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noed | Is a deferred interest loan good for people who make very average money.? |
We have currently signed up for this outrageous deferred interest program where we make minimum payments to our lender then put a small ammount into a high yield investment account to pay the deferred interest later. We know we will have to refinance in 2-3 years, but for a larger ammount that we cannot afford. We are just freaking out here and need some help from someone who just doesnt want our money! |
 |
 
glenn
|
OK I just read your question carefully the second time and it looks like you are saying you haven't closed on this loan yet.
Don't close on it. If you are required somehow to go ahead and buy the house go to some other lender- don't use this guy.
Ask you friends that have bought houses recently who they used as a lender and ask if they were happy with them. Use someone they have had good experience with.
I bet you can qualify for a better loan than this-one that doesn't put you in such a bad shape.
A home should be where you can relax, it shouldn't be something that freaks you out like this. |
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Joe K
 |
I'm going to make the assumption that you are talking about a negative amortization loan. Deferred Interest is a nice way of telling you your loan balance is going up...
Normally, unfortunately, these are not good programs to be in. I have seen, on very special occasion, where these programs make sense. If you are using this program to buy a bigger house than you can afford, my instinct is that is not the best reason to do this. I am a huge fan of interest only loans, although those have some additional risk in many real estate markets today.
My advice to you, if you are already in this program, is to try to pay more than the minimum payment. If you have a great investment that is making a ton of money, you may be better investing it - but I don't know of any 2-3 year investments that are guaranteed to yield more than the interest that is guaranteed to defer. If at all possible, make the total payment so that your prinicpal balance is not going up! This won't solve your problem, but it may keep you out of bankruptcy or foreclosure.
I'm curious as to why you signed up for this. You seem to have a perfect understanding of what you did.
My two remaining comments are:
1) If you are in a rare real estate market that is appreciating - and they do exist, you will probably be ok when you are forced to sell in 2-3 years b/c you cannot afford to refinance
2) If you are expecting to be making considerably more in 2-3 years, than it may be a way to get you to that point. I know someone who was expecting a large trust fund to start in just 2 years. Well, he wanted to live better than he could afford to today, knowing that tomorrow he could afford that and more. That is one of the rare instances where it makes sense.
Post more questions if you have them. Good luck. |
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willow_j_2004
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It's never a good idea to buy something you don't have the means to pay for. I believe you may be the victim of predatory lending. Lenders give people the option to make very small minimum payments to their loans so they will end up paying more interest, and the lender makes more money. They claim that because of this their loans are affordable to anyone. Don't be fooled. The smaller the payments, the longer it will take to pay the loan off, and the more interest you will owe. You are paying the lenders to use their money, and the longer you are using it, the more you will have to pay. It would have been best to avoid becoming the victim of predatory lending in the first place, but I recommend if possible paying higher than the minimum payments, as much as you can afford. This way you will get out of debt sooner and end up paying less money. As always, educate yourself before entering into a contract like this. Yes, these companies just want your money. But if you are smart about it, you can protect yourself in the future. |
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fuzzykitty
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can you get out of it? If your high yeild investment doesn't yeild your credit is going to be nile. And what ever you purchaced will be reposessed. |
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J O
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If it is outragous why did you sign up for it? |
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1 Hr Bookkeeper
 |
This sounds to me like something called a NegAm loan. Basically, you would be losing equity every year because you are paying less than the minimum. Sounds like it sucks, but that is not necessarily the case. You have to consider a couple things when looking at a loan like this. Ask yourself these questions:
1) When is the balloon payment due? Three years? Five Years? Ten Years? (The farther out the balloon payment, the longer you can keep that money in your pocket and the more affordable your lifestyle will be.)
2) Are you in a housing market where the price of homes appear to be going up, even if the increase is slow? (Consider this. You may be losing $1,000 a year in equity through interest owed, but you may also be gaining $10,000 a year in equity through an increase in your home's value.)
3) Lastly, how long are you planning on living in this house? (If you are planning on moving out before the balloon payment is due, then it would be a good option. Say you live in the house for five years and lose $5,000 total over the five years, but your home appreciates $50,000...that means you're walking away with $45,000 in your pocket, and you've saved all that money for five years making your life less stressful and giving you more money for fun stuff like travel.)
Basically, real estate is a game of leverage. The more equity (leverage) you have, the more buying power you have. The more money you keep in your pocket, the better your lifestyle. Nowadays, most people move up every couple years because they get raises and want better things. Don't be afraid of "creative financing," because if you ever hit hard times, you can move out, rent your home out and make a positive cash flow, and that will help you pay for something else.
Hope this helps. |
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