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Rainmaker
565,039
Candice A. Donofrio
Next Wave RE Investments LLC Bullhead City AZ Commercial RE Broker - Fort Mohave, AZ
928-201-4BHC (4242) call/text

Example. We did a deal where the buyer paid I/O first two years. He needed the lowest possible payment to conserve resources--he had a huge cost installing sewer lines to the property before he could open for business. At the end of two he began a fully amortized five-year loan so his payments jumped and the seller finally started getting interest, but at that point business was humming along and everybody was happy.

Mar 11, 2018 04:58 PM
Ambassador
2,051,678
Fred Griffin
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

   Interest-only loans make sense in some cases (see Candice A. Donofrio example).

     The NINJA loans, and forcing banks to loan money to un-qualified borrowers to achieve "equality", contributed to the Crash and the short sale fiasco.

Mar 11, 2018 05:33 PM
Ambassador
2,526,309
Debe Maxwell, CRS
www.AtHomesCharlotte.com | The Maxwell House Group | RE/MAX Executive | (704) 491-3310 - Charlotte, NC
Charlotte Homes for Sale - Charlotte Neighborhoods

As long as one pays the interest only, there won't be a problem.

As you mentioned, it's the ones who were not qualified/verified who couldn't even make interest only payments. The problem ran a lot deeper than the interest only loans.

Mar 11, 2018 04:40 PM
Ambassador
3,389,524
Bob Crane
Woodland Management Service / Woodland Real Estate, Keller Williams fox cities - Stevens Point, WI
Forestland Experts! 715-204-9671

For investment properties, especially flips they do.

Mar 11, 2018 05:41 PM
Rainmaker
4,260,079
Barbara Todaro
RE/MAX Executive Realty - Franklin, MA
"Franklin MA Homes"

interest only loans with adjustable rates were a killer to a large percentage of those who tanked.... when the adjustment period came quickly, they couldn't pay!!! and there were tons of them....huge numbers of homeowners who NEVER SHOULD HAVE BEEN SOLD A HOME OR GRANTED A LOAN....

the no doc programs were not as much of a problem as interest only.... 

Mar 11, 2018 05:12 PM
Ambassador
3,580,875
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude - Carlsbad

The issues were beyond the interest only loans, but does it make sense financially? Perhaps for some

Mar 11, 2018 05:04 PM
Rainmaker
3,723,309
Ron and Alexandra Seigel
Napa Consultants - Carpinteria, CA
Luxury Real Estate Branding, Marketing & Strategy

Jeff,

I remember those days, the verification was the mirror test.  LOL A

Mar 11, 2018 04:36 PM
Rainmaker
2,387,678
Nina Hollander
RE/MAX Executive | Charlotte, NC - Charlotte, NC
Your Charlotte/Ballantyne/Waxhaw/Fort Mill Realtor

My husband and I did stated income, no verification loans for years and never were late or defaulted. I know many people who were like us in this regard. It's not the loan product that's a problem, it's the loan qualification process. There certainly could be scenarios where an interest only loan makes sense... let's say someone know they'll only own the house for two years. In two years you don't pay off a ton of principal in any event, but the buyer might well be saving a lot monthly on rent with a mortgage.

Mar 12, 2018 04:21 AM
Rainmaker
2,880,035
Michael Jacobs
Coldwell Banker Residential Brokerage - Pasadena, CA
Los Angeles Pasadena Area Real Estate 818.516.4393

Make sense ? It depends.  On the borrower and on the lender. 

Mar 11, 2018 06:40 PM
Rainmaker
528,840
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

My #1 pick for the loan program that made NO SENSE was the “Pick a Payment Loan”. The borrow was qualified (a dubious description of many borrowers in those days) and was give a loan in which there was a monthly option to make an interest only payment or a stated payment that did not even cover interest. The shortfall in monthly interest was added to the principal.

Needless to say, many (most?) of those loans ended up badly.

Interest only loans can make sense in special situations.

Mar 11, 2018 05:03 PM
Rainmaker
977,411
Susan Haughton
Long and Foster REALTORS (703) 470-4545 - Alexandria, VA
Susan & Mindy Team...Honesty. Integrity. Results.

Absolutely they make sense for well informed people who have the means to pay the fully amortized payment and can qualify for that payment, as well as have sufficient assets.  They do NOT make sense for people who could not otherwise qualify. 

Mar 11, 2018 06:25 PM
Rainmaker
4,598,760
Roy Kelley
Realty Group Referrals - Gaithersburg, MD
Roy and Dolores Kelley Photographs

Interest only loans can certainly meet some specific needs. 

