Mortgage Lies and Truths

[Arraya]

That is true HLS, DEPENDING on your overall financial situation. However its very hard to justify an I/O arm in a down market on a purchase.

One justification is a definate income improvement or a large some of money coming you way.

The only other justification could be using the money that you would normally put down on principle and putting it into a very very safe investment that returns yields that are greater than the interest paid on the loan.

How likely are they?

[NorthCountyMan]

Great response CMcG. Another reason I love this sit.

[NorthCountyMan]

Great response CMcG. Another reason I love this sit.

[HLS]

Arraya, I TOTALLY disagree with you. Your thinking is archaic to me.
I can assure you that I don’t need an explanation from anyone on the advantage of paying principal

So little principal is paid in the beginning, I advise taking the I/O loan and stashing the difference in the bank.
Don’t worry about a yield return that beats the mortgage rate OR justification.
Yes property does go down. You already bought it.
Owing a bit less doesn’t change that.

I’d rather have a client with $10,000-$20,000 CASH in the bank, safe and secure instead of lowering their loan balance by $20K.. There are other factors to consider, which I CLEARLY explain to my clients.

In a few years, they can always pay down the balance IF they choose. I also NEVER tell people that their house will be worth more someday.

I can guarantee you one thing, I never lost any sleep by having a liquid cushion of cash in the bank, regardless of my mortgage balances.

I have clients that did what you say to do, and they have some “equity” but they cannot get to it for various reasons, and they need it.

Up market/ Down market is doesn’t matter. I’ve studied this stuff 7 ways from Sunday. You owe what you owe and the house is worth what it’s worth. Too many people are going to owe a little bit less on their mortgage, but have no cash in the bank. It’s NOT a good thing.

Many people are also a slave to their mortgage and will die with a house that’s paid off. Yipee for them.

We can agree to disagree.

[HLS]

Arraya, I TOTALLY disagree with you. Your thinking is archaic to me.
I can assure you that I don’t need an explanation from anyone on the advantage of paying principal

So little principal is paid in the beginning, I advise taking the I/O loan and stashing the difference in the bank.
Don’t worry about a yield return that beats the mortgage rate OR justification.
Yes property does go down. You already bought it.
Owing a bit less doesn’t change that.

I’d rather have a client with $10,000-$20,000 CASH in the bank, safe and secure instead of lowering their loan balance by $20K.. There are other factors to consider, which I CLEARLY explain to my clients.

In a few years, they can always pay down the balance IF they choose. I also NEVER tell people that their house will be worth more someday.

I can guarantee you one thing, I never lost any sleep by having a liquid cushion of cash in the bank, regardless of my mortgage balances.

I have clients that did what you say to do, and they have some “equity” but they cannot get to it for various reasons, and they need it.

Up market/ Down market is doesn’t matter. I’ve studied this stuff 7 ways from Sunday. You owe what you owe and the house is worth what it’s worth. Too many people are going to owe a little bit less on their mortgage, but have no cash in the bank. It’s NOT a good thing.

Many people are also a slave to their mortgage and will die with a house that’s paid off. Yipee for them.

We can agree to disagree.

[NotCranky]

I have used interest only to my advantage and have made the recommendations that HLS is making. That was when it was a good time, I mean fool proof, time to buy or leverage property.
I also had 50% equity at the time, spread through a few properties. There were practically zero foreclosures in the market.Right now the only reason to go interest only with very little down is if you have 50% above and beyond the purchase price in a relatively safe investment or if you don’t mind the risk of foreclosure or if you planned on cashing out and going to Mexico.IMHO

Best wishes

[NotCranky]

I have used interest only to my advantage and have made the recommendations that HLS is making. That was when it was a good time, I mean fool proof, time to buy or leverage property.
I also had 50% equity at the time, spread through a few properties. There were practically zero foreclosures in the market.Right now the only reason to go interest only with very little down is if you have 50% above and beyond the purchase price in a relatively safe investment or if you don’t mind the risk of foreclosure or if you planned on cashing out and going to Mexico.IMHO

Best wishes

[Arraya]

I am not going to argue that you should have money in the bank for a cushion. Of course you should that is kind of a no brainer.

However, if you have to rely on not paying principle to have that cushion you should NOT go into a mortgage that big. You can’t argue that.

How is that archaic?

[Arraya]

I am not going to argue that you should have money in the bank for a cushion. Of course you should that is kind of a no brainer.

However, if you have to rely on not paying principle to have that cushion you should NOT go into a mortgage that big. You can’t argue that.

How is that archaic?

[NotCranky]

Is your real estate license still active North County Man? Please forgive my incredulity. My wife who is a teacher said she thinks she would have a difficult time finding a peer who doesn’t know what an interest only mortgage is. This broker that you are touting and trust so much hasn’t explained it to you?( I get the feeling you have known him for a while to have such trust).

[NotCranky]

Is your real estate license still active North County Man? Please forgive my incredulity. My wife who is a teacher said she thinks she would have a difficult time finding a peer who doesn’t know what an interest only mortgage is. This broker that you are touting and trust so much hasn’t explained it to you?( I get the feeling you have known him for a while to have such trust).

[PerryChase]

just to play devil’s advocate here, Rustico. If you have 50% equity of one house spread over several properties, that wouldn’t be 50% equity anymore.

Good for you that were able to use leverage to profit during the boom. Since you’re a general contractor as well as a real estate agent, you must have a beautifully built house.

[PerryChase]

just to play devil’s advocate here, Rustico. If you have 50% equity of one house spread over several properties, that wouldn’t be 50% equity anymore.

Good for you that were able to use leverage to profit during the boom. Since you’re a general contractor as well as a real estate agent, you must have a beautifully built house.

[NotCranky]

Good catch Perry . I meant the overall indebtedness was half the value of the combined property . I sold the
leveraged property in spring 2005.Don’t tell anybody but I used a interest only ,liars loan, I mean low doc loan.

I must admit the house is average or a little above.2300 sq. feet. It is stout.The kitchen is pretty nice. My favorite part, the covered front porch looks to the east and is shady from about 11AM and on through the day.The goal was getting closer to modest financial independence.

Thanks for your help with understanding downtown condos on the other threads. BTW, as learning aids those links are way better than the MLS.
If you want to email me at [email protected] we can spare our buddies here the pleasant conversation, which they might rather avoid, and I can get back to raising hell :).

[NotCranky]

Good catch Perry . I meant the overall indebtedness was half the value of the combined property . I sold the
leveraged property in spring 2005.Don’t tell anybody but I used a interest only ,liars loan, I mean low doc loan.

I must admit the house is average or a little above.2300 sq. feet. It is stout.The kitchen is pretty nice. My favorite part, the covered front porch looks to the east and is shady from about 11AM and on through the day.The goal was getting closer to modest financial independence.

Thanks for your help with understanding downtown condos on the other threads. BTW, as learning aids those links are way better than the MLS.
If you want to email me at [email protected] we can spare our buddies here the pleasant conversation, which they might rather avoid, and I can get back to raising hell :).

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