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besides, nothing prevents you from paying more on the principle each month
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I skeptical. The interest-only loans are being used in areas that are the most healthy economically.Originally posted by Japher
I'm not predicting the end of the world. I'm predicting a recession.I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891Comment
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Depends--Originally posted by rah
Granted I agree about staying away from interest only type mortages, but just for grins, on a traditional mortgage, how much principle do you believe you pay off in the first three years of the loan. NOT MUCH.
I remember after the first year reading the statement and I had paid over 10 grand in interest and the principle reduction was around 600 dollars.
We took a "20 year " amortization to start but paid biweekly which cuts it to 17 plus years. After 3 years we went to 15 year amortization (biweekly) and plus upped the payments a little-- NOTE TO EVERYONE- THIS MAKES A HUGE DIFFERENCE
Payments on principle made up 52% of my last mortgage payment and that ratio only gets better all the time. WE should own our home in about 10 years
Your 30 year mortgage looks a lot like an interest only one . The longer the amortization the more they look like the interest only type. My advice to anmyone is at a MAXIMUM take a 25 year amortization and after eliminating more expensive debt, work diligently to pay it down.
To me, if you can't afford a home at 25 year amortization, you can't afford that home.You don't get to 300 losses without being a pretty exceptional goaltender.-- Ben Kenobi speaking of Roberto LuongoComment
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I think interest-only loans are a great tool for many people.
It's a good match between the life of the asset and the life of the loan -- i.e., perpetual in both cases.
They aren't for everyone, however. Perhaps they aren't the best for many of those who get them.Last edited by DanS; July 18, 2006, 14:56.I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891Comment
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People will have to allocate more of their income to their mortgage, but it's not as if everyone will be going bankrupt.Originally posted by Japher
you don't think the rest of the nation will feel the ripple from their pop?I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891Comment
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True-- but I think I'm like most people that never seem to gather up the money for a big lump sum paydown. The best I do is increase my monthly payment .Originally posted by Japher
besides, nothing prevents you from paying more on the principle each month
The flip side is that once debt is at a healthy level, there is not necessarily a need to pay it out immediately. Mortgage interest at say 4.5% is relatively cheap and if an extra 10K comes someone's way I can see a lot of merit in investing that money
My personal list of priorities went like this
1. Pay out all bad debt-- DONE
2. Fund retirement each year -- DONE (to date but its a yearly thing)
3. Increase mortage payments so we will own our house in 10 years DONE
4. Save a little beyond that which I can get income tax protected
I think we are now at a stage where we can add a new priority of having some fun with some cashYou don't get to 300 losses without being a pretty exceptional goaltender.-- Ben Kenobi speaking of Roberto LuongoComment
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This is why we overpay every month. To get at the principle.Originally posted by rah
Granted I agree about staying away from interest only type mortages, but just for grins, on a traditional mortgage, how much principle do you believe you pay off in the first three years of the loan. NOT MUCH.
I remember after the first year reading the statement and I had paid over 10 grand in interest and the principle reduction was around 600 dollars.
My new goal is to plunk down a downpayment that's 30% of the cost of our new house. Some of that depends on how much we get for the current house, but we've crossed the halfway point in cash already.
-Arriangrog want tank...Grog Want Tank... GROG WANT TANK!
The trick isn't to break some eggs to make an omelette, it's convincing the eggs to break themselves in order to aspire to omelettehood.Comment
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The probelm is people who choose them because they cannot afford any other type of mortgage. If you get such a loan at a time of lower interest rates and have nothing substantial change in your incom, a reset of interest rates can crush you. While this is true of all mortagages to some extent, at least the folks that have built some equity have the option of refinancing for a longer termOriginally posted by DanS
I think interest-only loans are a great tool for many people. It's a good match between the life of the asset and the life of the loan -- i.e., perpetual in both cases.
They aren't for everyone, however. Perhaps they aren't the best for many of those who get them.You don't get to 300 losses without being a pretty exceptional goaltender.-- Ben Kenobi speaking of Roberto LuongoComment
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Do we know what proportion of the interest-only loans are to people are in that situation?I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891Comment
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It's always a gamble anly only makes sense when (1) you're planning on "flipping" the house; and (2) when there's a rising market and you're "sure" you can sell the house for at least:Originally posted by Kontiki
I wouldn't touch an interest-only mortgage with a 10 foot pole. You gotta reduce your principal, even if price appreciation is fairly assured.
(a) your purchase price
+(b) any repairs and/or improvements
+(c) your interest payments
+(d) insurance payments
+(e) real estate commissions
+(f) closing costs.Comment
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Not just those who have or can refinance, but those who can do so at 40% their income. IMO, from having fled the CA bay area, I'd say the numbers are rather small. I'm expecting a large majority won't be able to refi out of the problem or afford their home any other way. Foreclosures are already on the rise in CA.Do we know what proportion of the interest-only loans are to people are in that situation?Comment
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Originally posted by DanS
Do we know what proportion of the interest-only loans are to people are in that situation?
I don't know and the stats might not be the easiest to come by.
I do know that banks in Canada are also offering interest only type instruments ( my bank is pushing secured line of credit with inteest only payments) but I don't know if they have offered that for any higher ratio mortgagesYou don't get to 300 losses without being a pretty exceptional goaltender.-- Ben Kenobi speaking of Roberto LuongoComment
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Do you have to refinance these mortgages? Is there a penalty if the payment goes to greater than 40% of your income?I came upon a barroom full of bad Salon pictures in which men with hats on the backs of their heads were wolfing food from a counter. It was the institution of the "free lunch" I had struck. You paid for a drink and got as much as you wanted to eat. For something less than a rupee a day a man can feed himself sumptuously in San Francisco, even though he be a bankrupt. Remember this if ever you are stranded in these parts. ~ Rudyard Kipling, 1891Comment
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No, but how many people can afford a large increase in their rent all of a sudden. How many people that have these loands got huge raises over the past few years?Do you have to refinance these mortgages?
Your credit will be crap. You won't be able to refi if your payments on incured debt is over 40% of you income.Is there a penalty if the payment goes to greater than 40% of your income?Comment
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