mollie asked:
Ok- I’ll type slowly with thought. My husband and I are both 53. We only have one child left in the home who is 14. We have money saved for his college education. Our income is $139,000- mtg. of 210,000 on a home just appraised for 365,000 and 2 car lease loans for 239 mo. and 411-month. WE have a great opportunity to invest $25,000 in a hotel megoplex being built in our city which is growing and becoming beautiful - exc. location.The return in 7 yrs. will be a minimum of triple the investment. We are taking an interest only loan- fixed for 30 yrs. at 6.125 - converts to conventional in 10 yrs. Will sell house in 7-8 yrs. There will be closing costs, but we don’t have lots of liquid assets. Our retirements from the govt. are solid and we have almost $150,000 in 401K. We don’t pay into retirement tho. Is interest only loan a good deal- & taking $5,000 to get house freshened- & 10- in CD for 2 yrs. Should we pay much principal if we will sell in 7 yrs, since it won’t amount to much?
Ok- I’ll type slowly with thought. My husband and I are both 53. We only have one child left in the home who is 14. We have money saved for his college education. Our income is $139,000- mtg. of 210,000 on a home just appraised for 365,000 and 2 car lease loans for 239 mo. and 411-month. WE have a great opportunity to invest $25,000 in a hotel megoplex being built in our city which is growing and becoming beautiful - exc. location.The return in 7 yrs. will be a minimum of triple the investment. We are taking an interest only loan- fixed for 30 yrs. at 6.125 - converts to conventional in 10 yrs. Will sell house in 7-8 yrs. There will be closing costs, but we don’t have lots of liquid assets. Our retirements from the govt. are solid and we have almost $150,000 in 401K. We don’t pay into retirement tho. Is interest only loan a good deal- & taking $5,000 to get house freshened- & 10- in CD for 2 yrs. Should we pay much principal if we will sell in 7 yrs, since it won’t amount to much?
Wow you have all this information at your finger tips not to mention the knowledge that goes with it. Why on earth are you asking complete strangers to help with this?? Look the answer is easy. Benefits vs Risk include variables (known and UNKNOWN, everybody always forgets the unknown variables) Subtract approximate net worth (never mind liquid assets right now) That will give you the answer you are looking for. Good Luck. P.S. If it were me, I wouldn’t do it.
with that kind of income, you should have the cash to invest….you’re a fool to borrow money thinking it will triple…..see you on the bankruptcy board!
I happen to think the “interest-only loan” would have been useful to whomever sacked Rome. If the person selling you the “megoplex” would please produce a document that GUARANTEES your 3x return in 7 years, then you have a fine investment indeed. My bet is that no one is going to guarantee that kind of appreciation on your investment. And if they could, they would borrow the money themselves at 6.125 and take all the profits.
The principal on your home after 7 yrs… well, the value of your home could go up or down in 7 yrs. I’m betting on “up.” Based on betting “up,” the more principal you pay in the interim, the more will be your share of the house when it’s time to sell. Were your house to magically double in value, you would want to have paid up more of the principal, because when you sell your home, you don’t get back the part of the sale price that represents money you still owe the bank on principal.
I regard an interest-only loan as a vehicle for people to live above their means. How else can I purchase a $1M estate for only $2K a month!? That’s just throwing money away! No one can guarantee your return on any investment. I am a huge fan equity and not a huge fan of debt.
You definitely need to hire a financial advisor. Not here on Answers, either. The amount they will charge you will be minimal to the amount you could lose by taking these gambles. Run, don’t walk to the nearest office, they’re excellent at what they do!
Best of Luck!
I read your previous question too! Why in the world would you want to borrow an extra $10k at 6.125% to put into a CD that offers 5%? It sounds like you have some financial opportunities and needs over a specific amount of time and usually this situation is ideal for a HELOC and am curious to know if this is the type of interest only loan you are talking about. If so, it is the best way to go because YOU ONLY BORROW WHAT YOU NEED WHEN YOU NEED IT over time. Also Heloc’s tend to have lower closing costs.
If you are talking about getting an interest only loan as your primary mortgage or as a second mortgage, your will have steeper closing costs and the money that you borrow will be lying around doing nothing until it is invested in the real estate deal, or invested for less return than you are paying in interest. Like others have mentioned I think interest only loans are only for people living above their means. If you can get a better rate and lower closing costs (in a cumulative picture of the 7-8 year time frame you are considering) by paying towards the principal instead of getting an interest only loan, do so.