I’m sorry, maybe I am naive or too conservative financially but I just don’t see any benefit to an I/O loan, outside a few extreme circumstances.
These loans are among the “innovative products” Greenspan hailed as extending the hand of homeownership to new classes of people – the same products that have led to skyrocketing foreclosures.
The only way you can benefit from this is if your equity grows at a rate greater than your interest rate. With prices dropping I see it as one of the worst ways to go, unless – you plan to sell before your start paying the principal AND can sell at a higher price (unlikely for the next several years), OR – you will be making substantially more money by the time you start paying the principal. But who can really say they will triple their income in 5 years?
Cyphire the only flaw in your logic is it assumes prices will rise during the I/O period. Even if they do and it IS more than the rate of the loan, you still only benefit if you sell or can afford the higher payments, and even then you’re paying more on the rest of the loan than you would have you paid towards the principal in the beginning.
I just don’t see the benefit. These worked when home prices were sky rocketing. In reality they are practical for very few people.
