I think it is okay only if you plan on living there for awhile.

while you might have some equity in the home based on home appreciation, you will have paid NOTHING towards the principal of the loan. Five years can be a long time, but if you’re careful and work the plan well this plan might work for you.

Personally, I prefer the fixed rate 30 yr mortgage. After 5 years in my home, I have paid a bit on the principal, plus have built some equity in the home. But, that’s for me.

To answer the question about the interest. Well, that’s what you paid to the lender to service you with this loan. In essence, it’s gone — all 5 years of it.

Bear in mind that such interest may be deductible from your income when you file your IRS return. That might be a good thing.

Please go talk with some other bankers, financial experts, and accountants, and ASK, ASK, ASK. They are used to it.

The first 5 years are interest only — which means you haven’t paid any money towards your principle loan balance. You won’t start making payments on the principle until year 6 during your next 30 years. I would say make principle payments during those first 5 years so the next 30-or-so won’t be such a “burden” on your wallet. Also check with your state and see if they have a bond program, which will lower the interest rate on a similar loan program.

The appreciation of the home will occur whether your making payments or not depending on the area you purchase in. If you purchase a new home while they are still building, your home will appreciate as they sell some homes. If you buy an established home it will depend on the activity in your area.

Good Luck in your purchase!

______________________________

CAROLINE SIMMONS
REALTOR® & Affordable Housing Specialist
O. 866.894.3601 ~ C. 404.787.8685 ~ F. 404.745.8019
E. caroline@premyiergroup.com

It’s a bit risky. Let’s say you are buying a $200,000 home. If, 5 years from now, real estate isn’t as expensive, and you can only sell your home for $150,000, you still owe $200,000 on the home (minus your down payment, which probably isn’t much). You are now stuck. You can’t sell the house without paying off the loan, which will require an extra $50,000, or declaring bankruptcy. Ouch.

What happens to the money you pay the first 5 years? Somebody put up $200,000 so you have a place to live. You are paying interest to that somebody to say “Thanks for buying my $200,000 home!”

You can help yourself by paying more than the required payment (although check your loan to make sure that extra amounts go to reducing principal – that’s important!) That way, your loan goes down during the first 5 year (which it won’t if you only make interest payments) thus giving you added flexibility should the real estate market drop, which it might!