Interest only loan-would you do one? - Page 2

[EFmom]

No, I would not. If I really thought that I'd want to stay in the house forever, I'd look for a smaller house with expansion possibilities for somewhere down the road.

[Stayseeliz]

Interest only loans are a bad deal plain and simple. Don't be fooled by the "dream" of home ownership. If you can't afford a payment you can't afford a house. Houses come with repairs, updates, etc. We bought a house last year with a regular loan thinking DH would get a promotion at first and now we're going to rent it out and move to a smaller house to save money for awhile. You can never tell what the future holds!

[ibex67]

In general, for the average family, I think it's a risky idea and probably not a good one. However, we did just buy a home with one. For very specific reasons. We sold a home and made a lot of cash. In the 10 months we rented before buying another home, Dh invested the money from the other house [very wisely] and the money is growing steadily. Rather than pulling that money out of our investments and putting it into the house were it would appreciate very slowly, DH took out an interest only loan. Because when he does the math, the money makes more for us invested than sitting in the house as equity. It depends on interest rates and how much you can make investing it [and how safely you can invest it.]

So, I guess I am saying -- if you can buy *less* house than you can afford and put your money someplace where it will earn more for you -- then an interest-only loan can make sense.

[I am not sure, however, if my desciption makes sense, though!]

[DoubleOven]

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[Niamh]

Yes I would, and almost did with the house we just bought. I'm very careful (almost anal) with my money.

We bought way below what we could afford. An interest-only loan would have made sense if the rates were low enough-they weren't.

HOWEVER, we would have had the discipline to take the difference between what our payments were (say $700) and what they would have been with a 30-yr loan (say $1200) and throw that $500 into investments every month where they would make a LOT more money than sitting in house equity. We wouldn't have just thought "Woohoo! $500 extra a month!"

At the end of the loan we would have been able to pay off the loan in its entirety and have lots, lots, lots more left over. We may refinance if interest rates go down significantly (not seeing that happenin') and it makes financial sense.

[ibex67]

Originally Posted by Niamh

HOWEVER, we would have had the discipline to take the difference between what our payments were (say $700) and what they would have been with a 30-yr loan (say $1200) and throw that $500 into investments every month where they would make a LOT more money than sitting in house equity. We wouldn't have just thought "Woohoo! $500 extra a month!"

This is exactly the situation I was trying to describe below. Your description is much clearer!!! I think most people don't have that financial discipline or the knowledge of how to invest wisely/safely though. I know I wouldn't be able to do it. It is DH's commitment and discipline and knowledge that makes this option work for us.