i have the option of having a interest only loan .pay off loan over 10years. what are the down side and upside of interest only loan. the loan is adjusted after each pay off to have inetrest on new amount only
Welcome, exupser. Glad you could join us.The interest only loan gives you great flexibility to pay off your loan faster or slower depending on your financial circumstances at the time. That can be nice especially if your income varies from month to month say due to sales commissions or irregular investment income.The disadvantage is that if you fail to pay off the loan within the specified period, then the loan usually becomes due as a balloon payment (unless your loan specifies how it will be continued). Usually that forces you to go out and borrow the remaining funds somewhere else at the then current interest rate. And that rate is likely to be higher.You need to clearly understand what happens to interest rates on your loan. Interest rates now are at or near all time low rates. Your lender might like to have the ability to adjust the rate (higher) from time to time. Is yours clearly a fixed rate loan?If your rate is fixed and you pay it off within the 10 yrs specified it should be a good deal.
thanks. the loan is setup for 10 years current locked price about 5%. the lower the years eg. 5 years is less down to 1 year . after that time frame the loan would be whatever the market is doing..the loan is about 350k . i could pay off put seems prudent to keep the investment going for as long as posible ?
An adjustable rate mortgage (at lenders option) is to the lenders best advantage when interest rates are low. And you probably have no idea how high rates can get in the latter 5 years.If you can find a fixed rate mortgage for the whole period right now at todays low interest rate, that is probably a better deal. You can easily sit down with a spread sheet and work out what has to happen for any given rate to be equivalent.The loan you are talking about gives you low payments because you are paying no principle. But that is not a good deal if later you must pay higher interest rates or refinance at higher rates.Look out. Calculate carefully.
good thoughts. but i will have option of paying down loan to meet my needs. and if i can save 4 or 5 hundred a month . i guess why not?
Sounds like you are well aware of the upside and the downside. Its your choice to make.Best of luck to you.
Are the closing costs, points, rate, etc the same with the interest only loan? Usually they're more expensive.
good point i will check
In my opinion, ARMs can be a great vway to go. Most people refinance or sell there home between 3-7 years, so that ffixed rate really didnt do them any good. I am in the business and have seen people pay points to get a low fixed rate mortgage and come back 6months later to get a lower fixed rate mortage. Im on a 5 year balloon myself. I know in 5 years I will refinance to get out of pmi or move and sell my home. The banks want you to get a fixed rate mortgage because they make the most money that way and statistics show that very few people stay in a 30 year mortgage. If you are living in your dream home without paying pmi then it is definatly worth getting a fixed mortgage. It really depends on your personal situation. Oh yeah, ARms have caps to show you what the highest rate possible is. Way out your options.
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