Interest only mortgage loan

Questions and Answers

with a standard calculator how do i work out capital & interest payments on mortgage/loan?

A) Using a 'good' calculator available at many web sites. Ensure that it also calculates the amortisation table too; this gives you the relationship between capital and interest for each year of your loan.

I have interest only mortgage due for repayment and little hope of finding funds. too old to remortgage. Help?

Q) Can anyone please give me some advice on the following. I have an interest only mortgage which was taken out several years ago and now has only a little while before capital is due. I took out this loan in order to pay off creditors but was only able to get a loan for five years because of my age. I have had the house on the market in the hope that it would sell quickly. Alas this has not happened and time is marching on. Any ideas please would be sincerely appreciated. Thank you.

A) Chase the agents. Re-approach anyone who viewed the house. Reduce the price or offer cashback. Chase the agents. Again. Ask them what they have done to match your property with potential buyers on their books. Ask them what they have done to earn their fee. Can you do a no sale, no fee agreement elsewhere as well? Is your property online? Did I mention chasing your agents?

Reypayment vs interest only mortgages?

Q) I'm hoping to buy a house soon, and have been in touch with a mortgage advisor. He's found me a mortgage. I wanted to get a repayment mortgage because it's easy to understand: "after 25 years I will have paid off the loan, and I will own my house." Unfortunately the "repayment" repayments are a little more than I can afford so I may be forced to get an interest only one. The mortgage is fixed for 5 years and is fully flexible, meaning i can over-pay if I have enough money. Now, here is the bit I don't 100% understand: Lets say the "repayment" repayments are £900 and the "interest only" repayments are £700 At the end of my 5 year period if I wanted to "upgrade" to a repayment mortgage, but had just been paying £700 a month, will I be £12,000 short? (5 years of £200 a month short) If so, do lenders let you pay this off and "clear the slate"? Also, if I managed to pay £800 a month for 5 years would I only be £6,000 short? Any additional info would help too!

A) The best mortgages are repayment ones, simple as that. And what you want is a mortgage where, if you make a payment, your balance is reduced immediately from that date (previously, any payments made during the year were treated as 'paid' at the end of the year, so you ended up paying a full year's interest. Now many mortgage providers offer you one where, if you pay on 1st April, your balance is immediately reduced from that date). That's the one you want, a flexible mortgage where you can pay off additional sums as you need it. The maths is very confusing but - putting it plain and simple - do whatever you can to get a repayment mortgage. And pay it off with lump sumps - for birthdays and Xmas, etc., just ask for money and pay off that mortgage. I paid off a 25 year mortgage in just 12 years doing this ... boring I know, but it makes you wealthy and earlier. Good luck

I am looking for a formula to calculate the repayment terms for an interest and capital mortgage.?

Q) I am looking to remortgage (UK) my home and am looking for a formula I can put in a spreadsheet to calculate the monthly repayments. The loan amount is £158,000, the term is 21 years and the interest rate is 6%. I would like a formula that I can vary the term to reduce the interest paid. It is an interest and capital repayment mortgage. Thanks

A) Ok i did this yesterday, here goes: Using excel type in your figures in columns Then go to insert on the tool bar and click on function, then click on PMT enter your figures in the correct boxes and click ok you've got your formula! If you have any problems click on the help link on the bottom left.

Should i save up to pay off my student loan first or start saving for a mortgage instead?

Q) I want to save up for a mortgage but not sure if i should save up and pay off my student loan first?...then ill have no debt...but it means delaying saving for a mortage for about 2 or 3 years. but the interest on the student loans is now 4.4%!!!! which is high. Is anyone in similar situations?

A) Ive just finished my degree.... Personally I'm leaving the student loan and just having them take out what is necessary... until I'm in a better position, the monthly payment are pretty minimum and the interest rate is one of the best you will get (other than those introductory 0% credit cards) Getting a mortgage is much higher on my priority at the moment, so we are saving for a deposit on that first. I'd waste more money paying rent if i was priced out of the market because i waited 3years!! You could consider a 100% mortgage that way your on the market ladder, and can still pay off your student loan. Its completely up to you and your priporities xx

Why do lenders often link their loan-interest rates to the BankofEngland base rate?

Q) If morgage lenders all decided they were not going to link any of their mortgage offerings to the base rate, wouldn't this just mean the BoE would have no control & noone would care what their base-rate is? Why aren't lending interest rates solely controlled by competitive forces between lenders, like many other prices in our consumer-driven society?

