Hi all,
anyone here have any experience with 'interest only' type of loans?
...i.e. benefits or risks

currently, i'm on a 15 year, fixed rate and practically all my money is going to paying
off the interest and principle ... leaving me with peanuts in my savings.

i'm thinkin' about refinancing to 'cash out' from the equity thats accumilated over the
years to invest in stocks or funds. if i were to do interest only for the five years i'd
be cutting my monthly mortgage in half .. and in turn, I can use that money to invest as well.

any insight or suggestions??


thanks!

 

"Interest Only" loans are great.

For the mortgage company.

Your best, most stable lifetime investment is probably going to be your house anyway, so to remove equity to buy stocks (or ???) seems like a high-risk deal to me.........nevermind the tax ramifications.

Might as well cash out your IRA and go to Vegas, Bay-bee

Brian
(I assume you already knew the right answer and just wanted to be scolded )

 

 

If you decided to go with a fifteen and got a low rate, bite the bullet and stick with it. I did the same thing sort of and took out a 20 yr with a rate of 5% because it offered a better rate than a 30 but I could not afford a 15 yr.

Now there is temptation to refinance to a 30 because I would like month to month cash flow to be higher, but that would be a stupid move. Let's face it, you probably don't want to put the money in stocks and bonds, you want to spend some of it.

If you have had the 15 year for a little while, just keep going, the light at the end of the tunnel is closer than you think. Thirteen year from now you could have tons of money left over in your pacheck every month or an old bigscreen, and old car, an old stereo and other stuff.

Most people become wealthy by planning ahead, saving and resisting the temptation to buy a bunch of junk. You made the right move with the 15yr. A move to another job with a little bump in pay, or the next raise will let you breath easier. The next raise, a little more still. Its tough right now but fight through it and come out way ahead.

Interest only loans really do nothing at all for you. Tough it out, you're almost there........

 

[QUOTE=sca037,Jan 20 2005, 05:23 AM] "Interest Only" loans are great.

For the mortgage company.

Your best, most stable lifetime investment is probably going to be your house anyway, so to remove equity to buy stocks (or ???) seems like a high-risk deal to me.........nevermind the tax ramifications.

Might as well cash out your IRA and go to Vegas, Bay-bee

 

I was looking into this when my ARM is over.

I thought "Interest Only" loan are good if you keep paying the same amount.

Example:
suppose your currently payment is 1400/month.
with interest only, you are required to pay 1000/month. If you pay 1400/month, your principle actually comes down faster.

Am I wrong?

 

thanks for the input!

the reason why i ask about the interest only refi, is b/c some friends of mine are
saying that i'm sitting on 'dead money' by not cashing out.

"...instead of using the money to invest in other real estate or high yield bonds, the
money that i'm paying back in interest and principle is going back to the lender
for them to invest.
...having a mortgage is good debt, b/c the interest paid on it is tax deductible. some of the wealthiest people in america have mortgages. they can easily pay it off, but they don't b/c it's one of the only few tax deductions they have. "

what do you guys think about these statements above? it makes sense to me. but
of course i'm still hesitant about the whole idea.

 

[QUOTE=TeAs2kEr,Jan 20 2005, 11:44 AM]thanks for the input!

the reason why i ask about the interest only refi, is b/c some friends of mine are
saying that i'm sitting on 'dead money' by not cashing out.

"...instead of using the money to invest in other real estate or high yield bonds, the
money that i'm paying back in interest and principle is going back to the lender
for them to invest.
...having a mortgage is good debt, b/c the interest paid on it is tax deductible.

 

Risky, but.....I think interest only loans are good if you are buying a house in a booming market.... you can afford more house..... but the house is going up in value at a great rate (like California, florida, NYC, Washington DC, etc...)....

so instead of buying a $200k house that you anticipate going up to $300k, maybe you can buy a $300k house that you anticipate will go up to $550k?

Derrryck knows a bunch about these mortages plus "pick a pay" type mortgages.


but.......if i were you TeAs2kEr, i would be happy that my house is being paid off quickly and that you will have a loan free house at some point..... better that, than to lose your ass in the stock market with the current equity.

 

^ that's a huge gamble however. you're betting that the local housing market will continue to "boom". if it just slows dramatically to rates more inline with the rest of the housing market, you're still stuck with an interest-only loan.

and if it actually stops... or, god-forbid, reverses... you could be in a financial creek that you may not have enough lifetime to claw your way out of.

$.02