financechoices
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| Interest only mortgages |
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What do you guys think of them?
UK Finance Forum | Loans | Credit Cards
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Fri Apr 21, 2006 7:48 am |
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pandashark
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| My debate over interest only loan |
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I am purchasing a condo, in which I will probably live for 5-7 years. One lender I've spoken to has recommeneded that I got with a 5 year interest only ARM, because idea is that one a 30 year fixed, I would basically be paying only interest for the first 10 years anyway. Since I don't plan to live there long term, he says that I should pay interest only when I live there, and invest the saved cash elsewhere, CD, stocks, whatever, to maximize my return.
This almost seems like sound advice to me, but something still bothers me about it, is there a flaw that I am mising here? The main drawback I can think of is that if I chose to stay in the property longer, or to at least keep owning it and renting it out, I would probably have to refi down the road, most likely at a higher interest rate.
So what do you all think of this situation? Is there some view point or other factor that I have missed here?I would not be using an interest only loan to just stretch my means here, but I could seriously reinvest the cash flow. however, my financial adviser and my parents have advised me to just stick with a 30 year fixed, and I am just kind of torn between the two.
Oh, in case anyone is interested, I am buying in San Diego, in the Mission Valley Area specificilly.
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Wed May 03, 2006 4:14 am |
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bong12187
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| Re: My debate over interest only loan |
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quote:
Originally posted by pandashark
I am purchasing a condo, in which I will probably live for 5-7 years. One lender I've spoken to has recommeneded that I got with a 5 year interest only ARM, because idea is that one a 30 year fixed, I would basically be paying only interest for the first 10 years anyway. Since I don't plan to live there long term, he says that I should pay interest only when I live there, and invest the saved cash elsewhere, CD, stocks, whatever, to maximize my return.
This almost seems like sound advice to me, but something still bothers me about it, is there a flaw that I am mising here? The main drawback I can think of is that if I chose to stay in the property longer, or to at least keep owning it and renting it out, I would probably have to refi down the road, most likely at a higher interest rate.
So what do you all think of this situation? Is there some view point or other factor that I have missed here?I would not be using an interest only loan to just stretch my means here, but I could seriously reinvest the cash flow. however, my financial adviser and my parents have advised me to just stick with a 30 year fixed, and I am just kind of torn between the two.
Oh, in case anyone is interested, I am buying in San Diego, in the Mission Valley Area specificilly.
Hmmm... If you are not going to be selling it within 5 years, I would go for interest only but I would try to get more than 5 years(I think your timeframe is 5-7 years). If you get a standard loan with interest rate of 6.5 with 30 years to pay on a 250k, you would be paying 79k in interest and 17k in principal payment within 5 years. Since you only plan to keep it within 5-7 years, I recommend to get the interest financing only. You can use the 17k and put it in other investment venue. I don't know what the market like in San Diego so I am not going to speculate on what the real estate will be like five years from now, but Hawaii and Guam (where I am at) we see a continues bubble for the next five years. One, we are on an island so we are running out of land. Two, there are 8k marines that are coming here to Guam from Japan with a five year drawdown plan (Hawaii is also getting a plus up with military buildup of about 10k) So please look at the market and see what is going on in San Diego. Good luck to you...
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Sat May 06, 2006 9:34 pm |
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pandashark
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Well, I ended up going in for the long haul. I actually got financing through the CalHFA program, and got a pretty good rate on a 30 year fixed. One of the stipulations is that I have to own the place for at least 9 years. I figured with my income situation as it is, even if I move out of this property, I'll just hang onto it and rent it out for at least the 9 years, if not longer.
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Wed May 17, 2006 3:11 am |
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