Quote:
Originally posted by Porsche-O-Phile
Okay, here's the question regarding I/O loans (since I have one particular mortgage broker that seems hell-bent on pushing them):
"In anything other than a rapidly appreciating market (which we don't have), why on earth would anyone be willing to give up the most beneficial aspect of home ownership - that being equity building?"
With an I/O loan, you build NO equity whatsoever. It's essentially an overpriced rent payment to a bank instead of a landlord per-se.
Why would anyone even consider this?
|
I don't know why a mortgage broker would be hell-bent on these. At my last mortgage job, we tried to steer people away from I/O loans because we got paid almost nothing on them. 50 yr. amort. was much more attractive both from our commission standpoint and also underwriting guidelines.
I/O loans do not prevent you from paying down principal. If you only make the minimum payment, your princ. balance will never go down and you're betting on appreciation. But your princ. balance will not go up either. Option ARM's and MTA's are different. They have negative amortization. But if you put 20% down like I did, your house would have to depreciate at least 20% before you got into trouble. My own house has appreciated almost 30% at the peak and back down to a net of around 10-15% positive. So I don't pay more than my min. balance because the house was a bit of a stretch for me when I got it and I've just had a rough spot in my job change. I won't keep the house more than another year or so. So it's not like I'm gonna build a ton of equity by paying down principal in the 3-4 yrs. I will have lived in the house by the time I sell it.