Ernest T. Bass wrote:
As a general rule, an interest-only loan is a bad bad idea.
There you go again calling the TYPE of loan INTEREST ONLY. INTEREST ONLY is just an OPTION of a fixed or adjustable loan.
Anything is a bad bad idea if you don't know how to use it properly. Buying a gun is a bad idea if you are going to shoot someone in the head with it. Not such a bad idea if you are going to use it to hunt rabbit.
Interest only was just ONE option used to qualify underqualified people for mortgages. The fact that it was misused doesn't mean it is a bad option for a lot of people.[/quote]
Dude, it's still a type of loan. I don't have the option to pay interest-only on my loan, and the interest only loans eventually adjust WAY up. Not sure what bug you've got about not calling it a type of loan, but it is a type of loan.
Don't you think qualifying "under qualified" people for loans makes it a bad idea? If they are under qualified, there's a thing they can do -- rent. Not everyone gets to buy a home, and with interest only you aren't buying one anyway. Sure they CAN put money toward the principle, but the VAST majority of them don't. It's to get a bigger house than they can really afford, and with the piper comes calling, they usually can't pay him, so they either sell (if they are lucky enough to find a buyer), or they foreclose.
To show you how flexible I am, I'll give you this -- IF you've got enough liquid money to pay for the house outright and you want to take an interest-only loan out on the house with a super low rate (often they are below 4% for the first 5 years) so that you can invest the money and try to do better, then fine. If though you are borrowing the money in hopes of making more with the savings each month, then that is foolish and it should not be done. Even in that case though, personally I wouldn't do it, because if the market tanks (as it has the last 13 months) then the money you had sitting there to pay for the house is now invested and potentially lessened by about 40%. It's really just a bad idea to tak an interest-only loan.