Home Buying in Irvine>Question Details

Shirley, Home Buyer in Anaheim, CA

Happy New Year! Can someone provide me with some information regarding loans? Originally, I was considering

Asked by Shirley, Anaheim, CA Sun Dec 30, 2007

a 30 year fixed mortgage loan. However, I heard that a 30 year fixed, 10 year interest only mortgage loan is a wiser choice. If I use a 30 year fixed, 10 year interest only loan, can I still make voluntary principal payments during the interest only period? If so, what are the consequences of it (ie: does the loan period decrease? is the interest re-calculated according to a reduced principal balance?)? Thank you!

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7
Hello Shirley. Happy New Year to you too! Whether you go with an interest-only loan or a fully-amortized loan, the primary factor should be whether you can afford the monthly payments. The advantage of getting an interest-only loan is that your monthly payments will be smaller. The risk is that if choose an interest-only loan and you go to re-sell the property and it has decreased in value, you will not have paid down any of the principal and therefore will have to come up with cash at closing to sell your home. Interest-only loans aren't bad, they just require a little more thought and planning to make sure it's really the best option for you.

You are correct about paying on the principal on an interest-only loan. If you choose an interest-only loan, you can still make payments towards the principal. When you make payments on the principal, your interest is re-calculated based on the lower principal amount.

I hope this helps!

~Amanda Wheeland
Real Estate Broker & Lawyer
Web Reference: http://www.cinch2sell.com
1 vote Thank Flag Link Mon Dec 31, 2007
Shirley ... all good questions about home loans here in California.

You apparently want a 30 year fixed mortgage loan. That's good. If that payment is affordable for you, use that vehicle. If you want a lower payement, the 10 year interest only could be a good choice. You can still make voluntary principal payments during the interest only period. However, different lenders have other policies on whether that decreases the loan time or whether interest is recalculated each month or year.

Tim Sibley at First Capital Mortgage has done a great job for our friends and clients here at The OC. Please contact Tim at 949-71815111.

Thanks and best wishes. Harrison K. Long, Explore Group properties, Coldwell Banker Previews.

For a good site on home pricing and values, check out
0 votes Thank Flag Link Thu Feb 19, 2009
Shirley,

Yes, you will be able to make principal payments at any time with no consequences, as long as there is no prepayment penalty. If your loan does have a prepayment penalty, then you may need to find out what that term is. Most lenders with prepayment penalty terms will not allow you to pay off more than 40% of your loan balance before your prepayment penalty period ends.

The BEST advice I can give you is to talk to an experienced DIRECT-FHA lender who can give you the time and attention that you need. He will be able to take all of your individual factors into consideration and provide you with the information you need. This way, you can get the most accurate and beneficial information possible.

I refer all of my clients to him and they have all been extremely satisfied with him.

Houtan Hormozian
American Guardian Home Loans
T: (949) 242-5215
T: (877) 242-5215
hhormozian@amguardian.com

Should there be anything else that I would be able to further assist you with, please feel free to contact me directly.

Thank you,

Mitra Karimi-Paydar
0 votes Thank Flag Link Thu Feb 19, 2009
Shirley .. if you are a homeowner refinancing a debt or a homebuyer here in California, you should consult with a qualified mortgage broker or lender representative. Information for answers to your questions is available and changing according to the market on a daily basis.

Whether the lender allows you to make principal payments during life of the loan, and whether it would then recalculate interest owed, would be up to the lender and terms of the note.

I recommend you contact Tim Sibley, First Capital Mortgage, 949-718-1511. Best wishes.

Harrison K. Long, Explore Group Properties, Coldwell Banker Previews.

For a very good home and property search please check out
0 votes Thank Flag Link Wed Jan 14, 2009
Your interest rate will be lower for a fully amortizing loan... in fact, the payments that include principal are probably not much more than the interest only payments at a higher rate.
0 votes Thank Flag Link Tue Dec 30, 2008
Hi Shirley - I just refinance at 4.375% for a 30 year fixed loan and with the principal being such a small part, I also recommend to clients going with the conventional loan. You can always make more payments towards your principal. With interest only, it would be very easy to put off paying down the principal until next month and then 3 years have gone by and you have not paid done the note. But most importantly, it is how it fits your budget. If you have to do the interest only to afford the house, you may want to consider a less costly house. Best of luck in 2009.

Randall Sandin
check out my blog at http://www.randallsandin.com
843-209-9667
0 votes Thank Flag Link Tue Dec 30, 2008
Thank you Amanda! I truly appreciate your responses!
0 votes Thank Flag Link Wed Jan 2, 2008
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