Refinance Mortgage

An Interest Only Mortgage is when the payment that is due only covers the interest applied to the loan balance.

How is differs from a Fixed Rate Loan is that an Interest Only Loan is only fixed for a certain period of time (2, 3, 5, 7, or 10 years) and then it will adjust. So in essence an Interest Only Loan IS an Adjustable Rate Mortgage once the fixed period expires.

An Adjustable Rate Mortgage is a loan that is fixed for a certain amount of time, then the rate and payment adjust monthly (they go up!). They are attractive because they offer lower payments and rates for the duration of the time they are fixed (2, 3, 5, 7, or 10 years). Adjustable Rate Loans can either be Interest only , or Principal and Interest (paying principal will make the payment slightly higher)

You should discuss your goals of the property you are financing with your Mortgage Broker to decide which Loan Product works the best for your needs. Be careful because the wrong decision could adversely affect your financial future.

What rate – AND is it smart if I plan on moving within two years…
This is a "forced" re-fi

It’s smart only if you KNOW that the value won’t go down on the property and ONLY if it’s available at a fixed rate of interest…and these loans are rare.

There are alot of people that banked on that and lost.

If the value goes down, you won’t be able to sell.

We live in a townhome (CA), rent out a condo (AZ), and are looking to buy another townhome to rent (NC)? Would the mortgage interest of all of these properties be deductible?? Is it limited to one rental only???

In general, mortgage interest is always deductible. There are some exemptions such as phase outs & a cap. Aside from those, it doesn’t matter if there is a house, rentals or both.

In addition to interest, you can also take a deduction for depreciaiton on the rentals, but not the residences. All advertising, repairs, services (lawn mowing), etc are also deductible for the rentals, but again, not on the residences. property taxes are deductible on both.

If you are using the properties strictly as rentals, then they are classified as "trade & business" properties, not "residence" under the internal recenue code- note that the intended use matters, not the distinction between residential & commercial. As such, just about anything that you pay out is deductible as an current period expense or depreciable in the case of capital expenditures.

If you are using the properties as personal residences during part of the year & renting them out for the remainder of the year, then there are some additional calculations to do.

ROGER V:
Thanks for your support, but your addemndum is not quite right. Under the IRC, only "trade & business" properties, which include rentals are depreciable. You do not get a depreciation allowance for your personal residence. The IRC has different recovery period for residential properties that can be depreciated vs. commercial properties that can be depreciated. In addition, any part of the fair value that can be allocated to personal property (i.e. appliances, furnishings, etc) can be depreciated on an accelerated schedule with a recover period that ranges from 3-7 years. This allows you to increase the present value of your tax shield.

He has just moved jobs and they wont pay him till the end and its going to be tricky to pay this months mortgage. He is having difficulty with his overdraft and is over it and the bank charges are a nightmare. Does anyone know if he could change the direct debit and the payment date with the bank so that I could pay it for him on a temporary basis just until he sorts himself out. I dont want him to lose his home. Im not married to him and Iam not on the mortgage so would that affect it at all?

yes call the lender asap and let them know what is goign on thats first thing…

its should be easy to swtich your due date with a call to your lender.

depdning on the state you live it can take 6 monthss before you have to move ouut

Payments for an "Interest only" mortgage.

Multiply the interst rate X the sum of mortgage amount + annual taxes + insurance, and divide by 12.
for example:
100,000 mortgage at 6% with 2400 in taxes and 600 in insurance = 6000 + 2400 + 600 or 9000. divided by 12 =$750/month

If the rate on your interest only mortgage is low and not about to jump on a rate reset, keep the mortgage and make lump sum payments. A nice thing about making lump sum payments on an interest-only mortgage is it lowers your minimum payment.

We bought a house in June of this year. It is under a construction loan for a full year ( we live in it now). We make interest only payments of 667.00 a month to the Bank. Is this tax deductable?
We will close the second time through a mortgage company next June.

Yes, you can deduct the interest paid. Interest on a home construction loan is deductible provided that the construction is completed within 24 months (see page 4 of the the attached link) which appears to be true in your instance.

My loan amount was $670k and at 5.5% fixed for ten years. I start this interest only mortgage last september (2005). I always pay more than the bank asked for, eg IO payment $3070.00, then I will pay about $3600.00 per month. Am I doing it right? Should I refinance to a fixed rate? or just keep paying extra every month to take advantage of the low interest rate?
Thx for your help!

First off that’s a great rate. Second, interest only is a great loan contrary to what many say, it depends on your situation. It appears to me that you can pay principal and should have taken a P & I loan but since you took interest only, you are still fine. You can pay as little or as much as you want towards principal each month and you can continue to do so. It defeats the point of getting an interest only loan but everyone is different. Some smooth mortgage broker probably sold you on the interest only and here you are. Do not worry, your RATE is fixed for 10 years, right? I just want you to clarify something for me. Most interest only periods are 10 years but the RATE may adjust depending on the loan type. Interest only is a form of payment but what about your rate, is it fixed or adjustable? I presume it is not a 10 year interest only ARM (they exist, doing one right now) so let me know when your rate will adjust, if it will, and I can give you some better advice. For now, I would say don’t bother paying any more principal off and decide what you are doing with this home and mortgage. How long you plan on staying in the home, do you escrow monthly for taxes and insurance, and cant you put that extra money somewhere else each month where there is a much higher interest rate. Also, your home mortgage is usually tax deductible but I bet those other credit card balances that you might have are NOT deductible. Stop paying principal if you want but first figure out when your loan will adjust, if it will. You should be less concerned with principal and interest and more concerned that your rate may jump 3% in a year.

Scott

Yes, same as other mortgage interest (subject to the same limitations). You should get a form 1098 from the mortgage company or person you pay the interest to.

Can anyone please give me some advice on the following. I have an interest only mortgage which was taken out several years ago and now has only a little while before capital is due. I took out this loan in order to pay off creditors but was only able to get a loan for five years because of my age. I have had the house on the market in the hope that it would sell quickly. Alas this has not happened and time is marching on. Any ideas please would be sincerely appreciated. Thank you.

Chase the agents. Re-approach anyone who viewed the house. Reduce the price or offer cashback. Chase the agents. Again. Ask them what they have done to match your property with potential buyers on their books. Ask them what they have done to earn their fee. Can you do a no sale, no fee agreement elsewhere as well? Is your property online?

Did I mention chasing your agents?