Elvira

Head definitely make skis.

Though I expect a tennis racket would be more useful in a domestic context as skis are just a bit big and heavy :scared:

Rushman

Most people do

nun

Thanks for the interest, pun intended.

1st point. In NE USA at the end of the 1980's the housing market crashed and the value of houses fell. It took 6 or 7 years for them to climb back up. If you'd had an interest only loan and had to sell in that time period the house would have been worth less than the mortgage and this would not have been offset by any equity that you had in the house. I am of course assuming that you didn't take the money you saved in getting the interest only loan and invest it wisely so you could pay off the outstanding amount.

There are many senarios you can come up with that make interest only sound ok, but I think they don't often match reality. I think the reality is that interest only loans have become popular recently so that people can get into houses they carn't really afford. They get zero equity in them and rely totally on appreciation not using the savings opportunity of a P and I mortgage. I got my 4.5% 15 year mortgage 6 years ago and when I look at the equity I have in the house I'm glad I did this. I agree with all your comments about credit card debt and adjustable mortgages and I see interest only loans as another way people can live beyond their means. I think they are yet another expression of America's phobia with saving.

Elvira

You ... you ...

Phillistine!!!

Verdi is the greatest opera composer, ever!

Though I grant you he had the advantage of living to a ripe old age. If I had one wish from the proverbial Fairy Godmother, I would want to listen to the operas Mozart would have composed had he lived as long as Verdi.

BritGuyTN

I do agree with your assertion that people can potentially misuse interest only mortgages, but if you look at an amortization schedule for a 30 year mortgage the first few years make hardly any difference

for example:

on a $200k mortgage at 6%, after 5 years of making a $1200 a month payment you would have only paid 15k off the principle - 7.5% of the total loan.

anyway, its up to the indiviula circumstances. the funny thing is that I used to be anti-interest only

then i came to realise that most people around me who were advancing themselves financially mostly had interest only

nun

Interesting, I agree with your point about amortization schedule for a 30 year mortgage, you don't see much equity at first. This is why I'd say that a short term interest only loan might be ok. P&I loans really pay off later in the loan term.
I basically see P&I as a savings plan. Its like an interest only loan with a forced savings plan which I think should be part of everyone's financial plan. I'm probably in the minority having a 15 year loan, but its certainly good to see $1300 coming off principal on each month's statement.

Your last sentence is interesting, how do you know others are advancing financially? If they are investing the money the interest only loan saves them I would agree. If they are using it to buy depreciating assets like cars they are not advancing financially. Look for the people driving the 10 plus year old cars, those are the ones with money in the bank.

Partystar

Not necessarily.

nun

Its not a hard and fast rule, but this is definitely true: if you drive the same small car for 10 years vs trading in a car (or worse leasing) every 3 years, you will be better off. I'm still driving a 1991 Mazda, 175k miles, that I bought for $11k. I've never made a car payment, I've invested the money instead.

Elvira

And let me guess: you've probably read The Millionaire Next Door AND Your Money or Your Life?

Certainly the latter should be required high-school reading as far as I'm concerned...

Rushman

What was the 11K then if not a "car payment"?

nun

I meant interest payments. I am starting to reach the limit now as a car 15 years old starts to need some major work.

Never read any of the books you mentioned, I don't tend to like financial self help books, my attitude to investing is buy index funds (US equity, international, and bonds) every month so you dollar cost average, buy a house, have a plan and above all be thrifty. I have no kids so I can do this, it would be far harder with a family in the equation.

Rushman

I didnt mention any books
I have a few you can have on a time share basis

BritGuyTN

I actually think that some programs that are interest only for 5-10 years then become regular AM are good, especially for normal home ownership perspective

My idea of people advancing finanically is people growing wealth whilst living within their means.

My friend (earning $32k) who rolled his 5 year car loan on a new vauxhall astra into a 6 year loan and then rolled that into a 6 year old BMW M3 and extended the loan by 5 years is not one such example

My other friend who makes $150k a year as a merchant banker and bought a 2 year old bmw X5 for cash is being a bit more sensible

Another friend has his own business, owns his house outright, drive a 10 year old toyota landcrusier and owns 20 paid for rental properties is at the other end of the spectrum

some people like to be in between, enjoying some nice things but still not being frivolous - i try to be somewhere in between, getting smart deals on loans, insurance etc can all help the overall picture

scrubbedexpat099

Not quite interest only, but there surely must be more than me on this board who had UK mortgages that were fully adjustable without some of the stops that you have on the US version.

We have friends in 50 age bracket who re-mortgaged into 30 year fixed rate deals, from what I can gather because that is the norm. I gentley enquired of the logic... Apart from the above it was because it was cheaper, I just do not think they understood why.

For what it is worth, the property market here is flat, the rental market sucks. Rental values have droped, whilst house prices have not. A couple of friends sold their house recently at a very good price to someone who canvassed their neighbourhood. They have rented for the time being, there was a lot of property to chose from, ended up paying 60% of the asking rental income. I looked at rentals, but here you would do well to break even, and I just can not see capital appreciation in the next few yeras.

BritGuyTN

i have a fully adjustable mortgage in the UK and an ARM in the USA, i however am not shitting myself like nearly all the americans I know do when you mention the term 'ARM'

seriously, last night at dinner a friend asked me for ideas and I laid the various options on the table, immediately her friends were 'ooooh' don;t get an ARM, they're really bad....... My response was, well the house you are about to sell, you've lived in for three years and instead of getting a ARM for 3/5 years and paying 3.5-4.5% (at the time), you've paid 6.5% - nearly 50% more interest. They didn't quite get the jist

regarding your 50 yeay old friends - I feel very sorry for them, either they were bamboozled by an unscrupulous mortgage officer or they really are very confused