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Replies (14)
- MORTGAGE OPERATOR
- Contributions:2081
That is risky... you don't know what will happen 2 yrs from now or how much your LA home will be worth.
Can you sell the LA home now and rent? So you can buy the VA
Yes.
You probably get a mortgage for the second one but it might be with higher interets rates.
You could get Refinance now and get Cash Out..but again.. you'll be gambling with the prices for 2 yrs from now when you need to sell the LA home.
You can buy the VA home as a 2nd home and rent it out.
Can you sell the LA home now and rent? So you can buy the VA
Yes.
You probably get a mortgage for the second one but it might be with higher interets rates.
You could get Refinance now and get Cash Out..but again.. you'll be gambling with the prices for 2 yrs from now when you need to sell the LA home.
You can buy the VA home as a 2nd home and rent it out.
- working girl
- Contributions:3
Thanks, Amerisave - this is helpful!
- Robert Ashby, "Florida CMPS"
- Contributions:1
Interest Only loans are not as scary as they are made out to be. You do need to approach them with an overall plan in mind though and use their savings wisely.
Regarding the property scenario, tax wise would provide better benefits by taking on a mortgage on the second home. Look into the rental option and the tax benefits/drawbacks of doing that as well.
You may even want to consider forming an LLC or other business entity if the VA property will be for investment only. This provides some legal protection for you and possibly additional tax advantages.
There is a lot more to making the right decision beyond simply buying another home and how simply financing it. Certainly a lot more than I can go into here.
Regarding the property scenario, tax wise would provide better benefits by taking on a mortgage on the second home. Look into the rental option and the tax benefits/drawbacks of doing that as well.
You may even want to consider forming an LLC or other business entity if the VA property will be for investment only. This provides some legal protection for you and possibly additional tax advantages.
There is a lot more to making the right decision beyond simply buying another home and how simply financing it. Certainly a lot more than I can go into here.
- FLMRTGMAN
- Contributions:5
It sounds like there may be several facts missing before proper advice can be given to you. Can you afford both mortgages at this time? Do you need the equity from your California home to purchase the Virginia Home? If you would like to discuss your options more, I would be pleased to discuss with you.
Working Girl.
There is actually nothing to be afraid of with interest only loans in reality.
2 things to think about.
1) Interest only loans are about 1/4 to 1/2 a percent higher in rate than the standard 30 yr fixed. So immediatly you are paying more interest.
2) Interest only loans are never 'written in stone' . You dont HAVE to just pay interest. This is a common mistake many of my clients believe. You can pay as much to principal each month as you please. The lender cannot prevent you from paying principal.
So it really gives you more flexibility.
If you get a 10 /20 interest only loan, which means its a 30 yr fixed, but you can pay interest only for the first 10 years, then its a good product.
I personally would take the LOWER RATE on a 30yr fixed and forget the interest only though.
There is actually nothing to be afraid of with interest only loans in reality.
2 things to think about.
1) Interest only loans are about 1/4 to 1/2 a percent higher in rate than the standard 30 yr fixed. So immediatly you are paying more interest.
2) Interest only loans are never 'written in stone' . You dont HAVE to just pay interest. This is a common mistake many of my clients believe. You can pay as much to principal each month as you please. The lender cannot prevent you from paying principal.
So it really gives you more flexibility.
If you get a 10 /20 interest only loan, which means its a 30 yr fixed, but you can pay interest only for the first 10 years, then its a good product.
I personally would take the LOWER RATE on a 30yr fixed and forget the interest only though.
- MORTGAGE OPERATOR
- Contributions:2081
There is nothing to be afraid about the 30 yr fixed or interest only.
The thing WorkingGirl needs to watch is that she's thinking of buying the VA home now and sell her LA home in 2 yrs.. nobody knows what will happen in 2 yrs...
If she really wants the VA home.. then to be on the safe side.. sell the LA now..buy the VA home (if she really wants that Home!..can also wait and buy 2 yrs from now) rent while they wait 2 yrs to reitre..and them move to VA.
The thing WorkingGirl needs to watch is that she's thinking of buying the VA home now and sell her LA home in 2 yrs.. nobody knows what will happen in 2 yrs...
