Interest Only Mortgages?

Does anyone have any good articles on interest-only mortgages or have some information to share about them?

DH and I are considering this option. Originally, we planned to get a 30-year fixed mortgage and a home equity (on our co-op) until the closing, but our deal fell apart so we are leery of being stuck with those high rates for an indefinite period of time.

We plan to stay in our house for a long time, and once we do sell our co-op, we would put almost all of the money from that sale into our mortgage. If we did do the interest-only mortgage, we would also want to make regular payments to the principal in addition to the interest. From what I've read (which is little), these mortgages are trouble if people do not pay any of the principal.

Any info on this is appreciated. Thanks!

Re: Interest Only Mortgages?

Here's some info from the fed

Click Me!

Re: Interest Only Mortgages?

I use interest only loans for investment property. I just refinanced into a fixed rate loan for one rental property since the equity was there and I did not need to put much cash into it....only $2,603.15 was due at closing

I recommend that you call a mortgage broker.

You can find some preliminary, helpful info here.
http://www.interestonlyloans.com/

payment calculator is here - scroll down
http://www.interestonlyloans.com/interest_only_mortgage_calculator.html

Re: Interest Only Mortgages?

DON'T DO IT!!! I have one and they are usually ARMS. I live with the fact that I made that terrible decision every day.

I should be more understanding but if I didn't pay extra principal - now that we are selling - nothing and I mean nothing would be paid down on it. I'm looking out for you. You never know what life brings and like us we are selling sooner rather than later and it was a bad decison. You have lower payment - for now.....

Do your research - if it works for you go ahead. I'm sorry to be so crazy but i had a bad experience.

Re: Interest Only Mortgages?

Thanks for the information! I'm not sure that we want to do this yet, and originally we were pretty set on a 30 year fixed and a HELOC on our co-op. However, our buyer pulled out of the co-op, so now we are looking at a possibly long period of time paying high interest rates or a jumbo 30-year fixed mortgage which carries higher-interest also, so we wanted to consider other options.

The one we were considering is through Wells Fargo, and it's a 30-year fixed loan with a 10-year interest-only payment period. We were thinking it may be a good option for us since we can put the co-op sale money (which I would HOPE we can sell in 10 years!) toward the principle. But, we wanted to gather more info on it. It does sound as if it could be risky, and DH and I are not gambling types by nature.

All of the info was really helpful though, and I am sorry you are hating this loan so much ckone and it really didn't work for you. Your point about changing circumstances was a good one to hear. We can't assume we will stay in this house long-term, though right now, that's what we have in mind.

Thanks again! I'm always amazed at how helpful people on this board are when I request info on a topic!

Re: Interest Only Mortgages?

i have a fixed rate IO and totally 100% comfortable w/ it. IMO, it is an economically sound decision (at least for me). i invest the $$$ that would have been used as principle. of course the $$ invested is at the same rate or higher than the mortgage rate.

Message edited 3/2/2007 3:14:57 PM.

Re: Interest Only Mortgages?

we will get one on our house- they work well for people like my husband who are in sales and have variations in money take home

plus he does this for a living- so I trust him to figure out what is best for us

you can get a I/O with a fixed rate or with a 1 time rate lock

FM me if you want my husbands email- he can tell you all your options more then I could

Re: Interest Only Mortgages?

If you're doing it so you can afford more house I would be leery. If you're doing because you have other investment plans for the remaining $ then I think its a viable option. I beleive the key in making it a good thing is that you have a plan and STICK to that plan.

Message edited 3/2/2007 2:00:38 PM.

Re: Interest Only Mortgages?

I have spoken about IOs in the past. You should really have a mortgage broker or banker explain the pro's and con's to you but i will say that IOs are a great option for some people.

However, you mention you dont want to get stuck with a high rate. Mortgage rates are still at historical lows. If you lock now you will most likely get a good rate. If you get an IO ARM then your rate will most likely go up at the end of the ARM period.

Just make sure you get all the facts before you make your decision.

Re: Interest Only Mortgages?

I took out an 7 yr. interest only on my co-op b/c I knew it wasn't long term and I was 22 living on my own. I sold it 2 yrs. later. I would NOT do it for a long-term situation like purchasing a house. I would do a 30-yr. fixed.

Re: Interest Only Mortgages?

IOs work for some people, not for others. For us, it wasn't a good idea.

The good part of an IO mortgage is the lower payments. However, if you end up staying in the house for a long time, it can bite you in the arse if you're not applying to principal. basically, you'd get let's say - 30 year mortgage with the first 10 years IO. For 10 years, the payments would be lower. Once 10 years is up, your 30 year mortgage has balooned into 20 years since you haven't made any principal payments. that could be scary.

on the other hand, if you plan to sell within a few years, you're banking on the fact that you'll automatically build equity in your home.

Personally, I didn't trust myself to make extra payments every month with an IO. But if you're well disciplined, it could be a good option for you. I know a lot of people also like IOs because it frees $$$ for other investments.

Re: Interest Only Mortgages?

another thing is people have usually done IOs as a short term loan, thinking they'd sell in less than 5 years & just pay interest. I know two people that took IOs with very little money down. they used the same broker & both bought slightly above their means because of the lower payment at the high point in the RE market-summer/fall 05. even though their payments are low they are struggling cause the rates have gone up a couple of times & bigger homes have other big expenses, but unfortunately neither of them can sell the house for what they owe on their loans. Houses have NOT appreciated in the last two years around here enough for people to count on. And banking on the short term is less predictable than saying I know my house will be worth signifigantly more in 30 years, of course it will. However it also MAY go down in value a few times over the 30 years.

IMO IOs are ONLY for people that plan to pay toward principle right along, but maybe not monthly like a standard loan.
I don't think 99% of people are in situations that warrant IOs.

The best advice regarding mortgages I ever heard is "bankers & brokers are salespeople, NOT financial planners"
always get your long term advice from someone other than the person selling you the loan.

Message edited 3/2/2007 5:00:03 PM.

Re: Interest Only Mortgages?

I agree - they work for some people and should not be used if you just want smaller payments to live bigger. I would also advise not to do it unless you are putting something down. In the past you could do it with 0% down, but appreciation was fast, but now, after commissions, you might have to pay out of pocket to the bank if the house didn't appreciate much and you put nothing down.

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We are planning to put 20% down, and once we sell the co-op, we will have paid off roughly half the price of the house. I think making the principle payments on a regular basis would not be a problem for us, though from the articles posted and from what many of you have said, I'm not sure this is the right option for us. We do plan to stay in the house long-term, and we are not planning to invest the money saved from principle payments.

We're going to talk to some people and gather information this weekend and next week, but we may very well go with a jumbo 30-year fixed based upon the info we have received so far. That will mean higher rates, but as some of you have pointed out, even those rates are historically low when you look at interest rates over the last 10 years or more.

Re: Interest Only Mortgages?

Oh, sorry, I forgot to say thanks again for all of the information and advice!