I think going to an interest only loan in your market would be a mistake. The main reason is that right now you have experienced a temporary event (Katrina) that resulted in a momentary run-up in prices for homes in your area. What you are doing is buying at the "top of the market" and financing it using a method that only makes sense if the market experiences a nice run-up in pricing.

I firmly believe that once the whole Katrina deal settles itself out, housing costs in your market will slump back to a level that is more "normal" for your area.

PS -- Any reason you're tied to the Baton Rouge area? Everytime I have driven through there since Katrina I have felt like blowing my head off with a shotgun because of all the traffic bottlenecks that have been created by the NOLA evacuees.....!

 

We have always gotten a loan in an election year. The politicians invariably want your vote and the economic community always lowers the interest rate, at least here in Canada. We lock it in for 5 years, usually Prime + 1 or 2% with 2 payments/month. This knocks the crap out of the interest. Then, when we can afford it, we make the payments bigger, the extra goes to the principle. Then, at the end of each year, anniversary date of loan, we plunk 10% of the purchase price. This comes off the principle. We paid this place off in 9 years instead of the 20 originally scheduled. Then we had a rebate from the life insurance we took out for the loan. And there was no penalty for paying out early. CIBC handled the transaction.

 

You are right.

I mentioned this in a thread a few months ago and everyone thought I was absolutely crazy. I got called a moron, called BS, told I didn't know what I was talking about, among other things.

I couldn't get them to understand how paying before the inerest hits saves.

But it will almost cut the life of your loan in 1/2 and save several 1000's of dollars in interest. But if you're mortgage or aother loan is figured on a bi weekly.... (not a good loan because paying a monthly payment then you are paying interest on interest.) If it is then you need to split it quad and make 4 payments a month.
Unfortuanlty most people have no idea how thier interest is figured on any of thier loans, or how much they are going to pay in interest over the life of the loan.... They just know that they got it at __% interest and $____.__ a month.
Your paying $250,000 for a $100,000 house????? Good thing you got that 2% loan....

 

I went through a similar situation a couple of years ago... my ex kept the house and I bought a different one but couldn't afford a 'fixed' mortage. I went with a 12 month MTA adjustable loan... and refinanced to a 30 year fixed as soon as I could. My loan went from 2.75% to 4.75% in 9 months!
I was lucky and was able to refi to a 30 year fixed at 5%... but the monthly payment also went up over $700 month.

 

Well First Speed bump. My credit score is 100 points lower than it was a year and a half ago. 2 collections ( Medical bills I never got ) that TOTAL less than $ 50.00. I mean Come on 50.00 Call me, or something. I had 750 credit and cause of a c0ckup of 50.00 i'm down to 648 ????