking for a home, I would suggest you really shop around. Make sure your lender/broker is willing to go to bat for you. Remember if have lenders/brokers pull your credit have more than one company pull it. You have a 14 day window of opportunity that allows your credit to be pulled and have only one inquiry hit your credit.

Best wishes on your search
Posted on: 14th Oct, 2005 09:15 am
I am going through divorce and would like to keep my house and buy out my husband. I have good credit, but not a high income. I am looking at the interest only option as a means to keep my house for at least the next 5 years, so I dont have to uproot the kids, and also assuming that 5 years from now the chances are I will have a larger income to perhaps refinance at a regular interest and principal mortgage. Would you recommend this type of mortgage for my needs?
Posted on: 24th Jan, 2006 10:00 am
Hi Cory,

Welcome to MortgageFit Forums.

Do you really feel that your income is going to increase considerably in the next five years, as otherwise it can be a problem for you.

Moreover you should consider some investments with the money that you save as a result of the lower payment initially.

Be aware of the increase in payments within a short period of time. If you feel that you can utilize the savings for a bigger income and also expect a steep increment in your income, then you can go for it.

Otherwise it can be a problem for borrowers with low income.

Feel free to ask if you have more queries.

God bless you.

For MortgageFit,
Samantha
Posted on: 24th Jan, 2006 10:15 am
Hi Cory,

I think what Samantha has replied is correct. You shouldn't have any confusion before you decide on it.

Interest only mortgage is alluring initially with its lower payments for 5 to 7 years during which you have to pay only the interest.

But at the end of it, you have to make much larger payment towards the principal as well to fully amortize the loan.

So, you have to be certain that your income is going to have a hike in the next few years so that you can afford to pay it off. If you are sure about it you can go for it certainly.

Regards,
Blue
Posted on: 24th Jan, 2006 10:25 am
Hi Cory,

I think you should look for other options and walk away with an open mind. If you find, some better offers, on a different kind, then why you should consider an interest only.

It is an option for you but I feel you should keep it as the last one. If you are considering to go with this to save money only then it is not a good deal unless you have a way to invest the monthly savings or have a steep hike in your salary so that you can earn more which can pay down the principal on the loan amount.

Otherwise it may cost you more in the long run. You didn't mention your scores and your income and expense, so that we could suggest an alternative if available.

To conclude, I shall again advice to go through the different options available with different lenders and brokers for your situation and then decide on it.

Angel
Posted on: 24th Jan, 2006 11:26 am
Thanks for your advise, My score is 711 my income about 45000 incl child support. My home is worth about 300,000, we owe 197000, I have 25000 cash to pay off my husband, so looking to refinance around 225,000 so to pay off ex additional 25,000 in settlement. I am figuring additional income down the roaddue to only working part time now due to having small children, my home is big enough to rent a room out for additional income (perhaps an extra 400 per month), no tenant yet though. After 5/7 years surely if I couldnt afford payment at that time - I could refinance or worst case senerio at that time - sell home? What do you suggest?
Posted on: 26th Jan, 2006 10:58 am
Hi,

Its good to hear that you have a very good credit score. As discussed earlier if you are planning to take an interest only mortgage then in initial year your payment will be very less but after that you will have to make higher payments.

If you are confident enough to face all the worst scenarios which may come then you can go for it.

Thanks,
Jerry
Posted on: 26th Jan, 2006 07:26 pm
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