Okay guys and Gals, Here's the deal. I'm getting divorced. To settle the outstanding Credit card debit and finalize the property settlement we must sell our house. We'll make probably close to 40,000 in profit after the sale. Minus the Credit cards we'll probably each end up with 15k. I'd like to use my half as a nice downpayment on another house. Problem is I live where 80% of the Katrina refugees moved and the housing market has boomed. In order to keep myself in the level of home I'm used to ( Small but nice ) I'll have to spend in the neighborhood of 140-150k. ( These are Brand New houses too BTW ) I Probably wont live in it for more than 5-8 years.

An intrest only loan for 150k puts me right around 725 a month for a house note. The alternative is renting an apt but because of Katrina a ONE bedroom is between 700-900 unless you want to live in the ghetto and I dont.
My understanding is you dont start paying towards the principal for 10 years in one of these loans. And that when you sell it any appreciation ( IE, I sell it for 175.000 5 years later ) I get to keep.

For a short term buy like this Whats the Downside????

Example of what I'm looking @
http://www.buildersdirectsales.com/l...?group_id=2978

 

Sounds like a normal home loan, if you only pay at the designated minimum intervals and/or make minimum payments ...

Honestly I dont know about this type of loan, I'm to tired to investigate right now...
I have worked out intrest only payments on my home for a few months when we were having a rough times a few times. That sucked *** and still bothers me to no end. Not that we were having rough times... But that I lost out on those months worth of princiable, which adds to the total intrest I'm going to pay out. I have always split my payments, so I'm ahead of the game as far as the loan agreement. Yet I had to pay extra every two weeks just to get caught up to the original financial plan after making the intrest only payments.

Intrest only...
Sounds like they might calculate what the intrest would be over a designated time (say 20 years) and you pay that amount up front. This way they are gurtanteed to get thier money. Likley have to pay that if you pay it off early too. Becareful of that and/or early pay off penalties.

Things to ask the loan officer that will make your decision, besides the monthly payment....
What is the total cost of the loan?
How much money "will not" go in my pocket with this loan vs that loan.
You may have to make the loan officer calculate the totals that you paid out with each loan, "to date", if you paid it off after 5 years, 6 years, 7 years, 8 years, etc, etc, etc.
Get those numbers before you sign anything. If they don't want to give them to you take that as a sign, a great big HUGE red flag and go somewhere else.
Also because it's an interest only, then the difference between each year in theroy should be no more than the total of a years worth of payments. I would be safe to say that it will more than likely be more than a years worth of payments. That would suck!

You can try to estimate these yourself but with out knowing the instituions fees, fines, penalties policies and method of calulating intrest. It would just be an un-educated guess calculated on a very small portion of the information. It would likely be $5000-10,000 more than what anyone outside the instituion might estimate.

I know thats not what your looking for, and likely not what you wanted to hear. But only you have access to the information needed to make the decision...

 

Get the intrest formula the bank uses and you can caculate how much goes to principle in the first year. It could be as low as 2% the following year would be a few points more ( apx. 3.5-4%) and so on.
Example First payment breakdown on 100,000.oo would be as follows.


Payment $706.00

Principle paid $123.45

Intrest paid $ 583.33


After one year payment breakdown is,


Payment $706.00
Principle paid $ 132.37
Intrest paid $ 574.41


A good web site www.bankrate.com go to the caculators section..

 

Damn....what a price. If I told you what that home would cost in Jersey you would be floored!!!!! Based soley on that alone....go for it.

PS....Sorry about the divorce. Never an easy thing to go through.

 

my wife & I were looking at buying a house, and she's the brains in this outfit when it comes to $$ and works in the mortgage industry. Here's what she has to say, in a nutshell.

interest only is good IF:

-the market keeps going up like it has been (there is much debate on whether we have topped out and the bubble might be bursting soon)
-you only plan to stay a couple of years.

