No wonder the real estate market crash

[Bricktop]

Karl I heard a bredda talking on the radio the other day about Interest Only mortgages being the way to go and the extra money you saved from going with the conventional mortgage should be placed in an investment fund every month and when time come to repay the principal with compounding interest you could pay off the principal twice. Achoo?

[Gamma]

it sounds too good to be true?

[Bricktop]

This man mek $23,000/year and get a $375,000 mortgage.



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Faces of Lawrence's foreclosure crisis
Mario DeJesus (right) bought this three-family Victorian in the spring of 2005, taking two mortgages to cover the $375,000 purchase price. DeJesus, however, earns about $23,000 a year and soon had trouble affording his mortgage.

Is that TK? I was wondering how mi nuh see him in a good while

[Bricktop]

it sounds too good to be true?

Don't matter one way or the other to me I have a deluxe Coleman American Heritage Weathermaster Cabin Tent . Cash money mi pay fah

[Bricktop]

it sounds too good to be true?

On the real though it made a lot of sense but the trick is in knowing what kinda investment fund to put the extra money into.

[Gamma]

that is part of the trick indeed.....rule of thumb any investment which is going to give you a return in excess of the mortgage interest rate is likely to be bullish and high risk ergo should not be long term....more conservative investments MAY approximate interest rates if you are lucky so you would be running to stand still.

[Bricktop]

more conservative investments MAY approximate interest rates if you are lucky so you would be running to stand still.

I think that's where the compounding interest came in.

[Karl]

Karl I heard a bredda talking on the radio the other day about Interest Only mortgages being the way to go and the extra money you saved from going with the conventional mortgage should be placed in an investment fund every month and when time come to repay the principal with compounding interest you could pay off the principal twice. Achoo?

One lucky bredda dat!

Good theory! Workable!

...however the deterrent to going that route is; how many of us have the discipline to every month put that difference in an investment fund? ...and two, I am sure he made only a passing reference to the fact that investment funds can 'bomb'!

...do you also know that your Principal would not decrease...therefore your equity growth in the property would be much slower than if you were paying down the principal?

Now Interest only payments may make sense if you are extremely disciplined and or you are sure you shall sell in 5 - 10 years...and, you would like to put the difference in payment that a conventional 30 year fixed mortgage would demand into what YOU have carefully worked out to be for YOU a better 'place'. - e.g. Maybe in a business...or other type investment where YOU have calculated better returns than paying down your loan balance/i.e. toward paying down the mortgage you have given on your property.

For most of us it is not a good option - as invariably we dip into that 'difference' or spend it each month as we go along on goods that depreciate as opposed to using the funds to build wealth.