Interest Only Mortgages
I have (11) rental properties and they all have mortgages on them ranging from the lowest of 33,000 to the highest of 97,000 and iam considering going with a 7 year interest only loan for all of them to generate extra monthly cash flow to pay down the mortgages starting with the lowest mortgage. Is this a good srategy or not ? And if so what pros and cons ?
Jerry
Interest Only is a good strategy, but depends where you live, I think. If you live in like rural America where it takes 30 years to appreciate 10%, it is NOT a good idea. But if you are in a high appreciating area, for example, where I am from, Reston, VA, go for it! The only reason one wouldn't do it, is if they couldn't gain equity another way. For example, where I am, in one year your house could appreciate 20-30%, and thats just in one year! Pros are lower mortgage. However, with your loan amounts being so low, it would probably only save you $30.
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On 2005-01-03 12:38, Devlon wrote:
Pros are lower mortgage.
I am sure you ment a lower mortgage payment? Since making an interst only payment will not lower the balance.
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However, with your loan amounts being so low, it would probably only save you $30.
I have to agree with small motgages your not going to see a big change in the payment. Besides most lenders who make small loans do not do interest only.
The main question is: How long will you be holding these properties? It sounds like your looking to hold long term. If that is the case then why take the risk of higher rates? And why not take what it will take to refi and pay down the balances?
As for using the snowball and paying off the small one first? If that helps you get to your goals then why not?
As for the cons: Do you have cash reserves to cover dips in your cashflow?
The IO loan is a great program for what your attempting.
This is because the rates will be much lower meaning that the amount of interest will be less. And with the extra cashflow that you throw toward the principal, you will pay off the balance quicker.
What you may want to do is take the property with the most equity and do a cashout refinance Interest Only and use the money to pay off some of the other loans. This would give you the greatest cashflow if that is what you are looking for.
Sickerville is appreciating very rapidly (my office is based in Marlton) so if and when you do sell most of your profits will be from that anyway.
The IO loans that I work with have a rate that is locked between 3 to 10 years so you have some security from rising interest rates while you are holding the loan.
[ Edited by jermsalerms on Date 01/04/2005 ][ Edited by jermsalerms on Date 01/04/2005 ]
Hi Jerry,
I am in a similar situaltion and have been looking at what strategy to use to clean up the clutter... recently looking at refi some to pay off others.
Since it sounds like you are clear that you are going to pay down/off loans, using steady/increasing rents, and building momentum by using increasing rents to pay down/off principle, seems very positive to me.
If anybody can show if it better to take large loans to dispose of many small loans, that would be helpful info. My loans range from 51K to 108K on 10 SFH.