But, here's the catches--
-you never really "own" anything. You're always paying interest, never principle.
-most loans are a variable APR--and even a 1% interest hike can really affect your payments, and the Fed has been raising rates lately
-a lot of loans specify 3-4 number of years at interest only, then principal is taken in to account too-- drastically raising the monthly payment.
-sometimes it is written in that after that 3-4 years the APR goes up at a variable rate-- this rate is not always clearly specified-- meanng they can charge you almost whatever they want. If the market doesn't go up, you could end up upside down and actually owe more than the house is worth (worst case scenario)
-the whole "interest only" thing has never been tried before, it is new to everyone, lenders included. No one knows what the end outcome will be.

Other, general things to keep in mind, whether it is interest only or traditional loan:

-you cannot assume you will be able to rent out a room to make extra $$. don't factor that into your planning
-lenders often assess points to get the APR down. They then hide the points in the paperwork Make sure you know what the points are up front, don't just look at the APR.
-under a certain percentage down, you have to pay PMI-- mortgage insurance-- it's an insurance policy which protects the lender at your expense. You pay a lot of $$ for nothing, basically. If you can get over that amount down (and I'm sorry I don't remember what it is off the top of my head) do it.

 

Not likely to floor me.... but if I told you what that same home in jersey would cost if it were built here... you'd have an anxiety attack thinking you over paid for yours.

 

 

If I told what we paid for our house and 12 acres y'all would keel over dead!! Prices are on the upswing here now though, we've lived here for only 7 months and if we sold tomorrow we could already make a tidy profit.

CCLA, I'm not familiar with the type of loan you are talking about. Sounds like it could be a iffy thing. Just out of curiosity why aren't you going with a conventional loan? Have you tried Ditech.com? That's who financed our place and they were great, lots of paperwork but they gave us the best rate and were super easy to work with.

 

Conventional loan = I cant afford the house I want, about 45,000 short. This way I get to stay in the level of house I'm in now. ( NON-Ghetto)
Only reason I considered it. Also from what I've read you can get one @ a fixed rate and can refinance @ anytime.

 

Sorry about your divorce but Clifford got it right.

You do still get the interest write off on your taxes but when you sell it you still owe exactly what you bought it for. There is no way to build equity unless the market continues to rise.

Check into FHA loans if out of pocket expenses are the concern.

The IO are going to be risky with rates raising like they are.

Good luck with it...

 

I think the two big risks you take with this type of loan are that your rate will rise and significantly increase your payment and that when interest rates rise, the housing market tends to slow down. If the real estate market slows it could be difficult for you to sell your house for what you paid, meaning you either keep making the payments or have to sell it for a loss and come up with the difference. I think current economic conditions point to this being a risky time to do this, but local conditions could also play a factor. Good Luck.

 

You're screwed if the market goes bad, even if rates are good.

 

I would look into a 5 year locked ARM. The initial 5 yr period is at a very low rate (mine is 4.25). After the 5 yrs it will fluctuate with the market but it has annual caps to keep you safe. If the Rates are bad in 5 yrs it may only go up 1-2 percent. Since you will be looking to get out in 5 anyway, it wont matter. The plus is a very low rate and you will build alittle equity. If you are stuck in the house after 5 years your payment can only go up a few points a year, at least it gives you a chance to get out before the payment increases allot. Important to check the annual caps.

 

Don't do it. Make sure to ask what happens when the loan turns from interest-only to interest plus principal.

You might find yourself up a creek real quick.

Here is the first result from google: http://library.hsh.com/?row_id=58

 

There is certainly risk to an interest only loan.

But as mentioned before, in a rising market where you don't intend to keep the home very long, such a loan can be a GREAT way to get a huge return on your downpayment. Shoot, in many parts of California a few years ago, you could have been paying $1,000/month in interest while your property went up $5,000/+month. For 3 to 5 years in a row. So they are not always a bad thing.

Consult with a GOOD mortgage broker. There are thousands of loans out there. You need a mortgage broker who will find the right one for you, and not push you into the loan that pays him the most.