A) The BoE base rate is the rate at which the commercial banks can borrow in case of emergency. So it's like an emergency 'cost' of funds; therefore they shoudl at least cover that. If banks decide to go below that rate, it would possibly mean that they have absolutely no liquidity issues. Basically the $ is rotting in their safes, and it's better to lend it out rather than keep it idle. Not however, if that is the case, it would mean that investment opportunities are low at the given rates, the economy is likely not to be doing well, and chances are the BoE would be looking at a rate cut itself. Chances are the BoE rate is lower than the pure market rate. Therefore, just like a price ceiling that's below the equilibrium price, it doesn't matter. The reason is that you must rememebr that the BoE is a lender of last resort. If the interest it charges is too high, it wouldn't be playing that role very well... So I guess my answer is that be definition the BoE base rate should be lower than the market clearing interest rate, so in fact doen't affect the loan-interest rates so much. When they increase the base rate, it's more of a signal for something the banks would have done anyway.

Increasing interest rates leads to higher inflation so why do it?

Q) It seems to me that putting up the interest rate and therefore mortgage/loan repayments leads to a need for higher wages to pay for these-increasing inflation. Yes of course, as one or two people have said, it puts new people off borrowing but the present ones and future ones wil merely ask for a wage increase to pay for the higher rates. So inflation continues. So far most people but not all have missed my main points and addressed other things.

A) In order to understand how this lowers inflation, it is important to understand how this monetary policy is conducted. When the central bank increases the interest rate, it is not something they just arbitrarily pick and say now here's what you have to pay. In order to accomplish the change in interest rate, they sell government bonds that they are holding to banks, reducing their reserves. Because of the reserve requirement ratio and money multiplier, a $1000 change in reserves can have an impact of $10,000 in the money supply. Thus, when the interest rate is changed, the reserve accounts of many banks are lowered, and thus the money supply is contracted. With less money in the money supply, there is more competition for use of the funds, thus increasing the interest rate. The opposite occurs when the rate is lowered, since the central bank then buys bonds and increases the reserve accounts of banks, thus increasing the money supply. As far as the higher wage theory goes, this is only partially correct. Yes, workers will ask for higher wages. But they are not that likely to get them on the whole. Remember, the interest rate increased steadily over the past couple of years, increasing a quarter point every six weeks last year. However, individuals did not receive raises nor did they ask for them every six weeks. These higher wages would be incurred by the business, and may or may not be passed on to the consumer. As you would understand, if the interest rates increase and the people have to pay this extra money to their mortgage, they will have less to spend on other goods. If the company increases the price of their goods, the individuals affected by higher interest rates are less likely to purchase these goods. Thus, increasing the price may not necessarily occur, since it may lower the company's revenues in the long run. Hope this helps.

Can you offset interest paid on a loan in the UK against income earned letting a property in France?

Q) A friend owns a property in France which is used as a holiday home but also occasionally let. Tax must be paid in France on any rental income earned but he took a mortgage on his own home in this country to buy the house in France. Does anyone know if the French taxman will allow the interest being charged on the loan in the UK to be set against the rental income earned for taxation purposes?

A) I don't know the answer to this. Interest for purchase and renovation of maisons secondaires in France is deductible against rental income. There may well be an EU regulation extending this to interest paid throughout EU. But surely it is worth trying ? The French taxman can only say non. There are people in the same situation posting on this local French forum : http://the-languedoc-page.com/forum who can probably help. Peter

Why doesn't the government issue interest free loans and money?

Q) Do away with the banking system that holds so many people in debt for years, the government should issue interest free loans and mortgages for all the people. It would also stop the influence that the financial institutions have over the whole country. You lend people money that doesn't exist and charge them interest on it. Everything over and above that is a smoke-screen which is built on the foundations of lending people money that doesn't exist and charging interest on it. Without that global conjuring trick, it all comes tumbling down. And yet when we hear predictions that this system will collapse there is enormous fear among those who are enslaved by it. http://www.hiddenmysteries.com/2000/icke/iamex.html

