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standard loan vs interest only

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standard loan vs interest only

Old 08-31-05, 03:59 PM
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with intrest only you are taking a risk on the value of the house and the long term rates. After 5 years of intrest only your loan becomes a 25 year fixed rate normally set at whatever rates are 5 years from now. Worst case the housing market crashes and rates go up your payments can almost double and if you try to sell the house you will be upside down.

If you look at the monthly payments for a 30 year fixed rate they are usually not that much more than an intrest only rate especially since the mortgage is only 2/3rds of the true cost of owning a home. You hvae to figure PMI, Insurnace, maintance, tax, etc. So saving a few hundred over all to invest in our not exactly booming stock market and taking the risk of your mortgage payments going up as much as 75% in 5 years... is silly IMHO
Old 08-31-05, 04:23 PM
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Originally Posted by DodgingCars
You may not pay off THAT 30 year mortgage, but I sure hope you pay off some 30 year mortgage in 30 years.
Couldn't you keep playing the house ladder game and move every few years to a bigger house that grows in value, and then when you are finally done, downsize back to a smaller cheaper house and have made enough in profits to pay off the smaller cheaper house?

It seems to me that if the values keep going up like they do and you can make like 50K after 2 or 3 years in a house, just keep doing that every 2 or 3 years.
Old 08-31-05, 04:39 PM
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Originally Posted by tcoursen
Couldn't you keep playing the house ladder game and move every few years to a bigger house that grows in value, and then when you are finally done, downsize back to a smaller cheaper house and have made enough in profits to pay off the smaller cheaper house?

It seems to me that if the values keep going up like they do and you can make like 50K after 2 or 3 years in a house, just keep doing that every 2 or 3 years.
If values keep going up that's exactly the way to do it. But you don't have to keep buying bigger houses.

You can extract $250,000 profit tax free every 2 years ($500,000 for a married couple). Around here $250,000 in appreciation over a couple of years has been a reasonable expectation for quite some time and I know people who move just because they got up to their tax free limit. They want to start the counter from zero again.

But values don't keep going up.
Old 08-31-05, 05:34 PM
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cool, thanks for all the info guys. I just talked to another guy who said that unless you are going to sell in 3-5 yrs, dont do interest only.

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