Mar 11, 2018 06:20 PM
Ambassador
2,704,961
Paul S. Henderson, REALTOR®,CRS,
RE/MAX Professionals. - Tacoma, WA
Tacoma Washington Agent/Broker & Market Authority!

My daughter got burned with this type of loan...

Mar 11, 2018 06:14 PM
Rainmaker
2,584,659
Kathleen Daniels
KD Realty - 408.972.1822 - San Jose, CA
San Jose Homes for Sale-Probate & Trust Specialist

Under certain circumstances, it may make sense for some. 

Mar 11, 2018 05:54 PM
Rainmaker
1,212,704
Bob "RealMan" Timm
Alliance Real Estate - Minot - Minot, ND
Bob Timm, Broker Associate, Alliance Real Estate

Our area did not experience the problems that the rest of the nation did because we were experiencing an oil boom at that time, I have no idea/experience in this area Jeff Pearl .

Mar 11, 2018 05:54 PM
Rainmaker
3,583,257
William Feela
WHISPERING PINES REALTY - North Branch, MN
Realtor, Whispering Pines Realty 651-674-5999 No.

They are not great loans, but payments need to be made.  but many of the other loans you speak of caused many a  problem

Mar 11, 2018 05:23 PM
Rainmaker
2,926,422
Tony and Suzanne Marriott, Associate Brokers
BVO Luxury Group @ Keller Williams Arizona Realty - Scottsdale, AZ
Serving Scottsdale, Phoenix and Maricopa County AZ

Michael Jacobs nailed this one!

Mar 12, 2018 05:43 AM
Rainmaker
2,645,359
Wayne Martin
Wayne M Martin - Chicago, IL
Real Estate Broker

Interest only and "pick a payment" loans were a disaster for the unqualified and an opportunity for the savvy.

Mar 12, 2018 05:16 AM
Rainmaker
652,958
Annette Lawrence , Palm Harbor, FL 727-420-4041
ReMax Realtec Group - Palm Harbor, FL
Making FLORIDA Real Estate EZ

What caused the GREAT RESCISSION was Bank of America's ability to get Moody to rate junk as AAA. The ability to shovel junk onto the taxpayer is essence created FAKE money. The banks KNEW they would not be held accountable. The had a bullet proof exit strategy. And no one went to jail.

All the other stuff, like 'interst only' is just the packaging for a toxic product. Remember, it did not matter the qualifications of the buyer, the bank KNEW they could hand it to Fredde or Fannie as a Moody's rated AAA investment. BofA and Moody's is the cause.

PS: it should be noted that the inception of interest only loans was intended for BUILDERS.  The purpose was eventually misapplied for residential purchases. And apparently still consider a viable option.

Mar 12, 2018 05:12 AM
Rainmaker
2,637,403
Scott Godzyk
Godzyk Real Estate Services - Manchester, NH
One of Manchester NH's Leading Agents

They have only proven to hurt the buyer in the long run. I do like the NIV for self employeed as they are left out without any mortgages for such business people. 

Mar 12, 2018 05:07 AM
Ambassador
1,362,351
Joe Pryor
The Virtual Real Estate Team - Oklahoma City, OK
REALTOR® - Oklahoma Investment Properties

It could be OK if the appreciation was at least 6% per year but I prefer not to gamble.

Mar 12, 2018 05:06 AM
Rainmaker
313,268
Jay McHugh
SendOutCards-Appreciation Marketing Expert - Boston, MA
YOUR SendOutCard Mentor

they do make sense....buy only if they are carefully selected by both bank and borrower .... 

Mar 12, 2018 04:10 AM
Rainmaker
3,994,926
Gita Bantwal
RE/MAX Centre Realtors - Warwick, PA
REALTOR,ABR,CRS,SRES,GRI - Bucks County & Philadel

Sometimes.

Mar 12, 2018 03:04 AM
Rainmaker
1,067,656
Ryan Huggins - Thousand Oaks, CA
www.HugginsHomes.com - Thousand Oaks, CA
Residential Real Estate and Investment Properties

Interest only... sounds like a HELOC.  Those make sense to me.

Mar 11, 2018 10:19 PM
Ambassador
3,990,144
Praful Thakkar
LAER Realty Partners - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

Jeff Pearl - everyone has a different situation. So in some cases, it may make sense!

Mar 11, 2018 09:35 PM
Rainmaker
2,267,607
Richie Alan Naggar
people first...then business Ran Right Realty - Riverside, CA
agent & author

They keep payments low but at a cost...

