I was reading the San Diego paper today and they were talking about how these type of loans could back them bite.

But why are so many many people are getting these types of loans?

I'm still new to the business, so i'm not that familiar with loans yet.

If you aren't planning on owning the property very long, either because you are the one building the property, or you are just going to purchase it to sell it again right away, or maybe you just want something that you can't afford and don't mind never owning any piece of the home.

-J

Interest only loans lets you qualify for a higher price house, have lower payments, and take advantage of rapid appreciation in areas where that is happening.

If a buyer is only going to be in the house a few years and sell it's something to consider.

If, for example you borrow $200,000 you only pay around $10,000 towards the principal the first 3 years and you still owe $190.

Get an interest only loan and pay about 250 per month less and owe $200,000 in 3 years.

We got an ARM when we purchased our house. It's much better than interest only.

I love interest only loans for investors. It keeps their payments lower and they get a lot better cash flow.

Also, most new homes on the are appriciating very quickly here. Most older homes are appriciating at a much slower rate. If someone could only afford a $150,000 home on a 30 year loan they would have to buy an older home in a neighborhood that isn't appriciating very quickly. They may pay down their mortgage a little, but the house wouldn't be worth a whole lot more a couple of years down the road. With an interest only loan they could purchase a band new home for $200,000. They wouldn't be paying down the mortgage, but the home would be worth a lot more in a couple of years. They would have a lot more equity gain without paying a penny toward their mortgage.

Their is a "right" loan program for everyone, and their is no "best" loan program. It depends on your client's situation, their goals, and your market.

Did you know you can get an interest only ARM??

There are literally thousands of loan programs these days and they all need to taken in context to individual borrowers needs and wants; there's no perfect, one size fits all loan.

Thanks for the replies. I learned something very valuable and it should help later when I begin to invest.

I think you forgot about appreciation and down payments.

Let's say you get an interest only loan on a $500K property. If it appreciates to $1M you'd own half of it. Also you might have invested in a down payment and you'd have some equity from the beginning from that.

Regardless, it's more about having equity in the home instead of ownership in a trdaitional sense. I'd love to go back in time and buy some SoCal properties on an interest only loan!

Like Jim said, each situation is different, what if we were in a time where prices were falling, then your statement wouldn't apply... we can present millions of situations on why this is good for that, bad for this, and this is great for that, but awful for this...

-J