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ahag | Can someone explain an interest only home loan to me? |
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quatt47
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An interest only Home Loan is just that. You borrow a sum of money over a term, say twenty five years, pay interest only until the twenty five years is up and then pay the sum borrowed off. There are basically three ways y=to pay it off:-
1 Take out an endowment life assurance policy that pays the loan off if you die. If you don't the premiums are invested to give a lump sum after 25 years.
2 Pay it from savings
3 Sell the house and keep the equity.
The problems with this type of loan is that any policy you take out may not provide enough to repay the loan. many policies have failed to do this and left hopeful purchasers with a debt at the end of the term.
You may not have saved enough.
You may not wish to sell your house.
The best way is to take out a Repayment Mortgage since that way you can be sure the mortgage will be gone and the house yours in 25 years.
Interest only loans are only recommended in certain circumstances. i.e. You are selling the house in a few years time. You have funds coming in that will repay the loan and you want to keep your costs down. Otherwise go for repayment. |
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herbie36f
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My friend David is a mortgage broker contact him at david31m@hotmail.com and he can help you out. |
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green3ch
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If you want to buy a $650k house for example. You and your husband will have to make a combined income of 650k/2.5 per year, or $130k per year EACH. No one makes that kind of money, and if you do my phone number is 555-1212 give me a call. So in order to satisfy the demand of people who no way can afford to purchase a home, banks offer interest only home loans. You never pay on the principal you just pay on the interest. After 5 years you sell your house and pay off the principal. Hopefully, every five years your home will increase in value so you can sell at $950k and still come out ahead. |
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sjh
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With an interest only home loan you will pay the interest as your monthly house payment and not pay on the principal. This is a great loan if it fits your situation. It can help you get into a more expensive house and still have a reasonable monthly payment. But, remember, this is payment on the INTEREST only and will not allow you to build equity in your home. I suggest doing some homework before deciding to do this. Ask someone in the industry what they think. |
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hihowrya
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Thats when you are basically paying only the interest and no principal. Most home equity lines of credit (HELOC) are interest only. You can pay principal to bring down the balance anytime you want: every month, some months, a lump sum once a year, etc.
It's not such a bad way to pay the loan, because the payment is going to be lower than an amortized loan (principal and interest payments), and you can pay that minimum amount when you need to. But you do have to be disciplined about it, and remember that when you only pay the interest, your not making progress toward paying off the debt.
They are usually variable rates, or rates that are fixed for a shorter amount of time (3 years, or 5 years, etc).
It can be very helpful for managing your monthly cash outflow, especially if your are in a situation where you home is appreciating at a rate that is significantly greater than your interest rate (like 10 or 15% per year). In that situation, you will be building equity (value minus debt) faster than you would be paying down your loan, and when you sell the home, you pay off the loan.
It's also helpful for folks who's incomes are not paid in a constant amount every month, like commissioned earners or self employed folks. When you have a little, pay the interest only. When you have a lot, through some extra in for the principal.
Remember, no one makes any money off of their house by paying off the mortgage. Appreciation and improving the property is where the money is made. Interest only loans let you keep a little extra in your pocket each month. |
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Ursus
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Usually when you take out a mortgage, different portions of the payment are applied to several different categories. For example there is interest, principal, insurance and taxes. At the beginning of the mortgage the preponderance of the payment is applied to interest (particularly on thirty year mortgages). As the mortgage ages, progressively larger amounts of the payment begin to whittle down the principal (or the amount you borrowed at the beginning)since the amount of interest accruing on the principal is less each month. As you lessen the principal the interest burden becomes less and less thus freeing up more of each monthly payment to be applied toward killing the principal.
In the case of an interest only mortgage, you are basically foregoing ever owning the mortgaged property outright since most of the payment applies to the interest and none to the principal.
I know the terminology can be confusing, but an interest free loan is bascially renting the money to purchase a property with no intent of ever paying it back or owning the property outright. The supposed advantage is that the monthly payment would be less since the amount that would normally apply to the principal is omitted. The theory is that the house will appreciate in value thus allowing you a gain without having to invest as much each month. In addition all mortgage interest is deductible usually .
The disadvantage is that there is no guarantee property prices will continue rising. There have been periods in history when they have been flat or even declined. In such a case you would be left in the unenviable position of owning a house whose value is less than the outstanding balance . The very name mortgage uses the prefix mort which means death. People used to focus on the responsibility of a monthly payment at some point dying. With the property bubbles we have had they are focused on leveraging their money by paying only interest and thus lowering the amount of the monthly payment. |
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curiositycat
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An interest only home loan is when you take out money to buy a home and you only pay on the interest. At the end of the loan period, you still owe all of the principal plus whatever interest rate it will go to. They sound really good at first, because they can help you to buy a home that you would not otherwise qualify for, but at the end, you pay much more than you would if you purchased a home using a traditional loan and built equity into the property. For example, if you took out an interest only loan for a $150,000 home at 11% interest, the total loan would be $166,500. But if you only paid on the 11% interest, at the end of that time you would still owe $150,000 on the home, and not have any equity built into that home. Basically, you rented for the entire time you paid on the interest only home loan. Plus you would be liable for any repairs or damages to the property. If you took out a traditional loan where you bought a $150,000 home at 11% interest, but you paid on the home for 5 years, part of your monthly payments would go toward principal so you would have equity (value, or asset) that you could borrow against if you needed a second mortgage. I hope this helps. |
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einstein
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It means that you don't actually repay the capital you have borrowed. You just pay the interest on the money borrowed. At the end of the loan term you have to pay back the capital amount of the loan. So if you borrowed 100k you would owe 100k at the end of the term. Hopefully you maybe able to sell the property at a profit to fund the capital repayment or you may have another investment to repay the captal amount of the loan. Someone will probably explain this in better detail but i haven't got the time to waste. |
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Jerry Curl
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Interest only means that you only pay interest each month instead of interest and principle. Because you only pay interest say for 5 years, your monthly payments are lower. The problem is that after say 5 years of making payments, you are still in the same place with the principle as when you first bought the house. Your best hope is that the value of your house goes up so that you can sell it for more than you paid for it. |
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csbreck
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It means just that. Your monthly payment is for just interest on the loan. The principle (amount borrowed) will never go down. You may choose to get this sort of loan if you believed your property was going to stay the same value or go up in value. The risk is that the property could go down in value and you end up with a loan on something that is not worth what you owe. It's also a way to keep your payment low and get you into the most home you can afford. ... not always the best idea. |
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