Interest only home loans?

DR3AMR · February 12th, 2007, 02:24 PM

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.

frenchman · February 12th, 2007, 02:49 PM

Pretty much it is the same as renting, except that instead, you will participate in any appreciation, or depreciation, in the value of your home.
One big advantage...it is tax deductable.

It is a good idea if you are going to stay in a home less than 5 yrs. If you are planning to stay longer, you have to realize that you are not putting any equity onto the value of your house thru ypur mortgage.

Now, I really want to strongly caution you against thinking of an IO simply because the appreciation over the course of the 6-7 years... would more than make up for it.
My personal opinion, for what it is worth, is that housing will not likely see the appeciation it has enjoyed over the last 35 yrs, and particularly the last 12 yrs, in decades.
Thats right...decades.

Traditionally, housing is a lousy investment. It has to appreciate faster then the rate of the mortgage and the amount of property tax each year to hold even. Throw in maintainance costs and it gets pretty expensive.
Be sure, when comparing it to rent, that you factor in the true cost of owning and maintaining a home.
Dont forget the 5% hit when you sell it.

Some reasons I expect housing to underperform...baby boomers are retiring and will be downsizing their homes, homes have appreciated off the charts vs rents, and we have a generation of younger people, like yourself, who cannot afford homes.

I think housing will underperfrom for at least a decade.

So...I personally would counsil against buying a home on the idea it will appreciate faster then the mortgage.
It may beat rents in your area, but do your homework carefully, and think of it as a roof over your head rather than an investment

bedir than average · February 12th, 2007, 03:09 PM

An opinion on the condo/townhome market french?

Oddly the Puget Sound area (Seattle,etc) has a booming condo market, where as much of the nation does not. Yet with single family homes being out of price range for many first time buyers do you think this market will grow over time?

DR3AMR · February 12th, 2007, 03:23 PM

That's all they are building in ATL. Even in the burbs, townhomes/condos are popping up everywhere. But, most are still priced much higher than even 2nd teir family homes ($400K+).

dlb · February 12th, 2007, 03:35 PM

Sheesh, $400K for a normal-sized family home. I can't think of any city I want to live in that much.

Nocahoma · February 12th, 2007, 07:33 PM

The condos in downtown Raleigh are up over $350K. They are pretty sweet, but if I am going to pay that much for a home, I damn sure want to own the land it's sitting on.

LongtimeBravesFan · February 12th, 2007, 09:15 PM

There are houses down the street from me for under $200,000. Won't you be my neighbor?

The Truth · February 12th, 2007, 09:17 PM

Quote:

Originally Posted by Nocahoma

The condos in downtown Raleigh are up over $350K. They are pretty sweet, but if I am going to pay that much for a home, I damn sure want to own the land it's sitting on.

You don't even want to hear about Chicago...

Nocahoma · February 12th, 2007, 09:38 PM

Where you iz, LBF?

gilesfan · February 12th, 2007, 09:44 PM

Quote:

Originally Posted by frenchman

Pretty much it is the same as renting, except that instead, you will participate in any appreciation, or depreciation, in the value of your home.
One big advantage...it is tax deductable.

It is a good idea if you are going to stay in a home less than 5 yrs. If you are planning to stay longer, you have to realize that you are not putting any equity onto the value of your house thru ypur mortgage.

Now, I really want to strongly caution you against thinking of an IO simply because the appreciation over the course of the 6-7 years... would more than make up for it.
My personal opinion, for what it is worth, is that housing will not likely see the appeciation it has enjoyed over the last 35 yrs, and particularly the last 12 yrs, in decades.
Thats right...decades.

Traditionally, housing is a lousy investment. It has to appreciate faster then the rate of the mortgage and the amount of property tax each year to hold even. Throw in maintainance costs and it gets pretty expensive.
Be sure, when comparing it to rent, that you factor in the true cost of owning and maintaining a home.
Dont forget the 5% hit when you sell it.

Some reasons I expect housing to underperform...baby boomers are retiring and will be downsizing their homes, homes have appreciated off the charts vs rents, and we have a generation of younger people, like yourself, who cannot afford homes.

I think housing will underperfrom for at least a decade.

So...I personally would counsil against buying a home on the idea it will appreciate faster then the mortgage.
It may beat rents in your area, but do your homework carefully, and think of it as a roof over your head rather than an investment

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.

Almost all of your payments the first 7 years go towards interest anyways. A couple advantages of the IO loan are lower monthly payment. Important though, put the extra money your saving in some sort of investment plan.

House appreciation

The tax write off for interest

Personally though, I probably wouldn't want to do an IO loan without some equity in the home. If your buying the house for what its appraised for without a significant down payment, I probably woudn't do the IO loan.

LongtimeBravesFan · February 12th, 2007, 09:50 PM

Quote:

Originally Posted by Nocahoma

Where you iz, LBF?

About 25 miles south of Birmingham.

Nocahoma · February 12th, 2007, 10:54 PM

Forget that, LBF! lol I thought you were somewhere here in the Research Triangle of NC. Rest assured, though, if I were ever to deign to live in Alabama, it would certainly have to be in the oasis that is Birmingham.

Q: Know why all the trees in Georgia lean west?

Nighthawk · February 13th, 2007, 06:22 AM

Quote:

It may beat rents in your area, but do your homework carefully, and think of it as a roof over your head rather than an investment

Bingo, French.

DiamondDave · February 13th, 2007, 07:01 AM

I personally have a loan that is interest only for 5 years, then conventional 20 year mortgage after that... with my divorce and all, and what I had to do to buy the witch out so I could keep the home for me and my kids, this was a good option.

