Interest Only Mortgages

[DianaR]

I have a friend who is buying homes as investments. He has purchased one of them using and interest only mortgage, and plans to have tenants, he rents these out, pay the actual monthly payment and then add his own money on top of that to hit some of the principle.

I think he has two years before he has to refinance or deal with that mortgage jumping by at least 50%. Do you think the credit market will be a bit looser by then? He's now sweating the possibility that he won't be able to refinance.

[ShadoCat]

Originally Posted by DianaR

I think he has two years before he has to refinance or deal with that mortgage jumping by at least 50%. Do you think the credit market will be a bit looser by then? He's now sweating the possibility that he won't be able to refinance.

Ouch!

In then end of 2009, a second wave of foreclosures will hit. That is not a good time to refi. I discussed why and how here: [URL="http://investmuse.blogspot.com/2008/04/us-housing-market-crises-caused-by.html"]Investment Musings: US Housing Market Crises caused by Mortgage Backed Securities[/URL]

Most lenders have programs to do loan conversions. He should talk to his lender about delaying the recast by 2-3 years or he should talk about converting to a fixed loan. The lenders are willing to deal. Especially if the property will be upside down after the recast. They do not want to add another foreclosure to their books.

[elvenrunelord]

I'm thinking the man was a fool. These ideas to gain control of property are partially responsible for the house crisis we have today. I personally think anyone is crazy for taking on a mortgage that is above 20% over a 30 year term, simple interest. If you make 20% profit on 100k over 30 years you have 120k. That is 20k for doing nothing. This is a awesome profit for not producing anything, just using paper that is lay around.

Of course its not done this way and that to has lead to the financial crisis we are currently in. This greed we are neck deep in is killing the average person and making them wage slaves. Something I personally will not tolerate for myself, nor any of my family.

The free market only works if the consumer is smart and when it comes to finance, the consumer is dumber than a oxen.

[EugenS]

It's very risky. These aren't good times for property investements, especially if another wave of foreclosures hits. On one hand, you can make pretty big bucks if you can spot the opportunities. On the other, you could lose everything you have.

[rheamae05]

It will be a tough decision. Try this one: [url=http://www.seniorsavingsreverse.com/]reverse mortgage[/url] financial resources.

[EugenS]

How's your friend faring now, Diana? Is he still afraid of not being able to keep his investments?

[jspringer4]

What do you mean by "looser"? Do you mean will lenders go back to handing out mortgages to folks with questionable credit? I like to think that won't happen again.