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  1. #1
    Join Date
    Oct 2001
    Location
    California, USA
    Posts
    1,316

    Home loan advice?

    Hello,

    I wasn't about to post this, because after all this is a web hosting forum, but then I saw this thread called "Looking to buy 2 new cars".
    Well, OK, I didn't need that thread. I've been around for long enough to know that we all have a life beyond web hosting (although for some, barely )

    First, I have to admit that I am confused.
    I have to pick between two 30-years loans:
    #1: 5 years fixed rate
    #2: 5 years fixed rate, interests only, I do not pay the principal; after 5 years of course I start paying the principal.

    I am so new to this I cannot figure out what to do.
    Of course, #2 means MUCH lower monthly payments for 5 years and I may be happy with the extra cash because of the extra expenses one has to do when buying (fixing stuff around the house and such, or even improving the house, hence adding to its resale value)
    And I expect to get some extra money that I can put towards the principal anyway...

    Is there an obvious reason why I should go with one rather than the other?

    Thanks,
    -Chris.
    http://www.voilaweb.com - the Social Internet Toolbox.

  2. #2
    Join Date
    Jan 2004
    Location
    South East U.K.
    Posts
    1,295
    I don't see how #2 will give MUCH lower monthly payments, since in the early years of the loan the interest will be the greater part of the overall payment

  3. #3
    Join Date
    Sep 2002
    Location
    Knoxville, TN
    Posts
    645
    The second type has pros and cons. It may be good if you're buying the house to fix up and sell in a couple of years.
    See here for more information on what you need to look out for:
    http://www.1loansusa.com/m101/negam.html
    Laura K.
    http://www.madmousergraphics.com
    graphic design for grownups

  4. #4
    Join Date
    Mar 2001
    Posts
    1,434
    If you plan on staying in the house for any appreciable amount of time, a regular fixed rate loan is often best. If you are selling within 5 years as mentioned above, then the interest only can be beneficial.

    - John C.

  5. #5
    Join Date
    Jul 2003
    Location
    Goleta, CA
    Posts
    5,550
    Go with number one for the long term investment. Sure you'll have to pay interest with principal but itll get lower each year that you reduce your principal. Besides paing the highest interest will more than squander any savings the second loan would have given you. As mentioned earlier I'd take the second one if you were planning to sell the home within 5 years.
    Patron: I'd like my free lunch please.
    Cafe Manager: Free lunch? Did you read the fine print stating it was an April Fool's joke.
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  6. #6
    Join Date
    Apr 2004
    Location
    san diego
    Posts
    1
    if I can be little bit of help.

    option 1) This loan is 5/1 ARm , which as you stated is fixed for 5 years and after 5th year it will goes to adjustable loan. What it means is that your lender will send you a statement explaning that your interest rate is about to change. your options are: refinance, keep your current loan or sell your home.

    option 2) 5 year interest only loan. This loans are attractive becaue they usually start around 3.000-5.000%. they are tied to index such as MTA, COFI, LIBOR,CD and so on. Your interest rate will depends where current index is. If federal reserve raises its fef. funds rate than indexes start to move up, therefore your interest rate will rise. You should ask your lender what index he is using for your interest only loan loan, you can than find indexes on-line and make a research where they have been for the past 12 months. Remmeber, if index raises than your rate goes up.

    There is no obvious solution which loan offer you should take. 5 year fixed will garantee that rate even if rates raise, interest only fluctuate as market moves up or down. So far mortgage market is stable but there are lots of talks that fed. reserve may raise its fed. funds rate soon. So the better option might be 5 year fixed. But of course, it is your call.

  7. #7
    Join Date
    Jun 2001
    Posts
    1,239
    Please check out the following boards on more info regarding loans, credit, etc.:

    http://www.creditboards.com
    http://www.creditnet.com
    http://www.artofcredit.com

    have fun. =)
    TradeViceroy

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