The housing market in my area has been very good. I have the option for the lower interest only payment if $$$ is tight for any reason, but in general I try and put $400 per month towards the principle on top of the minimum payment... this way also, with the adjusted principle, the minimum payment then lowers, and I can actually afford more toward principle with the same amount payment... I have a couple hundred K in equity still, and as the values grow, I will still be in good shape.

LongtimeBravesFan · February 15th, 2007, 02:43 AM

Quote:

Originally Posted by Nocahoma

Forget that, LBF! lol I thought you were somewhere here in the Research Triangle of NC. Rest assured, though, if I were ever to deign to live in Alabama, it would certainly have to be in the oasis that is Birmingham.

Q: Know why all the trees in Georgia lean west?

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.

February 12th, 2007, 02:24 PM	#1 (permalink)
DR3AMR Hall of Famer Join Date: Nov 2006 Location: Atlanta Posts: 6,202	Interest only home loans? 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. __________________ Gingrich/Petraeus 2012

February 12th, 2007, 02:49 PM	#2 (permalink)
frenchman Senior Member Join Date: Nov 2006 Posts: 2,969	IO loans Pretty much it is the same as renting, except that instead, you will participate in any appreciation, or depreciation, in the value of your home. One big advantage...it is tax deductable. It is a good idea if you are going to stay in a home less than 5 yrs. If you are planning to stay longer, you have to realize that you are not putting any equity onto the value of your house thru ypur mortgage. Now, I really want to strongly caution you against thinking of an IO simply because the appreciation over the course of the 6-7 years... would more than make up for it. My personal opinion, for what it is worth, is that housing will not likely see the appeciation it has enjoyed over the last 35 yrs, and particularly the last 12 yrs, in decades. Thats right...decades. Traditionally, housing is a lousy investment. It has to appreciate faster then the rate of the mortgage and the amount of property tax each year to hold even. Throw in maintainance costs and it gets pretty expensive. Be sure, when comparing it to rent, that you factor in the true cost of owning and maintaining a home. Dont forget the 5% hit when you sell it. Some reasons I expect housing to underperform...baby boomers are retiring and will be downsizing their homes, homes have appreciated off the charts vs rents, and we have a generation of younger people, like yourself, who cannot afford homes. I think housing will underperfrom for at least a decade. So...I personally would counsil against buying a home on the idea it will appreciate faster then the mortgage. It may beat rents in your area, but do your homework carefully, and think of it as a roof over your head rather than an investment

February 12th, 2007, 03:09 PM	#3 (permalink)
bedir than average Hall of Famer Join Date: Nov 2006 Location: Starbucks Posts: 8,258	An opinion on the condo/townhome market french? Oddly the Puget Sound area (Seattle,etc) has a booming condo market, where as much of the nation does not. Yet with single family homes being out of price range for many first time buyers do you think this market will grow over time? __________________ I'm sorry I left for a while. I needed a vaction, and then work changed substantially. I'm over 50 hour weeks, plus two hours a day of commuting time. A few weeks ago I launched my own blog about Seattle Sounders FC and Life in Puget Sound. I won't be by these parts often as my focus has changed. Sorry about the unannounced retirement.

February 12th, 2007, 03:23 PM	#4 (permalink)
DR3AMR Hall of Famer Join Date: Nov 2006 Location: Atlanta Posts: 6,202	That's all they are building in ATL. Even in the burbs, townhomes/condos are popping up everywhere. But, most are still priced much higher than even 2nd teir family homes ($400K+). __________________ Gingrich/Petraeus 2012

February 13th, 2007, 07:01 AM	#14 (permalink)
DiamondDave Hall of Famer Join Date: Nov 2006 Location: MD, on the Potomac River Posts: 5,390	I personally have a loan that is interest only for 5 years, then conventional 20 year mortgage after that... with my divorce and all, and what I had to do to buy the witch out so I could keep the home for me and my kids, this was a good option. The housing market in my area has been very good. I have the option for the lower interest only payment if $$$ is tight for any reason, but in general I try and put $400 per month towards the principle on top of the minimum payment... this way also, with the adjusted principle, the minimum payment then lowers, and I can actually afford more toward principle with the same amount payment... I have a couple hundred K in equity still, and as the values grow, I will still be in good shape. __________________ Reagan in 08... Even though he's dead, he's the better choice! Superdelegates - Because even the Democratic party knows it's base is too stupid to make really important decisions.

February 12th, 2007, 03:35 PM	#5 (permalink)
dlb Hall of Famer Join Date: Nov 2006 Posts: 5,511	Sheesh, $400K for a normal-sized family home. I can't think of any city I want to live in that much.

February 12th, 2007, 07:33 PM	#6 (permalink)
Nocahoma Moderator Join Date: Dec 2006 Posts: 1,238	The condos in downtown Raleigh are up over $350K. They are pretty sweet, but if I am going to pay that much for a home, I damn sure want to own the land it's sitting on.

February 12th, 2007, 09:15 PM	#7 (permalink)
LongtimeBravesFan Senior Member Join Date: Nov 2006 Posts: 4,660	There are houses down the street from me for under $200,000. Won't you be my neighbor?

February 12th, 2007, 09:38 PM	#9 (permalink)
Nocahoma Moderator Join Date: Dec 2006 Posts: 1,238	Where you iz, LBF?

February 12th, 2007, 10:54 PM	#12 (permalink)
Nocahoma Moderator Join Date: Dec 2006 Posts: 1,238	Forget that, LBF! lol I thought you were somewhere here in the Research Triangle of NC. Rest assured, though, if I were ever to deign to live in Alabama, it would certainly have to be in the oasis that is Birmingham. Q: Know why all the trees in Georgia lean west?