Author Topic: Interest only Loans  (Read 1756 times)

0 Members and 1 Guest are viewing this topic.

Offline OC_relocation

  • Tourist
  • *
  • Thanks
  • -Given: 9
  • -Received: 13
  • Posts: 80
Interest only Loans
« on: October 16, 2019, 02:40:38 PM »
Folks:

If interest only loan is available, would you choose it with just .125% higher rate than P&I option.

Example:
P&I: 4%
Interest Only: 3.875%

Lets assume individual is stable financially, have enough reserves, and will contribute separately towards principals.

Online USCTrojanCPA

  • Your CPA Realtor
  • Certified Irvine Addict
  • ****
  • Thanks
  • -Given: 2248
  • -Received: 1797
  • Posts: 8760
  • Gender: Male
Re: Interest only Loans
« Reply #1 on: October 16, 2019, 05:03:36 PM »
Folks:

If interest only loan is available, would you choose it with just .125% higher rate than P&I option.

Example:
P&I: 4%
Interest Only: 3.875%

Lets assume individual is stable financially, have enough reserves, and will contribute separately towards principals.


I would but then again I would invest the monthly savings and know how to budget (I/O loans aren't for everyone). 
Martin Mania, CPA
AgencyOne
CA BRE License # 01799007
CA CPA License # 107675
mmania001@yahoo.com
714-747-3884 cell

Often imitated....Never duplicated!

Offline Mety

  • Certified Irvine Addict
  • ****
  • Thanks
  • -Given: 174
  • -Received: 214
  • Posts: 1948
Re: Interest only Loans
« Reply #2 on: October 17, 2019, 10:43:44 AM »
Folks:

If interest only loan is available, would you choose it with just .125% higher rate than P&I option.

Example:
P&I: 4%
Interest Only: 3.875%

Lets assume individual is stable financially, have enough reserves, and will contribute separately towards principals.


I would but then again I would invest the monthly savings and know how to budget (I/O loans aren't for everyone).

I believe you meant to say IO is 4%?

If it's only .125% difference, then I also would. It would be WAY cheaper for monthly payments and what else is there to lose even if you don't save/invest?

The only down side would be if you have to sell when the home price is lower than the price you bought, but then not selling it and renting it instead would solve the problem, no?

Offline Liar Loan

  • Certified Irvine Addict
  • ****
  • Thanks
  • -Given: 648
  • -Received: 434
  • Posts: 2042
Re: Interest only Loans
« Reply #3 on: October 17, 2019, 11:07:34 AM »
Folks:

If interest only loan is available, would you choose it with just .125% higher rate than P&I option.

Example:
P&I: 4%
Interest Only: 3.875%

Lets assume individual is stable financially, have enough reserves, and will contribute separately towards principals.


I would but then again I would invest the monthly savings and know how to budget (I/O loans aren't for everyone).

I believe you meant to say IO is 4%?

If it's only .125% difference, then I also would. It would be WAY cheaper for monthly payments and what else is there to lose even if you don't save/invest?

The only down side would be if you have to sell when the home price is lower than the price you bought, but then not selling it and renting it instead would solve the problem, no?

Another downside is that if they stay put, eventually they will owe the fully amortized payment over a shorter term (most likely 20 or 25 years), meaning a much higher payment than if they did a fully amortizing payment to begin with over 30 years.  For those that are skilled managers of their finances, this isn't a problem, but it goes without saying that many IO's underwritten from 2004-07 were to people who weren't skilled with their finances. 

Be cautious and make sure you have the capacity to afford those higher payments if you plan to stay long term.

Offline Mety

  • Certified Irvine Addict
  • ****
  • Thanks
  • -Given: 174
  • -Received: 214
  • Posts: 1948
Re: Interest only Loans
« Reply #4 on: October 17, 2019, 11:14:33 AM »
Folks:

If interest only loan is available, would you choose it with just .125% higher rate than P&I option.

Example:
P&I: 4%
Interest Only: 3.875%

Lets assume individual is stable financially, have enough reserves, and will contribute separately towards principals.


I would but then again I would invest the monthly savings and know how to budget (I/O loans aren't for everyone).

I believe you meant to say IO is 4%?

If it's only .125% difference, then I also would. It would be WAY cheaper for monthly payments and what else is there to lose even if you don't save/invest?

The only down side would be if you have to sell when the home price is lower than the price you bought, but then not selling it and renting it instead would solve the problem, no?

Another downside is that if they stay put, eventually they will owe the fully amortized payment over a shorter term (most likely 20 or 25 years), meaning a much higher payment than if they did a fully amortizing payment to begin with over 30 years.  For those that are skilled managers of their finances, this isn't a problem, but it goes without saying that many IO's underwritten from 2004-07 were to people who weren't skilled with their finances. 

Be cautious and make sure you have the capacity to afford those higher payments if you plan to stay long term.

