Need Realtor help? IO Loan and FRM?
I heard from an ex-real estate agent (lost job due to economy) a cool trick but I cannot remember the details. I heard it about a year ago at my last job when he came to work with us. It went something like this:
Start off with an IO loan because it’s cheaper monthly to start. Instead of blowing the saving on other stuff, put it in a savings account. This way, your monthly expenses are the same as it would have been compared to a regular loan.
After some time, enough money is saved to pay off the principle, when it is due, from the savings account and have a lot of money left over from the savings interest. I believe that this was also supposed to shave about 10 years off of the 30yr mortgage.
Can anyone shine some light on this for me?
We all did business in southern California
I wouldn’t exactly call it a cool trick.
But what you are asking involves doing analysis with numbers I do not have and requiring time I can’t devote for a Yahoo answer.
Okay, so you want to pay the interest only (IO) on a mortgage and let the balance you would have normally paid on a FRM (fixed rate mortgage) accumulate in the bank.
I will say for now there are a ton of ifs and buts with this scenario. Here are just three:
(1) Suppose you can’t or don’t commit to your savings plan?
(2) Suppose your savings ends up minimal or negative?
(2) IO loans are for a short periods – usually 10 years. What if you can’t refinance that loan at the end of the 10 year period – like a lot of people are having trouble with now?
IO mortgages can be a great tool if used properly and if everything works out. I have had several clients who had good intentions from the start with IO loans, but never got around to saving an extra dime to pay principal on their loans.
If you can get and qualify for the FRM loan, take it – especially at today’s low rates.
Best of luck.
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