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excon · Jun 14, 2007, 05:46 AM

Hello:

Has anybody ever heard of an interest first mortgage, where ALL the payments go towards interest until it's retired.

excon

ScottGem · Jun 14, 2007, 05:48 AM

Its usually referred to as Interest only. Generally such loans are used when someone is cash poor right now but expecting a change in the not too distant future (for example a college student). Usually there is a time limit on how long interest will be paid or a balloon payment for the principal.

rfarmer · Jun 24, 2007, 07:20 PM

10 yr interest only 30 yr fixed is good . First your payment is cheaper giving you a chance to buy a nicer home and although its interest only for the first 10 years most programs allow you to make higher payments to knock down the princpal IF YOU WISH. What's nice is you can give any extra amount every month but if have to make the lesser payment you have that cushion. May have to make separate payments to the lender. Interest only programs never pay off the princpal.

jillianleab · Jun 24, 2007, 07:30 PM

My lender (and Realtors) advised me to avoid these unless it is the only way you can buy a house. I've worked with them for the past 5 years personally and professionally, so I trust them!

michealb · Jun 24, 2007, 08:19 PM

I prefer them. If the interest rate is low enough. At a rate of 6% you tend to make more money getting more house than you would paying off the principal. Plus if it's your own house the entire mortgage payment is then tax deductable. They aren't for everyone but run the numbers keeping in might the current and future value of the home you want to purchase. You should be able to figure out which way your going to make more money.
Interest-only mortgage calculator-Interest.com
Mortgage Calculators - Mortgagecalc.com

ScottGem · Jun 25, 2007, 05:19 AM

While its true that interest only mortgages can allow you to buy more house now then you might have been able to, there is a very large risk factor. An interest only mortgage is good ONLY if you plan on staying in the house for a long time (longer than the term of the interest only payments). If you have to move then you have no equity in the house and if the house hasn't appreciated you may come out of the sale with little or no money.

I would not recommend such a mortgage as anything but a last resort option.

alkalineangel · Jun 25, 2007, 06:21 AM

I agree.. this isn't for everyone. In the long run, the interest+principal payment is not all that much more than the Interest only. I would just build my equity. When we bought our first home, it was a very tempting offer, but we declined and went with a standard 30 year fixed. A lot of those loans also have ARMs asssociated with them, and that is never good. I was told that unless you are a person who works in sales and gets a large paycheck every 6 months or so, this is not for you...

Getting a bigger house than you would originally is not good anyway. The reason you can't get bigger house the good old fashioned way is because you couldn't afford it. So what happens when things haven't changed for you once the interest only period is over... are you willing to risk losing your home? I always laugh when I hear someone say it lets you do that, because it will catch up with you in the end... one of the reasons that foreclosure rates are sky high right now. Personally, if I were you, I wouldn't buy a house unless I could afford the principal as well as the interest...

There are plenty of other options out there for people with low cash flow for down payments and closing costs... believe me, good luck!

alkalineangel · Jun 25, 2007, 06:26 AM

I was editing the above while you gave rep... sorry...

LisaB4657 · Jun 25, 2007, 06:41 AM

We have an interest-only mortgage right now. It's a 10 year interest-only, 30 year fixed. For us it made a lot of sense. Our cash flow is horrible right now (until I can find a part-time job) but the mortgage is only 25% of the appraised value. We have a ton of equity but no cash at the moment. So for us the I-o mortgage makes a lot of sense.

I would definitely not recommend this type of mortgage for anyone who is financing more than 75% of the value of the home. That's way too much of a chance to take.

michealb · Jun 25, 2007, 08:09 AM

I use them for rental properties, too. It allows me to get a house that normally the numbers don't work and wait for rents and equity to increase. I will agree with everyone else and say that they are a higher risk. It's hard to make money quickly if your not willing to take a few risks though.

rfarmer · Jun 26, 2007, 08:24 PM

10 yr interest only 30 yr fixed IS A 30 yr fixed rate program with the first 10 yrs being interest only

You may be confusing this with an adjustable 10/1 which is a 10 yr fixed rate then turns into an adjustable rate after 10 yrs

They also have these in 5/1 and 7/1 fixed period for the first 5 or 7 years then turns into an adjustable rate after that... most people sell after about 7 years

The infamous 2/1 or commonly referred to as a 2/28 or 3/27 is the ones that freaks people out

Although they do serve a purpose generally people with bad credit no money and high debt to income. Your supposed fix your credit during this period and then get out of them.

Option arms are the killers use these for very specific reasons.