Oh yes, I forgot to add. If it's for a long term, then NO, DON'T GET IO LOANS.

Offline Soylent Green Is People

  • Abiding Dude. Housing focused
  • Certified Irvine Addict
  • ****
  • Thanks
  • -Given: 816
  • -Received: 1059
  • Posts: 2203
  • 3 John, Ch 1 V 2
Re: Interest only Loans
« Reply #5 on: October 24, 2019, 06:22:55 PM »
IO's are a tool, nothing more. Yes, at .125% you are paying a premium over time, but if you need the IO benefits for some reason that hasn't yet presented themselves to you, the IO loan will be well worth the slightly higher rate.

Another nice feature of IO loans is that if your income is bonus driven, you can plop $20k down on October 30th, and your December 1st payment will be lower due to the reduced balance.

My .02c

Online USCTrojanCPA

  • Your CPA Realtor
  • Certified Irvine Addict
  • ****
  • Thanks
  • -Given: 2248
  • -Received: 1797
  • Posts: 8760
  • Gender: Male
Re: Interest only Loans
« Reply #6 on: October 25, 2019, 06:03:07 PM »
Yup, and then you'll get a lower payment on the full amortization (20 year portion).  How do banks underwrite I/O loans?  At the stated rate for fixed loans and at the qualifying rate for ARMs (index plus margin)?
Martin Mania, CPA
AgencyOne
CA BRE License # 01799007
CA CPA License # 107675
mmania001@yahoo.com
714-747-3884 cell

Often imitated....Never duplicated!

Offline dadbodmortgage

  • Newbie
  • Thanks
  • -Given: 0
  • -Received: 0
  • Posts: 1
Re: Interest only Loans
« Reply #7 on: November 08, 2019, 04:56:04 PM »
The qualification rate calculation will usually vary depending on the lender/investor.  Some investors will amortize over 20 years based on the index + margin. Some will go off of start rate. They will normally also require more reserves.

Offline Soylent Green Is People

  • Abiding Dude. Housing focused
  • Certified Irvine Addict
  • ****
  • Thanks
  • -Given: 816
  • -Received: 1059
  • Posts: 2203
  • 3 John, Ch 1 V 2
Re: Interest only Loans
« Reply #8 on: November 08, 2019, 05:19:50 PM »
The Biggie's writing IO loans wont fund FTHB's, keep the DTI's at 40 or less, and usually 18-24 months of cash reserves.

Refinancing Non-Owner up to 4 units pencils out nicely if your loan to value is under 60 percent.

My .02c

Offline peregrine

  • Tourist
  • *
  • Thanks
  • -Given: 9
  • -Received: 0
  • Posts: 11
Re: Interest only Loans
« Reply #9 on: March 20, 2020, 02:39:03 PM »
Considering an IO. Has the current environment changed the pros/cons described here? Thanks.

Offline Soylent Green Is People

  • Abiding Dude. Housing focused
  • Certified Irvine Addict
  • ****
  • Thanks
  • -Given: 816
  • -Received: 1059
  • Posts: 2203
  • 3 John, Ch 1 V 2
Re: Interest only Loans
« Reply #10 on: March 20, 2020, 04:16:59 PM »
Other than the qualifying standards are much too stringent (IMHO), nothing really has changed with IO loans.

The thing most homeowners do not really grasp is that IO is a MINIMUM payment. You can amortize the loan at will if you prefer by paying a higher payment every month. Yes, few people do as it's comfortable making a very, very low payment. Those who manage money well have this flexibility that comes in handy - paying the minimum during lean times, maximum whenever possible.

In these times of economic uncertainty IO loans can be a genuine lifeline. Example: if you took a 2.75% 15 year fixed rate, say on a $500,000 loan your payment is $3,393 per month. If you took a 30 year IO at 2.750, your payment would be $1,145. Now that the SHTF and it's looking dire for many employees, would you rather now pay $1,145, or still keep chugging on at $3,393? During the good times? Sure, and your loan will pay down quickly. During these uncertain times, when cash is king? That $1,145 sure looks tempting.

My .02c -
.001c if IO...
 

The following member(s) thanked this post:


 

Talk Irvine Links

[Recent Posts]
[FAQ / Rules]

Site Supporters



Related Links

Recent Posts

Re: Protest, Riot, Curfew by adventurous
[Today at 11:39:42 AM]


Re: Protest, Riot, Curfew by adventurous
[Today at 11:38:21 AM]


Re: Protest, Riot, Curfew by eyephone
[Today at 11:37:03 AM]


Re: Protest, Riot, Curfew by irvinehomeowner
[Today at 11:35:44 AM]


Re: Working From Irvine Homes by USCTrojanCPA
[Today at 11:35:19 AM]

SimplePortal 2.3.5 © 2008-2012, SimplePortal