I recently refinanced with a $200,000 / 30 year fixed / 10 year interest only loan. What can I expect?

Asked by W, Keefe, San Francisco, CA Mon Dec 10, 2007

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Jim Cavoto, Agent, Denver, CO
Mon Dec 17, 2007
I think that if someone is going to do an interest only loan, you have chosen wisely! You can expect exaclly what you signed up for. Your rate is fixed, so no fear of what the rate could adjust to, and you know when it will change. What you didnt say is how much you put down, if you did 100% financing, you most likely will not be able to sell for a while, because you will still owe the same in 10 years, unless you make payments towards the principle balance. What James said is true about pre paying with a pre payemt penalty , but look at your paperwork, in most cases you can pay 20% of the principle in any given year before this would even kick in. If you win the lotto, I'm sure you can take the hit! ;-)
I would say that if someone is not going for a straight 30 year fixed program, that the program you took, is 2nd in being safe. You just need to be sure you can make the payment at full PITI when the time comes. A lot will happen in the next ten years, and it will be a completely different market, I am sure of that. It just might be a sellers market then!
Web Reference:  http://www.altadenver.com
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James Wedewer, Agent, Cupertino, CA
Mon Dec 10, 2007
I personally did a very similar loan when I bought my house a couple years ago. The 10/1 ARM is typically the longest loan for which you can get the interest-only payment and still feel like you aren't gambling with your future ownership of your home. Your interest-only payments would be just below $1,000/month at a 6% interest rate. I wouldn't expect any surprises with the loan...just like any standard loan you make your payments, and that is that. Look out for a pre-payment penalty. Some "soft" pre-payment penalties also limit you from paying down the mortgage too quickly during the first few years should you decide to make significantly greater payments than just the interest-only amount.
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