| There's a lot said on television and in newspapers | | | | interest only loan, which means you don't pay any |
| about interest only loans being a horrible mortgage to | | | | principal, then it would lower the monthly payment by |
| acquire. In most cases they are, but they were | | | | $240 each. |
| created for a reason. Some people need an interest | | | | 200,000 = 835/month |
| only loan to get the borrowing power needed to afford | | | | 200,000 = 835/month |
| more than one loan. | | | | Now the investor has the borrowing power to afford |
| It's targeted more to the real estate investors, or | | | | both homes with an interest only loan. He doesn't care |
| handy man trying to turn a quick profit by fixing up a | | | | about paying down the principal because he only |
| home. Let's assume that an investor has an extra | | | | wants the $50,000 in profit from each home. If you're |
| $2,000 per month that the bank thinks they can afford | | | | buying a home for the long term then paying down |
| for a monthly payment. I'm going to exclude taxes, | | | | principal is very important, but if you're flipping a home |
| insurance and condo fees from this example because | | | | then there's no point. The reason there's no point is |
| it will be easier to prove my point. | | | | because all the principal you put into the home you get |
| Investor - $2,000/mo available - He wants to buy and | | | | back when you sell it, and the investor wants to sell it |
| fix up two properties for $200,000 each because he | | | | right away, so why put money into the home that he |
| will be able to flip them when finished for $250,000 | | | | could use fixing it up? |
| each. Use a mortgage calculator that has an | | | | I very much agree that an interest only loan should not |
| amortization schedule to see the monthly payment | | | | be used on a regular basis. It definitely shouldn't be |
| with principal and interest. | | | | used to "afford" a home that you want to live in for |
| 200,000 = 1075/month | | | | the next 10 years. You're better off renting at the point, |
| 200,000 = 1075/month | | | | because it will be cheaper and less of a hassle. If you |
| The bank said the investor could only afford $2,000 | | | | pay the bank interest, and pay taxes, insurance and |
| per month or it would be denied. He's at $2,150 so | | | | condo fees without paying principal then what's the |
| what does he do? Take another look at the | | | | point of owning a home? |
| amortization schedule and notice that if you got an | | | | |