Interest only home loans?

[summer]

Originally Posted by DR3AMR

Anyone doing one?

What are the drawbacks verses continuing to throw money away on renting? Are they usually all adjustable rate?

The wife and I are seriously considering it as an option. I don't really worry too much about not paying any principle every month because I figure that the appreciation over the course of the 6-7 years we would be living in the house would more than make up for it.

We're just sick of renting (we've both been living in apartments for the last 11 years), but don't really have the means to be paying a traditional mortgage at this point in time.

Any input would be greatly appreciated.

If I'm not mistake you live in the GA-400 corridor right. You may have to commute but there is some very nice homes outside Metro-Atlanta that doesn't cost arm and leg on a mortgage.

[Nocahoma]

Originally Posted by LongtimeBravesFan

The medical field is big here, so you would do well if you did move here. Also, the night life isn't bad from what I've heard, too old and married for that now. Last year's American Idol used to roam the bars of the Southside. Plus you could see the M-Braves when they come to town.

A: Because Alabama sucks.

I know all about B-ham -- used to visit there quite a bit. It is big in Medicine & Science, and there is a pretty good nightlife down around 5 Points.

Q: What's the State Flower of Alabama?

[frenchman]

While Frenchman seems like a pretty smart guy, I think he's very pessimistic. I think with population continuing to grow, people need a place to live and homes will do just fine. Probably not the appreciation of the past 5 years, but significantly more than inflation.

...sorry, but you make no case for housing price appreciation to rise "significantly more than inflation".

You premise is wrong, the actual number of people working is projected to fall in the future as our population ages. As baby boomers age, you can expect their need for housing to decrease and downsize, especially as housing represents a significant portion of baby boomer assets needed in retirement.

A great deal of the real estate boom has been a bit of a financial "bubble" and these things rarely continue. When the stock market had its sharo depreciation in 2000-2001, many people jumped into housing, lifting prices to their peak alongside of very cheap financing.

Here is a price of real (adjusted for inflation) housing prices. You tell me if housing is set to appreciate "significantly more than inflation."



The New York Times > Week in Review > Image > Graphic: A History of Home Values

[kflo]

note that IO can also be good for those with either uneven income flow (or large year-end bonus). also note that there are IOs with option for principle repayment. the principle repayment then decreases your future interest payments.

the person who shouldn't use an IO is the one who is using it to get into a house they otherwise couldn't afford and needs the price appreciation to ultimately not have to foreclose upon expiry of IO period.

i will be taking out a 10 year IO with fixed interest rate. my target YE bonus is close to 50% of my base salary, and my wife is building her psychology practice that will generate more income over time as the kids get older and she has more time to work. plan to pay down principle once or twice a year. and we're buying a house we think we can stay in for 30 yrs (if i can put up with an hour+ commute to the city every day).

i am concerned about the size of the mortgage and the unknown costs of a home though. we will be first time homeowners (sat on sidelines during entire housing boom). but i do think IO makes sense.

with summer camp at $10K a year total (2 kids), and child care of $12K, and real estate tax of $15K (long island, ny), i've allocated about $100K in total expenses a year. anyone with a rule of thumb as to what the mortgage to income ratio should be based on this? i know the lenders have an extreme view on this.

IO would also make sense if you expect to have an alternative investment that will earn more on an after-tax basis than your loan rate.

[D55]

My current home is my 26th and I have never done an IO. It is, was, and will always be far too much of a risk IMO.

I almost went Libor when I bought this one but at the last minute decided on 30 yr fixed at 5.35%...turned out dandy me thinks.

OTOH, if you are around ATL, I'll sell you mine as I am one of the aforementioned boomers wanting to downsize.

[frenchman]

It is, was, and will always be far too much of a risk IMO.

..."too much of a risk"??

Sorry...but what are you talking about?
If you have had 26 houses so far, then you have not spent much time paying down principle. Not much difference.

Do you understand what an IO is?

[dlb]

My current home is my 26th...

I once knew a very wealthy man whose hobby was collecting historically important homes (not necessarily ones that had been lived in by historical figures, but ones that represented particular architectural styles in particular places). Even he didn't have 26, though.

[D55]

Do you understand what an IO is?

Do you understand that it is rude to constantly question my posts as rarely as they exist?
Yes, I am aware of what IO means. Further, yes, I feel an IO is too much of a risk. Within two years of my latest purchase, the interest rate increase created a jump of almost $350 a month in payments in my case. Do you mind if I don't care to pay interest only when the adjustable rate can effect you that much in that short of a time?
Thousands of people across the US are forced into bankruptcy because of the short sightedness of buying into these ARM's or IO's. Lastly, most of the IO's I have seen force a buyer into accepting a short term balloon or limited term before a forced refi is to occur (at a much higher rate no doubt) , to get the deal. Suicide, if your living paycheck to paycheck.

[D55]

And you're correct, I have not paid down a lot of principle in my dealings. But each was a primary residence so I really didn't know at a given time, which would be flipped within a year and which I would actually live in for a longer period of time. Hence my concern regarding interest rate at the time.


On edit:

I suppose if you lock in to one of the 10/30 deals, it would work out better than my experience has been. I doubt I personally would hang on to a property long enough to make it beneficial.

[gilesfan]

I work in real estate and have a degree in real estate so mine is a little more "thought out" than you might think.

http://www.wachoviasec.com/wachovias...cember2006.pdf

"The net result will likely be an extended period of time of very modest home price appreciation, like we saw in the early 90's."

[gilesfan]

Right, you can get IO fixed rate loans. Take the little bit of money your saving per month and put in other investments.

[frenchman]

Do you understand that it is rude to constantly question my posts as rarely as they exist?
Yes, I am aware of what IO means. Further, yes, I feel an IO is too much of a risk. Within two years of my latest purchase, the interest rate increase created a jump of almost $350 a month in payments in my case.

...so it is an ajustable rate that you think is risky, not the fact that the loan is "interest only".
Sorry, I did not mean to come off as rude, but I suspected that you were a bit off on your reason, as outlined above.

No offense was intended, I assure you

[LongtimeBravesFan]

Are IOs only at an adjustable rate?

[frenchman]

"The net result will likely be an extended period of time of very modest home price appreciation, like we saw in the early 90's."

...do you understand the difference between "modest home price appreciation" which you just cite and your earlier post which I disagree with where you assert prices will appreciate "significantly more than inflation."?

Ha! ..you basically are agreeing with me, bonehead! "Very modest" is not "significantly more than inflation"

More from your own link:

We project residential housing construction will start to stabilize in 2008

The decline in new home construction that started a year ago has accelerated in the past two quarters, and further declines look likely in 2007

[kflo]

Originally Posted by kflo

i will be taking out a 10 year IO with fixed interest rate. my target YE bonus is close to 50% of my base salary, and my wife is building her psychology practice that will generate more income over time as the kids get older and she has more time to work. plan to pay down principle once or twice a year. and we're buying a house we think we can stay in for 30 yrs (if i can put up with an hour+ commute to the city every day).

i am concerned about the size of the mortgage and the unknown costs of a home though. we will be first time homeowners (sat on sidelines during entire housing boom). but i do think IO makes sense.

with summer camp at $10K a year total (2 kids), and child care of $12K, and real estate tax of $15K (long island, ny), i've allocated about $100K in total expenses a year. anyone with a rule of thumb as to what the mortgage to income ratio should be based on this? i know the lenders have an extreme view on this.

ok, bickering real estate gurus - any response to the above? i'm close to making the dip (had 1 deal fall through already), but am still a little nervous about the size of the mortgage.