Comments on: Against the grain: Why we chose an interest-only mortgage

By: Who do you blame for your financial problems? at Clever Dude Personal Finance & Money

Mon, 31 Mar 2008 06:48:54 +0000

[...] the mortgage crisis can be assigned directly to the consumers, myself included. We signed up for an interest-only loan AND 100% financing when we bought our house. After rethinking my position some more from those [...]

By: Living Behind The Curve » Yep, We’re Bums

Living Behind The Curve » Yep, We’re Bums — Mon, 20 Aug 2007 16:45:46 +0000

[...] Five Gadgets that were Well Worth the Investment | Why we Chose an Interest-Only Mortgage | The Tyranny of Stuff | Successful Credit Card Arbitrage and Shorting the Market: The Roundup | [...]

By: Maxing out your home loan: 100% financing at Clever Dude Personal Finance & Money

Mon, 20 Aug 2007 11:01:33 +0000

[...] my post “Against the grain: Why we chose an interest-only mortgage“, I told you why we didn’t get a normal 30-year mortgage when we bought our home 3 [...]

By: CA Home Buyer

CA Home Buyer — Mon, 13 Aug 2007 17:37:47 +0000

Clever Dude (and all),

I also chose an interest only loan, for a few reasons – 1) More cash available to pay off higher interest debt, 2) It was the only option for my salary and the home prices in the area.

In addition to that, since I didn’t have a 20% down payment, I have a 2nd loan at a higher interest rate that I can pay off quicker with the extra money from the 1st.

I doubt I’ll be making 40% more in a few years, but thankfully my loan is fixed for 10 yrs, so I’ve got a little time to worry about refinancing.

Most people see interest only loans as a way to buy more house than they can afford (I’m somewhat guilty of this, but I didn’t include my wife’s salary on the loan application, so we’ll be fine). However, the one benefit nobody seems to mention is – one a dollar is in your house, it’s like a savings acct – doesn’t make any more money. All it does is reduce your interest amount. If you can invest that dollar somewhere else and make more than the interest deferral, it’s better to invest than pay off your house. E.g., if you have a loan at 5.25%, but you can make more than that in a long term investment, then invest!

Just my 2 cents…

By: Clever Dude

Clever Dude — Fri, 10 Aug 2007 19:37:10 +0000

Plonkee, we didn’t plan to pay it off. We figured we wouldn’t be staying in the home for more than 5 years, so we figured we would put the extra “savings” towards our debt. It’s worked so far, but now we might end up staying in the house a bit longer, or we might not

By: plonkee

plonkee — Fri, 10 Aug 2007 19:29:23 +0000

Wow. I knew that you had serious debt but didn’t know that you also had an interest only mortgage. I’m sure you are in a position to make this work out for you, but seriously how did you plan to ever pay it off?

By: Rob

Rob — Fri, 10 Aug 2007 18:57:18 +0000

I wouldn’t call Interest Only a “Bad” Loan. Just a dangerous one. Plus, most people who got into the Interest Only fad were doing just that,.. just paying the interest. Now they’re faced with selling their home for less than they bought it for and they still owe money on it because they were never working on building equity.

It’s still a viable option, if you know what you’re doing, but it’s just like a credit card… If you’re not smart about it, you’ll find yourself in a heap of trouble real quick.

By: Patrick

Patrick — Fri, 10 Aug 2007 18:16:12 +0000

Brian’s comment (#5) summed up what I was going to say. You explained your reasons very well, and they are sound. I purchased a brand new car once and I still stand by that purchase to this day as what was best for me at the time. (I think I’ll write a post about it one day…)

By: Brian

Brian — Fri, 10 Aug 2007 14:46:12 +0000

I appreciate you putting this post together to answer my question.

This post certainly shows that there really is no “bad” loan. All loans have their place. The trouble comes when people who utilize these loans do not understand them and/or attempt to use them to purchase the maximum amount of house they can possibly afford.

Great post.

By: The Happy Rock

The Happy Rock — Fri, 10 Aug 2007 14:31:31 +0000

My wife and I were in a similar boat, 3-4 years ago. We decided to buy a 950 SQFT condo. I got into a buy down mortgage, because I didn’t know any better. Should have gone 30 yr fixed.

Unlike owning a house, buying a condo is significantly less work. It was a 7 year old condo so maintenance and even upgrades are few an far between. The association takes car of roofs, siding, stairs, shoveling snow, cutting grass, planting flowers, parking, policing neighbors.

The total actual costs(taxes, mortgage, maintenance) are only 200-300 more then renting. The cash flow has been a huge benefit, all our debt (except mortgage) is gone. Nice savings and emergency, and paid for cars.

With children now, we need a bigger place, but having a starter home worked out amazingly for us. We even have about $55,000 in equity.