UnThreaded | Threaded | Whole Thread (45) | Ignore Thread Prev | Next
Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127697  
Subject: Re: Steps to take Date: 1/20/2002 5:34 PM
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Recommendations: 1
Hi ACME,

If I understand correctly, it is basically a matter of determining the best allocation of funds at any time. If your cost of funds -- the after-tax interest rate -- is less than your available return elsewhere, you are better off in the interest-only loan because you can increase your overall wealth more quickly by keeping the money out of the house.

YES!!! You GOT IT! You PASS, go to the HEAD of the CLASS!!!

Are the interest rates on interest-only loans the same as the rates on regular loans? It seems like they should be the same since the bank is getting the same return on funds outstanding either way.

Yes... however only as of recently have aggressive, conforming loan lenders offered an interest-only loan at no premium pricing to a regularly ammortized loan.

Why would they have charge MORE for an interest-only loan in the past? They figured that every months' payment in a regular loan, when you gave them BACK some money, their risks were being reduced because they were at least getting some of their money back.

Now many lenders are looking at another side of the equation as safer and more profitable possibilities;

The lenders aren't forced to spend as much marketing money selling more loans in order to make their interest because their borrowers theoretically won't be forced to repay, therefore won't refi away from the existing lender as quickly,

If I have this correct, for the bank an interest-only loan would basically be the same as if they bought a bond from the home-buyer...they receive a fixed rate each month (similar to the coupon) and a lump-sum payment at some date down the road.
Please let me know if I have any of this wrong. It is certainly an intriguing option.
Thanks again Dave!


You got it perfectly!
Cheers,
Dave
Mortgage Fool
Post New | Post Reply | Reply Later | Create Poll . Report this Post | Recommend it!
Print the post  
UnThreaded | Threaded | Whole Thread (45) | Ignore Thread Prev | Next

Announcements

Useful Resources
Our Home Center has all you need to make buying and owning a home a great experience. Get or refinance a mortgage and much more!
Buying/Selling a Home FAQ

Mortgage Professor
Offsite resource for mortgage questions.
Pencils of Promise - Back to School Drive
"Pencils of Promise works with communities across the globe to build schools and create programs that provide education opportunities for children."
Post of the Day:
Berkshire Hathaway

IBM: Is Buffett Wrong, or Brilliant?
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Community Home
Speak Your Mind, Start Your Blog, Rate Your Stocks

Community Team Fools - who are those TMF's?
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and "#1 Media Company to Work For" (BusinessInsider 2011)! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.
Advertisement