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Paying Intrest Only.....HELP!!!


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for 2 years?? Then refinacing once my husbands credit gets "cleaner". Our broker suggsted this because it would lower our intrest rate. Can anyone give me advice on this, please (an intrest only loan for the first 2 yrs)? I guess it just sounds odd to me, but this is my first home purchase, so I am practically clueless! Thanks!


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Actually, your rate will go up, but the payment minimum will go down.

It is not a conservative approach at all to go I/O. There are only a few scenerios that it makes sense to have an Interest Only loan.

1) Your DTI (Debt ratio to your income) would be too high otherwise and

2a) your income is going up or

2b) the home values are going up rapidly in your area.

3) Your credit scores will be much better in 2+ years, so your interest rate will be lower then due to the decreased risk.

You understand 2a, but 2b is because if you live in an area where home values (Like Orlando, Southern CA, Mass, etc) in 2 years, when you refinance , you can get a loan that is at lets say 90% LTV. The interest rate on a 90% loan is much less than 95 or 100%.

Even though you don't pay much towards principal the first 2 or 3 years, you are paying something. Also, if you can not refinance in 2 years, but have to wait until 3 years, the margin for an I/O loan is higher than the margin for a Principal & Interest loan.


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