interest only loans

[KariAndersen]

What are your thoughts on interest only loans? We are getting an 80/20 and the 80 is interest only for 2 years. Does that just set a person up for a rude awakening later or is it a good way to get into a home as you are building up your finances?

[jtn]

You'll get mixed respones's. It is a good way to start up sometimes, but you will get that awakening when your going to have to start paying P&I, best thing to do is take interest only, in which you'll get a way better rate then you would at a fixed on an 80/20, get established then refi again into a fixed rate that you'll like. Im pretty sure your doing a purchase correct? I usually don't sell interest only programs unless the buyer plans to turn the house or refi in the near future. But just remember your not paying your priniciple so its just the intentions you have with the property.

[kensmith]

IO loans are great if used correctly. In 2 years you are not only going to have to deal with andding the P to the loan, but is your rate locked for 30yrs? Doubt it. Rates will be much higher in 2 years and you will have real sticker shock whe your rate goes from the 5's to the 7-8% range (thats a number even the conservative "experts" are talking about in 2 yrs).

IO is fine, just make sure the locked in rate is for the correct time frame. You can IO on more than just a 2 year lock in period, just had a client close one with a 7 year arm that was IO. They plan on moving in 5-6 years and wanted the extra year just in case.

[jtn]

couldn't agree with you more. I have plenty of people who are drawn into IO, ALOT of people make the mistake of not considering the adjustable after their time frame, sadly alot of people are taken for the 2/28, and in reality take the 7-1 but you'll have a little pad to decide what you want to do.

[KariAndersen]

We are going to pay off the 20 right away when the sale of our condo closes. Our loan is a fixed for 15 years. We are thinking of this as mostly an investment property for future uses. Right now we will live in it and our income isn't at it's best because my husband has a commission only job and we are in a new area. I also have a commission based business that will grow in time.

[LoanOfficer101]

The trend in interest rates is that they will be holding stable or will decline over the next two years. If you follow the roller coster pattern of the FED, they tend to always overshoot or undershoot, then go through a correction period. Rates have gone up too high and now we are in the leveling off period. If the housing market keeps tanking, the rates will have to go down or else the economy will go into a recession. I just read that the median price of a home went down 2.5% last month, compared to a year ago, with that drop being the largest in over 40 years! You can't keep raising interest rates in this kind of environment. Thus, if you are taking out a 2/28, the odds are in your favor that your new rate will be lower.

- Joe