Jump to content
The forums have been archived and are now read only. Years of great info saved for your reading pleasure. Thank you! Visit us on Facebook: https://www.facebook.com/NakedInvestor/ ×
The Naked Investor Forums
Sign in to follow this  
ShaneMcKenna

Understanding an Interest only mortgage...

Recommended Posts

Is there more to it than just saving $125 on your mortgage? What are some other advantages to having a mortgage where you only pay the interest on it for the first 10 years? What happens 10 years from now when you have to start paying to the princible, what are your payments going to be?

What if the house doesnt go up in value like it traditionally does? Where am I if I've only been making interest payments towards the mortgage for the last 10 years? A common advantage to the interest only loan is the fact that you can have access to the money where normally it would go towards the princible, you can use that either somewhere else, or put it towards a different property.

My question is, is this a decent tool to use on your first mortgage? When would you NOT use an interest only mortgage? Is there any way it can hurt me?

Is it harder to get financed for an interest only loan? I can still get locked in at a 30 year rate right? I do not need to refinance 10 years from now right?

An interest only loan pry isnt for anyone who is looking to pay off their house in 5 years, but could it work to the advantage of someone just getting started or someone who is going to be renting the house out and looking to get a little positive cash flow each month? Do you build any equity with an interest only mortgage?

Interest Only Calculator

Another Calculator

The 2nd calculator tells you exactly how much of your payment each month is Interest and how little of it at first is princible. The first link tells you how much you'll be saving if you make an interest only payment.

Thank you, Shane

Share this post


Link to post
Share on other sites

There are many different types of Interest Only Loans. Some are due to Balloon in 10,15 or 20 years. After that point you either have to refi out, or pay off the principal in full.

 

The savings also depends on the loan amount, the higher the loan amount, the moreyou save on the payment.

 

I offer many Interest Only solutions, LTV is decided by wether the property is Owner Occupied or Non Owner Occupied. My personal favorite is called the 12 MAT Program. It is based off the 12 month average of the Constant Maturity Treasure. Which keep the rates relativly low. This program has a 9.95% lifetime cap, and can go as high as 95% LTV on Owner Occupied starting @ 1.25% starting, and on Non Owner 80% LTV with a starting rate of 2.25%. If you have any specific questions feel free to ask.

 

Best Wishes,

 

Michael Pine

:ph34r:

Share this post


Link to post
Share on other sites

Thanks for the reply. One of my main questions was with an Interest only mortgage, are you building any equity?

Also is there a way to figure out what your payments will be 10 years from now if you are still in the house?

Thanks, Shane

Share this post


Link to post
Share on other sites

You will only built equity if your market appreciates or you invest some of your savings back into the home. To get payments you take the Loan Amount, Times by Interest Rate, Divided by 12.

 

<ie> 200000 loan amount at a rate of 6% would be 200000 x .06 = 12000 divided by 12 = 1000.00

 

As for payments at the end, it is usually a balloon leaving you to refi the house, or pay it off in full. Interest Only loans are great tools when used properly.

 

Best wishes,

 

Michael Pine

First Source USA

Share this post


Link to post
Share on other sites

Thank you for the reply, your site gives a great break down in the amortization table of what of your payment will be principle and what will be interest. I am just a little unclear about what happens 10 years from now if you've been only paying interest on your loan... Say you are able to save the extra money each month and have that on hand in the bank, you still pry do not have 100% of the principle in the bank, you'll have to refinance or what happens there? Is interest only for people who intend on paying their house off by the time the interest only payment expires? I understand how it can be a great tool if used right, that’s how a lot of things are in real estate. I am just curious to know if it could work to my benefit when looking to finance my first home. All I can see is the savings of $150 a month. It’s just that paying interest only is doing exactly the opposite of what in reality I want to be doing. I want to be paying for principle only. But that isn’t the case, with any loan; you have to pay the interest, so I guess there are advantages of an interest only loan... I just want to know how you can use it in a wrong way so maybe I will have a heads up and avoid that. And also I'd like to know how else this could benefit me other than keeping $150 each month in my pocket.

Thanks again, Shane

Share this post


Link to post
Share on other sites

When you have an Interest Only loan, all you are paying off is Interest. When the 10 or 20 year term is up, you are left owing 100% of the Principal.

 

So if you have no intention of holding the property for the term it does not matter, and if you are renting out the property and are able to get an extra few hundred each month, it also is not much of an issue.

 

If you are looking to live in the home, it is a great tool to get you in at an affordable price. You should be arranging to set extra funds aside to either pay off the loan, or be prepared to refi before the balloon payment is due.

 

Mike

Share this post


Link to post
Share on other sites

Shane,

 

Don't look at it as a savings of $150 per month. Its not.

 

What is does it frees up a $150 per month of cash flow. That is what it does.

 

If you will invest this cash flow into something generating a higher rate of return that the interest that you are paying then you can make a spread on this money. Why do you think that these are popular with the wealty?

 

Check out this book http://www.ricedelman.com/store/books/opew.asp or this one http://www.ricedelman.com/store/books/nrm.asp

Share this post


Link to post
Share on other sites
Sign in to follow this  

×
×
  • Create New...