When would you use an interest only mortgage?
Answer:
Because even in a down market, it will give you more leverage for when the market turns (which it will soon it always does). Also if IO is the only way to buy a place you are still better off doing that then paying rent. At least with interest only you get to take a tax deduction, unlike rent.
You could use it if you were not interested in keeping the house long term. For example you buy the house to fix it up then sell it. That way it keeps your monthly payment low while you are working on the house.
When you can't afford the principal payment and to take advantage of tax savings.
I agree with the previous poster. My only addition is that you should NEVER get an interest only mortgage, unless you're planning on flipping the house soon. If you are fixing it up to sell, it makes the best sense. If you're planning on living there, it's one of the WORST financial mistake you'll ever make. If you can't afford a house with a conventional loan, you can't afford that house. There are lots of houses in bad/run down neighborhoods that are much more affordable. Remember, the neighborhood is made up of the PEOPLE in the houses, not just the houses. Maybe you can make a difference in a neighborhood.
Interest only loans are not easy to explain in 100 words or less (so to speak) and there is much for a consumer to consider before stepping into this kind of binding transaction. As a starter I will offer you the following website to give some explanation of it:
http://articles.moneycentral.msn.com/ban.
Then after examining this site, if you are considering such a loan, you should use the keywords to browse further to make sure the requirements of this kind of transaction are suitable to you, and that the risks are something that you can deal with as well.
There are several right reasons to get an interest-only loan but there are a few bad reasons, too.
If you are taking an interest-only loan to afford a home that you normally wouldn't be able to, then it is for the wrong reason. This is setting yourself up to end up in possibly a very bad situation.
Here are the right ways to use it.
A) You are in an area that is not appreciating very much, you can divert your normal principal payments to an investment with a greater return. (If your home is appreciating at 4%, but your 401K is returning you 15%).
B) You are planning on selling your home in the next 3-5 years, you typically pay all interest for this period on a normal, principal and interest loan. If you paid towards the principal, you would just get that money back when you sell anyways, might as well keep it out and put it into a liquid investment that's returning you a decent rate, or even in a money market account so that it is easily accessible if you need it.
I`m not sure I trust them. You don`t know who you might end up with. Some of these internet companies start out getting your loan then sell it to another finacial institute at a higher interest rate. Also they start you out at a low interest rate, but then it goes up after a couple of months. They call this an introduction rate just to draw you in. What happens these companies take on people who normally cant get a loan at a bank due to poor credit. This allows them to charge a higher interest rate and its all legal. Thats how car dealerships do it, " No credit or poor credit we can get you a car loan today and you can have your car today". You end up with an interest rate higher than most credit cards. Please be careful.
I only use interest only Loans now for 20 years on both my homes. It is the smart way to go if wish to create wealth, I know it sounds wrong but do some reading, I suggest this book to all my clients.
Ordinary People, Extraordinary Wealth: The 8 Secrets of How 5,000 Ordinary Americans Became Successful Investors--and How You Can Too by Ric Edelman
To help them qualify for the mortgage. Many loans will let you qualify using the interest only payment.
help@choicefinance.net
more about interest only loans, http://www.choicefinance.net/interest-on.
many people are taking interest only loans if they don't plan to stay in this house for a long period of time. no longer than 5 years. with interest only loans you have this option to pay towards your principal at any time. in the first 5 years of having regular 30 years mortgage - you pay down your principal about 1% per year, so if you plan to sell the property in a couple years- you only will make money on this house from the equity the house gain, not the principal you paid down.
this mortgage is good for some people, because i prefer to keep the money in my bank account, then tied up in my house.
if you want touch money in your house- you have to pay closing costs, but if money are in your bank - you have access to them for free.
The answers post by the user, for information only, BAnswer.com does not guarantee the right.
Other Questions and Answers: