We are supposed to choose our loan type this week with ou...

[Anonymous]

We are supposed to choose our loan type this week with our lender. We can't decide which loan is bets for us.

What's your opinion?

We have low FICO scores (580).

Need low payment s to ensure good payment history so as to increase our scores.

Need to cash now as opposed to paying down on the loan.

We'll probably refinance later when we have higher FICO score.

We may stay in this home or sell when spouse retires in a few years...not sure yet.

Still have kids in college.

Help... I don't want to make a mistake.

Are interest only loans a GOOD or BAD idea for us?

Any thoughts?

If I seem anxious...it's because I am!!! Sorry...

[Anonymous]

Loans themselves are neither good nor bad. To determine if an Interest Only loan is the correct loan for you will depend on your current situation and your future goals. How much equity do you have in your home? What is more important for you today:

• Paying down the principal portion of your loan 
•  having extra cash flow in your pocket every month.

Do you plan on retiring in this home? If not, do you plan to pay the mortgage off prior to moving? If cash flow is the primary concern, then an Interest Only Loan is a good choice unless you are in a depreciating market and highly leveraged. If you plan on moving prior to paying your mortgage in full, it  is a question of pay now or pay later. By paying Interest Only, your are putting the principal portion in your pocket today rather than receiving that money when you sell your home.

With your credit and desire to rebuild your credit, an Interest Only would be a good option. Remember, if you have extra cash, you can always pay a little extra to your mortgage for principal reduction, but you still have the safety cushion of the lower Interest Only payment.

For credit purposes, the most important factor is that you continually make your payment and make it on-time. If the Interest Only loan will help ensure that you make this payment, then it is a wise choice.

[Anonymous]

hi boheme

Thank you so much! You confirmed what I was thinking would be the right thing to do. I just wasn't sure if there was something I was missing or something I have overlooked. Lenders don't always tell you what is best, as they are there to make money. I needed an outside opinion. I think we'll go ahead and pursue the interest only loan. It seems like the best way to improve our credit. We had financial trouble due to my illness (cancer) and we are trying to get back to top credit scores again. It's sure not easy.

Do you know if the interest only loan can be had with a 2 year ARM loan?

Thanks again! Great information!!!

Lee

Message Edited by Lee_6063 on 04-16-2007 03:40 PM

Message Edited by Lee_6063 on 04-16-2007 03:41 PM

[Anonymous]

Yes, you can get an Interest Only Loan for 2 years. The payment is a fixed Interest Only payment for two years and then converts into an adjustable. Make sure you have a plan prior to the adjustment period in 2 years or your payment can jump considerably.

Good luck!

[antredd67]

Some interest only loans..and i dont know if its still the case after the new defaults went up, were as long as 10 years.  But most that I have heard of are about 2-5  years on average, and they do start adjusting considerably after the 2 year anniversary date.

[Anonymous]

antredd67 and Boheme

Thanks! I think I'll ask about an interest only loan for two years. That seems like it would fit our needs...

1. low payment

2. Pay off second (which is at 14%! right now!)

We may or may not stay in this home after the two years (that's around retirement time) so that's when we'll decide. I am thinking that if we stay here we could look into refinancing at that time and we will have gotten our credit score up by then as well. So, hopefully a new loan will be beneficial for us at that time. We have a huge amount of equity in this home so hopefully we'll be in good shape. I guess it's all a gamble no matter how ya look at it. I think we'll take the chance on an ARM with interest only, if we can find the best lender to do this.

Another question for all of you, since you are so good at this!!! :-)

Do you know where I can research, or maybe you already know, where I can find out about the top lenders? I'd really like to know that I am working with the best, but not sure how to find out who actually is the best!

Thanks again!!!

Lee

[Anonymous]

We are considering the two year ARM and/or interest only refi now because if we want to do this refinancing again in a couple years we want to avoid those pre-payment penalties. Geez, I wish there was a better or faster way to increase our FICO score as we're not gettin' any younger! LOL!

Lee