A) isnt it interesting to note how few people know how the economic system works in this country ... the fact of the matter is the economic system was turned over to the federal reserve board in 1913 ... its a private "for profit" company ... they have a monopoly on printing the money and controlling the amount in circulation as well as interest rates and being almost the sole creditor of the united states govt ... what almost is universally not known, is that congress could take back the money powers from this illegal "bank" and print money itself to finance its programs ..release enough into circulation to facilitate commerce for the good of all ... and there would be no "income tax" (which is nothing more than the federal reserve board lining their filthy pockets with the ordinary mans wealth) ... KILL THE BANK ...its THE cause of the financial problems in this country ...andrew jackson killed the bank and was the only president to pay off the national debt ever ... believe this next info if you want .. but you will see its true if you research it ...presdent kennedy wanted to kill the federal reserve and started printing out "silver certificates" as a competeing currency to the federal reserves "notes" (he signed executive order 11110 to implement this plan) ... unfortunately he was assasinated and the fed moved quickly to undo what kennedy tried to accomplish .... yes, give congress back the money powers, kill the bank ... get some honest people in the whitehouse and the sky is the limit to how wealthy and successful we could all be .... there should be some fees to cover risk of a loan i think but not interest per-se ... maybe interest and fee-free loans to those with excellent credit from govt loans though ... it could be done ... demand the federal reserve be audited and killed ... DEMAND IT

Who needs a Guaranteed Loan Offer?

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A) Hi Maybe you dont understand but this is a question and answer forum and not a sales environment. Why not advertise in the proper areas and you may get the response you are expecting. You may end up getting reported on yahoo if you continue advertising. Dean

How exactly do 'interest only' mortgage loans work? When do I pay on the principle of such a loan?

Q) I know APR loans are a bad idea, but how would an interest-only loan work? Would it still be a 30 year note, or do they extend the loan? Would I be able to get a fixed rate with an interest-only mortgage loan?

A) In an interest-only loan or mortgage the borrower only pays interest each month. This makes it cheaper than a conventional mortgage, in which part of each month's payment goes towards the principal and part goes towards interest. These loans have become popular because the monthly payments are lower, allowing borrowers to afford a larger home. However, these loans can be dangerous, especially in a down housing market. The interest rates are generally fixed for the first 1, 3 or 5 years. After that, they convert to a conventional loan, with a higher monthly payment. Most borrowers take on these loans because they assume they will sell the home before the interest rate increases. In a down market, they may not be able to sell. If they cannot afford the increased payment, they may have to default on the loan, and foreclose on the home. So, when the rate starts to adjust, you would need to refinance again. And, either get a fixed or another interest only adjustable. And, yes, I do believe you mean ARM. Although, if you have extra money every so often, you can pay down the principal in extra payments.

Interest Only Loan & Mortgage!?! *???

Q) Me and my fiance are looking to buy our first place :) I am doing the research, and at a loss in regards to this. No website I've found give just STRAIGHT UP facts about this so I want to know... What are the advantages and disadvantages to an interest only loan? And how is this different than an interest only mortgage? Thank you in advance! :)

A) Interest-only mortgage is the same thing as interest-only loan. Interest-only loans offer you a lower monthly payment, because no part of your payment is actually reducing the amount you owe. You are only paying the interest charges. So that's advantage #1. Advantage #2, which is rarely used I'm guessing, is that your payment actually recalculates every month. So if you do make a principal reduction payment (pay off some of the loan), your future payments will be lower. This works well in some cases, like if you somehow land a big chunk of cash, or your income comes in big bonuses, and you can keep payments lower when you need it, and pay it down when you have extra cash. In most cases, your interest-only period lasts for 5 or 10 years, though sometimes on adjustable rates, it might be interest-only during the initial fixed-rate period only, like a 3 year fixed ARM that is also interest-only for the first 3 years. After that, your payments will jump up, sometimes substantially. If you haven't paid down a penny of your loan for 10 years, you'll typically have only 20 years left to repay it. That means, depending on the rate you have, a payment spike of 40-50%. For example, a $100,000 loan at 6% interest. For 10 years, your minimum payment, interest-only, would be $500/month. After that period, you'd have 20 years to repay the full $100,000, making your payment jump to $713. A 43.3% increase. A couple things make that not so important though. First and foremost: Most people refinance or sell their home within the first 5-7 years. It's my understanding that over 90% of mortgages are paid off in full by a refinance or sale by the 7 year mark. Also, there's inflation. If inflation is 2% annually, that effectively reduces the cost of the increase, by almost half. Simply because in 10 years, $500 won't be worth what it was today. But again, there's less than 10% chance you'd be in that loan in 10 years anyway. The reality is, most people take interest-only loans, and never add more. One nice benefit of a normal mortgage was, that eventually, hopefully, you'd be debt-free. This whole concept seems to have gone by the wayside over the past 5-10 years. Now it's fashionable to take option ARMs that actually allow your mortgage balance to go UP every month, while you make a ridiculously low payment. Eventually, you might owe more than the house is worth. What happens if you have to sell? Go search for the housing finance agency for your state. Contact them, ask about first-time buyer counseling classes (available online as well as in person. Highly recommended!), lenders they work with, and any grants/subsidies/free money you might be eligible to receive. Good luck.

