Interest only Mortgages

[Daniel Wrentz]

Hi all,

Let me know if I’m seeing this right.

Interest only mortgages look attractive, they can boost your cash flow way up for your rental. But essentially it’s just you getting your principal pay down in cash monthly instead of having “dead equity”. Theoretically you can use the extra cash flow to pay down the principal and there would be no difference with a P&I loan.

I can appreciate having my cash now and putting it to work. However, I have seen that lenders ask for a higher down payments with IO. That extra 5-10% is what your “extra cash flow” could be from the get go. So I really don’t see the point in IO mortgages.

Do you see the same?

Thanks!

Daniel

[Timothy Hero]

When I quote I/O, it makes no difference in the LTV for both refinances or acquisitions (unless it alters the DSCR)

However, I/O is only beneficial on some deals. In the private world, I/O is often .5% higher. But since principal isn't involved, it can still save you a lot of money monthly.

An example would be a deal I'm doing at the moment. It's an $8M portfolio of SFH's valued at around $350k each, but only rent for around $2k - $2,500 each. A normal loan with principal would cap the LTV due to lack of cash flow. However, I/O, while it raises the rate, it allows much more cash flow and an extra 5% LTV. And an extra 5% LTV on a $5.4M loan is a huge difference.

Hope this helps!