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Interest only loans are not always bad.

By Lloyd Reed

Real Estate Agent with Home Run Real Estate

August 15, 2006 11:23 AM

I am writing this blog because of allthe bad information out there about all types of loans, especially interest only loans. There are several instances where interest only loans can be a great service. For instance, a buyer or a couple who know that their income is going to increse dramatically in the next few years. Should they wait to purchase a home that they really like just because the can't get a regular loan? I don't think so. What if home values start increasing dramatically again?

Also, for certain professsions such as ours (real estate and finance) where our income can be choppy they can be great. I have one myself because there are some months when I can dump literally thousands on my loan where there are other months where a may only be able to pay the minimum due. I know, we should be able to control money better but there always seems to be something that need to be purchased.

All loans have a certain grooup that can benefit from them. Why else would the lending industry offer them?

I wrote this more to start a conversation and I welcome what the rest of you have to say.

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Karen Villa Schweinfurth

RE/MAX Northwest Realtors, Inc. 425-308-3669 - Everett, WA

ABR, CRS, SRES, CyberStar

You are absolutely right. In our increasing market interest only loans are big here in the Everett, WA area. With a 25% growth in equity last year, we are ahead of the game. It also allows a buyer to get into a slightly higher priced property and make it affordable.

Aug 15, 2006 11:44 AM

Christopher Smith

TREGO REALTY - Cedar Rapids, IA

Several of our agents have them and love them. They have to be disciplined though if they want to contribute the principal and interest, but on the tough months, then it's interest only. Also, it's a good loan for someone whose not planning on living in the house for a long time.

Aug 15, 2006 01:19 PM

Terry Moravec

Keller Williams Premier Realty - Blaine, MN

Another time when an interest only (or even neg-am) mortgage may be useful is investment property. If the lower payments allow a property to break even or cash flow, it may make sense to skip the principal pay-down (which is generally taxable) and allow appreciation and future rent increases build value for your investment in the long run.

Aug 15, 2006 01:30 PM

Maureen Francis

Coldwell Banker Weir Manuel - Bloomfield Hills, MI

Coldwell Banker Weir Manuel

I guess my view is a little liberal. I have no problem with interest only loans when they are used as a tool in a persons overall financial plan. I don't worry too much about paying down principal on my primary residence. I think of principal payments the same way as I do making contributions to my SEP. They are an investment. Generally I prefer to have the cash available to make other investments (like income property) rather than making principal payments on the house. It works for me.

Aug 15, 2006 01:39 PM

Interest only loans are not always bad.

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