Should I refinance my interest only mortgage loan?

Q) We have a 5/1 ARM with interest only mortgage currently. Got it at 5.25% 3 yrs ago. We have been making interst only payments so far with no payments towards the principal. But our home price has gone up by above 50k over the same period which I guess would count as equity. I expect my income to increase in the next few years substantially but as we get closer to the 5 yr mark, I am getting very nervous that our payments are going to get sky high and was looking at a 30 yr fixed rate loan at abt 5.8%. We plan to stay in this house for atleast another 3-4 yrs. Do you think it is wise to refinance at this point?

A) Honestly, no I don't. You have two years of security left at a rate that is currently pretty hard to find. If you are planning on being in your home only 3-4 more years, then find out what your adjustment cap is. All 5-year ARM's have an adjustment cap that limits what the loan can adjust to initially, and depending on what that is, you may find it in your best interest to ride it out until you decide to sell. You have to consider the cost to refinance versus the monthly savings you'll get by refinancing. So, let's say that you decide to stay in the home for three years. You're rate is fixed for the next two years, and depending on it's adjustment cap, let's say two percent, your rate would be fixed for the third year at 7.25%. Depending on the size of your loan amount, your payment may only increase by $100 a month. Let's say the cost to refinance is $2000, it would then take you 20 months to break even on your costs, and if you were only in the home for 12 more months it would not make sense to refinance. If you would like further details, or if you would like me to take a look at it, email me directly, I would be more than happy to. Hope this helps.

Should I stay away from a second mortgage interest only loan?

Q) I've been approved for a 1st mortgage at a fixed rate of 7.38 and a 2n mortgage interest only at 10.425. This loan is for an investment property. I've been told that the 2nd loan is Home equity line of credit. How much will my payments go up on the 2nd mortgage and should I look for another loan. Thank You.

A) Only use the 2nd mortgage for fixing up the property if it needs it. Do not use it for every day purchases. It is good to have for any emergencies and for the tax benefits. The interest that you pay is tax deductible. You can use the money to fix up the property if you wanted at a smaller monthly payment (int only), then when you sell property you pay it all off anyway.

Interest Only Mortgage Loan: Cheaper than Renting... 5 years or less.?

Q) What advantages/disadvantages are there to taking out an interest only mortgage, if: I plan on living in the house for only a couple of years, I do not make any payments on the principle, and I sell the house/mortgage after a couple of years?

A) The big advantage of an interest only mortgage is that you have a choice whether to pay just interest or interest and principal each month. This allows you to control your cash flow and pay what you want. In the situation you describe above, as long as your house is appreciating in value (going up) you are ok. You'll sell the house for more than you bought it and you'll be able to pay off your full loan and possibly even make a small profit. However, the disadvantage of an interest-only loan is that you aren't paying any principal off each month if you only make the interest only payment. If you happen to live in a part of the country where property values are dropping, you could find yourself in a situation where you owe more for your home than you can sell it for if you haven't paid down your loan at all. Does this make sense? It's very rare for property to depreciate in value, but it does happen. If you live in one of the few areas where property values are dropping or not going up, you probably don't want to go with an interest only loan. It might not be the best solution. As opposed to an interest only, I would recommend doing an adjustable rate mortgage (ARM). With an ARM, your rate is very low for the first few years (usually 3, 5, or 7). This way you'll get a very low rate for the few years you want to live in your home and you'll sell the house before the adjustable rate goes up. And you can pay off some of the principal, so the risk is less that you will owe money when you sell and you still get a low monthly payment. I've included a link to a page about adjustable rate mortgages. You can take a look for more info. Good luck!

1% interest only mortgage / loan?

Q) Can anyone explain to me what the 1% refers to in all these ads for mortgages/refinancing? We just got a quote from a broker for a refinance at 1.5% but the "Truth in Lending" sheet shows a variable rate, which starts at 7.4%. Our loan broker isn't giving us a straight, understandable answer - help!!

