Comments on: Are Interest-Only Mortgages for You? http://beancounterblog.com/2005/09/30/are-interest-only-mortgages-for-you/ Thu, 10 Sep 2009 19:23:09 -0700 http://wordpress.org/?v=2.8.4 hourly 1 By: Mortgages News » Blog Archive » External Mortgage Help http://beancounterblog.com/2005/09/30/are-interest-only-mortgages-for-you/comment-page-1/#comment-54824 Mortgages News » Blog Archive » External Mortgage Help Thu, 12 Jul 2007 04:36:41 +0000 http://beancounterblog.com/?p=2#comment-54824 [...] Beancounterblog.com has a good take on interest only mortgages and gives a good overview of this type of mortgage product. [...] [...] Beancounterblog.com has a good take on interest only mortgages and gives a good overview of this type of mortgage product. [...]

]]> By: Bruce Smeaton http://beancounterblog.com/2005/09/30/are-interest-only-mortgages-for-you/comment-page-1/#comment-53158 Bruce Smeaton Sun, 01 Apr 2007 10:11:00 +0000 http://beancounterblog.com/?p=2#comment-53158 As an ex-banker from Auckland, New Zealand, I concur with your views wholeheartedly. Unfortunately, many unscrupulous mortgage lenders and brokers have 'pushed' marginal clients into taking interest only mortgages just so they (the clients) would qualify on debt-servicing! In reality, many of these so-called marginal clients wouldn't have qualified for a normal P&I (Principal & Interest) loan because, with the inclusion of principal in the repayments, the end result would've been "negative monthly surplus!" One excellent use of an interest only loan however, is in a situation where you are taking a mortgage against an investment property and are looking to preserve your cashflow. You're only paying the interest applicable to the loan (for up to five years) and not the actual principal of the loan itself. In New Zealand, a property investor can "roll over" his or her interest only loan every time they come up for renewal i.e. if you took out a 3 year interest only loan today, then in exactly 3 years time you could renew it for another fixed term period, also on an interest only basis. This would be on the proviso that any other loan payments (such as the mortgage - if you have one - applicable to your family home) had been managed in a manner "satisfactory to the bank" during the initial fixed term period. As an ex-banker from Auckland, New Zealand, I concur with your views wholeheartedly. Unfortunately, many unscrupulous mortgage lenders and brokers have ‘pushed’ marginal clients into taking interest only mortgages just so they (the clients) would qualify on debt-servicing!

In reality, many of these so-called marginal clients wouldn’t have qualified for a normal P&I (Principal & Interest) loan because, with the inclusion of principal in the repayments, the end result would’ve been “negative monthly surplus!”

One excellent use of an interest only loan however, is in a situation where you are taking a mortgage against an investment property and are looking to preserve your cashflow. You’re only paying the interest applicable to the loan (for up to five years) and not the actual principal of the loan itself.

In New Zealand, a property investor can “roll over” his or her interest only loan every time they come up for renewal i.e. if you took out a 3 year interest only loan today, then in exactly 3 years time you could renew it for another fixed term period, also on an interest only basis. This would be on the proviso that any other loan payments (such as the mortgage – if you have one – applicable to your family home) had been managed in a manner “satisfactory to the bank” during the initial fixed term period.

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