Mar 11, 2018 08:07 PM
Rainmaker
305,699
Jill Murty, Realtor - Orange County, CA
PREA Realty - Laguna Niguel, CA

We have an Option ARM on one of our properties and we've always paid additional toward principal reduction. It's worked out well for us. Unfortunately, lots of folks take the minimum payment neg am route, which is a disaster. 

Mar 11, 2018 07:16 PM
Ambassador
3,662,232
Debbie Reynolds
Platinum Properties - Clarksville, TN
Your Dedicated Clarksville TN Real Estate Agent

There were many contributing factors to the debacle and greed was one of the main ones.

Mar 11, 2018 06:53 PM
Rainmaker
3,521,691
Joan Cox
Metro Brokers - House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

I sold a home a couple years ago where the homeowners got into an interest only loan, and that was the only way they could afford that giant house.   AND, the very reason they had to sell it when the rate was going to increase.

Mar 14, 2018 04:16 PM
Rainmaker
1,346,308
Inna Ivchenko
Barcode Properties - Encino, CA
Realtor® • Green • GRI • HAFA • PSC Los Angeles CA

Both make money for lenders.

Mar 13, 2018 12:20 AM
Ambassador
2,713,517
Tammy Lankford,
Lane Realty Eatonton, GA Lake Sinclair, Milledgeville, 706-485-9668 - Eatonton, GA
Broker GA Lake Sinclair/Eatonton/Milledgeville

I got a stated income loan.  Haven't missed a single payment or been late once.

Mar 12, 2018 09:28 PM
Rainmaker
369,306
David Martin (703) 585-4687
Fairfax Realty - Fairfax, VA
Making Realty Dreams a Reality

Several examples already given here for Interest Only Loans they do have a place and sometimes are great to make a deal happen that wouldn't without them. Jeff Pearl 

Mar 12, 2018 05:59 PM
Ambassador
2,933,912
Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

Having been front and center during the short sale crisis, I think these loans should be avoided at all cost.  If you can only afford the interest on the loan, you can't afford the home.  

Sure, stated income loans were part of the problem, but trying to shoehorn affordability with interest only products sets the stage for fiasco.

Mar 12, 2018 09:00 AM
Rainmaker
1,325,662
Michael Setunsky
Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Jeff Pearl When I first got into real estate, there were a lot of interest only seconds. Investors were looking for a positive cash flow.

Mar 12, 2018 07:17 AM
Rainmaker
601,561
Richard Bazinet /MBA, CRS, ABR
AZuRE Team - Realty ONE Group - Scottsdale, AZ
Phoenix Scottsdale. Sellers, Buyers & Relocations

Sometimes they do, for certain types of people and circumstances, I can think of a few reasons.

Stated income loans with no income verification is a totally different thing, with no relation to interest only loans. 

Mar 12, 2018 06:47 AM
Rainmaker
285,897
Lynnea Miller
Bend Premier Real Estate - Bend, OR
Premier Real Estate Service in Central Oregon

We used to have interest only loans in the past - and they worked for some and in a growing market. The melt down happened due to no doc loans and encouragement from the federal government that everyone should own a home and people granted loans who could not afford them.

Mar 12, 2018 06:43 AM
Rainmaker
1,372,180
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Area Real Estate

I don't think it's a bad option & works in some cases like Candice said. Of course, someone is going to abuse everything.

Mar 12, 2018 06:01 AM
Rainmaker
4,246,747
Gabe Sanders
Real Estate of Florida specializing in Martin County Residential Homes, Condos and Land Sales - Stuart, FL
Stuart Florida Real Estate

I guess they can for some very limited and special circumstances, but generally no.

Mar 12, 2018 05:51 AM
Rainmaker
944,392
Carol Williams
U.S.: I specialize in helping agents who have been in the business 2 years or less create a thriving business. - Wenatchee, WA
"Customized Mentoring & Marketing Services"

In some cases, Yes.  Rarely for the conventional residential real estate transaction.

Mar 12, 2018 05:38 AM
Rainmaker
929,537
Corinne Guest
Barrington Realty Company - Barrington, IL
The Choice of Professionals for Luxury Home Buying

We had them in England but there was an endowment life assurance policy that paid of the principal at maturation. Works fine until you want to move. You did not buy any equity. Anyway I look at it they are not good.

Mar 12, 2018 05:35 AM
Rainmaker
1,708,315
Michael J. Perry
KW Elite - Lancaster, PA
Lancaster, PA Relo Specialist

Not Retiring Debt is dangerous economically 

Mar 12, 2018 03:29 AM