A) This is most probably a MTA loan or another variable index. Let's focus on this as a MTA product, because this is most likely the loan product, and would be the best one offered. The following is a link to the MTA index: http://www.moneycafe.com/library/mta.htm This can be a very powerful program for better and for worse. The reason that your loan officer is probably not giving you straight answers is because he probably does not understand the mortgage. (This is further displayed by his TIL because the APR should be about 10.5%) Here are some calculations from my web site that should help give a little explaination to the program. I use a 40 yra term compared to a 30 year term. These are meant to be approximate numbers using a 200,000 loan amount. This is your actual interest rate and undeferred payment: 1,301.39 http://www.nnnstore.com/mortgagecalculator.php?check=form&loanamount=200000&rate=7.4&term=40&payment=1%2C100.43 Here is your payment at 1.5%: 554.34 http://www.nnnstore.com/mortgagecalculator.php?check=form&loanamount=200000&rate=1.5&term=40&payment=1%2C301.39 Your actual interest rate is 7.4%. The loan program allows you to pay less. Anything that you pay less than the $1301 is added to the principal balance of the loan. For instance, if you pay 554, 1301 - 554 = 747. 200,000 + 747 = 200,747 = principal balance of home loan in month 2 (interest will be calculated off of the new loan balance). The minimum payment feature is typically fixed for 5 to 10 years. The actual interest rate is variable and changes every month. If you look at the previous MTA link, that has your actual index/month. That index plus the loans margin = interest rate. The index is going higher, and you should expect an average loan interest rate of 7.5% - 8% over the next year or so. Any increases or decreases in the rate will mean greater deferment from your minimum payment. We are upticking, so don't expect the interest rates for the MTA to go down. Listen... this answer is long enough as it is. I'll get right to the nitty gritty. You really have to consider your goals with the program. If you are self employed, or flipping houses(buying out of the prepay) and the loan program opens up cash flow to put towards your business... it's great. I don't think that this is the case for you. For the typical person who is being pitched this mortgage for their primary home it is a very bad product. Unless you really understand the mortgage and have additional investment plans with the deferred payment, it's not worth it. One very nasty feature to your common borrower is there is an automatic payment RECASTING. This means that if your principal loan balance becomes 115% (eg. 230,000) of its original amount you must pay the fully indexed payment (1301/month). For most people this is projected to happen about year 4. Unless you are able to take the $700 payment savings and put it into a higher yielding investment of 10% or greater, I would not do this loan program. (especially, if you can afford a more traditional program at this point.)

What bank or Residental Loan Service can I find an interest only Mortgage loan with NO penalties.?

A) Washington mutual, world savings are offering interest only mortgages without prepayment penalties.

What is the advantage of an interest only mortgage loan?

A) Okay, let's say you wanted to buy a car for $30,000, and could do so with an 8% interest loan, paying only interest. That would make your payments about $200 per month. Good deal, yes? But what will that car be worth in five years? We know that you'll still owe $30,000. Still a good deal? How about your credit cards? Is paying interest only a good idea for those? So what makes a house any different? Well, it will PROBABLY go up in value, but not necessarily. Or maybe the plan to pay just the interest is a temporary plan, and you intend to start paying the principal after a few years of getting the car, credit cards, and school loans paid. Maybe it's a good idea if you plan to pay down other debt that's at a higher rate, but if the only reason is to get you into a house you really can't afford, don't do it.

What are the advantages and disadvantages of an interest only mortgage loan?

Q) none

A) Your payments will be higher and the loan will take longer to pay off

Does anyone know what the "catch" is with an interest-only mortgage loan?

A) Most interest only loans have a starting period, sometimes between five or ten years, where you only pay the interest every month as your payment. Because you are only paying the interest due, and nothing towards the principal, you do not gain equity through your payments. Once the interest only period expires, your payments recast to whatever the normal payment of principal & interest would. This is sometimes higher than a regular 30 year fixed payment, because you are spreading the actual term of the payments on principal across a shorter time span. The only way you can gain equity with a loan of this type, during your interest only period, is if your property value appreciates over time with the surrounding market, or you perform home improvement upgrades. Interest only loans are good programs, for specific purposes, but should not be a way to purchase more home than you could otherwise afford. If your property value ever decreased because of your local market conditions, you could easily end up oweing more than the property is worth. You should consult with a professional mortgage planner to analyze your situation and make an informed decision on whether an Interest Only loan meets your goals and needs.