1st-time home loan, fixed interest only or traditional?
This sounds appealling to us because that way for a $400k loan, the monthly payment for the 1st 5 yrs would be ~$1,350 +tax+insurance=~$2,000 VS when we tried to get a 30-yr fixed traditional for ~$310k the payments were ~$2,200 [incl tax+ins].
W/ this IO loan, we can afford more house for the same monthly payment, and that's good because less than $350k in San Diego doesn't get you much of a house.
So, my question is, if we stick w/ the fixed IO loan AND assuming the house gains some equity in those initial 5 yrs; when we refinance or sell the house, what happens to that equity? Does the bank keep it because we haven't really been paying the capital just interest? Or do we get it? Can we use that to lower the payments when/if we refinance?
Our main goal is 2keep monthly paments as low and as fixed as poss, even if in long run we pay more. We dont plan 2 b ther 4 mor than 5 yrs, n if we do we'd refin
Answer:
Any equity built up in the house would be yours. The equity won't actually have a usable cash value unless you sell your home for more than what you owe on it. The major danger to the type of financing you are want to use is this: What happens if the market value of your home does not go up? What if it actually drops because of a market slump?
In an ideal world, yes you can afford more of a home and things will wash out in the end. BUT, how much are you willing to gamble??
If you pay the minimum payments on an interest-only loan, your equity is whatever the value of the house has risen by. The prinicpal payments on a conventional mortgage are pretty miniscule for the first few years, so a no-interest may be the way to go.
Of course retain an attorney and check every word of the mortgage contract carefully.
Equity is the value of the home, minus all liens/loans. Equity is always yours.
If you're planning only to be there for a few years and you're willing to take risks, you might want to look into an option ARM loan, which will even have lower payments. However, if you like the comfort of a fixed interest only loan, then what you're doing is fine.
I'm a mortgage broker and I can help you with both your loan and the purchase of your home in San Diego. Sellers give a certain percentage of commission to a real estate agent who brings them a buyer. If you use my services to purchase your home, I will split my commission with you up to $5,000 dollars. You could use that money to help pay closing cost, buy new furniture, take a vacation or whatever you want to do.
Regards
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