Board Topic: Interest only, Advantages/ Disadvantages
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Interest only

Posted by: Jan Nov 14 2004, 11:06 AM
I plan on selling my home in approximately 2 years, and am trying to decide if there is an advantage in doing an interest only loan for the next couple years to pay out less monthly on my house payment. I'm hearing mixed messages, and would like some direct guidance on the disadvantages if I would do this. Jan

Posted by: loanuniverse Nov 14 2004, 03:08 PM

There are a few downsides of doing this transaction that I see off the top of my head.

First, are you sure that you are accounting for the closing expenses or possible prepayment penalties? If you are going to have to spend $3,000 to refinance that could very well eat into the savings that you can achieve with a lower rate. Also if there is a prepayment penalty, that could wipe out some or all of the savings.

Second, you are exposing yourself to a variable rate {assuming that you are replacing a fixed one}, right now the rates are still relatively low, but that might not be the case for long.

Third, what happens if plans change and you have to keep the house longer? What would happen if variable rates are double in three years?

Finally, What are you going to do with the money that you donít pay out in principal payments? For some people it is best to have to pay P&I as a method of forced savings.

Posted by: Jan Nov 15 2004, 07:44 AM
Thank you for your reply. There is no pre-payment penalty. I need to check about the closing costs. No $$$ amt was given. You have brought some valid concerns up that I need to consider. When you talk to these companies offering this interest only...they make it sound so wonderful. A win-win situation. I don't want to do something that I will regret. I am just trying to look for an option of having extra money to help pay off some bills. I was not planning on investing the money or paying any towards the prinicpal. I plan to move in about 1 1/2 years after I marry. I guess anything can happen....and I need to keep that in mind vs. putting all of my eggs in one basket.
Thanks for your assistance.....really appreciate it. Jan

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