If she really wants the VA home.. then to be on the safe side.. sell the LA now..buy the VA home (if she really wants that Home!..can also wait and buy 2 yrs from now) rent while they wait 2 yrs to reitre..and them move to VA.
- frank1003
- Contributions:266
The only detriment to an interest-only loan is when the interest-only period expires and the loan re-amortizes. For example, on a 30 year fixed rate interest-only loan, the interest-only period is typically the first ten years. After the first ten years expire, the loan payment recalculates over the remaining twenty years. If no additional principal was paid in addition to the interest-only minimum payment during the first 10 years, the original balance will then be fully amortized over the remaining twenty years, which is what causes the huge payment increase. Therefore, if you hypothetically borrow $200,000 for 30 years and pay interest only for the first ten, the $200,000 remaining balance at the end of year ten essentially gets flipped into a 20-year fixed rate fully amortizing loan. Interest-only loans are not dangerous at all unless you intend to stay in the property long term or cannot make the full payment after the loan recalculates (not many people can). If you are certain that you'll be out of the loan (or out of the home) before the interest-only payment period expires, they're the best bet, because you're not throwing principal payments into an asset that is (currently) declining in value. For me, the rule of thumb is only pay principal or pay down additional principal when property values are increasing. That way you're gaining equity rapidly. When property values are declining, pay the least amount to principal as you can. The reason is if you own a home with a $200,000 mortgage on it and you pay $10,000 down on the principal while at the same time the property value decreased by $10,000, you've essentially lost your $20,000 instead of still having $10,000 safely in the bank.
- frank1003
- Contributions:266
The explanation of how interest-only loans work aside, the situation that you describe is not logical utilizing an interest-only product, since it sounds like you'll be in the second property for the long term. I would do the same thing that is being suggested to you, but use a 30 year fixed traditional instead of an interest only. Eventually, when the existing property is sold, you'd have more options available to you without the risk of facing a soaring payment.
- Dave Mason, "DebtFreeDave"
- Contributions:1315
I don't think you have anything to worry about. If anything you could also call them principal option loans. If you want you can make extra principal payments and pay it just like the loans our parents used to take out. There is nothing about an interest only loan that says you can't make additonal payments.
http://getprequalified.com/article/104749/mortgage_loan_programs/are_interest_only_loans_bad.html
http://getprequalified.com/article/104749/mortgage_loan_programs/are_interest_only_loans_bad.html
- Hamp Yonce, "Zilluminati"
- Contributions:3463
But Frank who keeps a loan 10 years anymore, anyway?
- frank1003
- Contributions:266
Agreed, Hamp, VERY few propel keep loans for 10 years. However, in this case, it sounds like the borrowers are looking to settle into what would be their "LAST" home. Obviously, I don't know their whole story, but after retirement, they may not be able to refinance out of the I/O ARM, or quite simply may not want to have to worry about it or deal with it. Quite a few people were told "just do this and re-fi out of it down the road" only to find out that their income picture, or moreover the general credit market has changed since receiving that advice. Now what?
- frank1003
- Contributions:266
"propel" what the h*l* was that!?!? (Finger spasm!) I meant "people."
- frank1003
- Contributions:266
Incidentally, Hamp. I'm glad to see you back posting a comment or two. I gave this board up for quite a while because I couldn't grasp where too many people were coming from. Seems to have settled down a bit now. Anyway, glad to see you back, as I've enjoyed much of your commentary on both the serious as well as the humorous sides.
- wealthyira
- Contributions:1
If you and your husband has saved some money in IRA fund or 401K than you can also invest that in buying home in VA. I hope you are aware that you can invest your IRA funds in real estate and it will also give you tax ramification and it is legal.
If you really want to get more information on investing IRA in real estate than do visit http://www.wealthyira.com
If you really want to get more information on investing IRA in real estate than do visit http://www.wealthyira.com
Interest only loan
Someone mentioned to my husband that we take out an interest only loan to to cover the two existing loans, in addition to the 175k we would offer on the VA house.
I've heard scary things about interest only loans. How do people work these things out? Are there other options.
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