I/O (Interest Only) Mortgages, Good or Bad?

[Account Closed]

Very Good financing tools! As a Mortgage Broker, when you hear someone say I/O (Interest Only) mortgages are bad, the very first thing you think is that you're talking to someone who doesn't know squat!

...."Oh, we had an Interest Only mortgage back in 2005 and we ended up doing a short sale."  Oh my gosh, give me a break!  And who said you couldn't make the higher Amortizing payment during the OPTIONAL interest only period?

Number one, you were supposed to have used the low, tax deductible (I/O) payment to start knocking down that 50k in Non-Tax Deductible Credit Card debt that was eating you alive at the time and then start hitting Principle Reduction or were to increase your monthly "Matched" 401k contribution for retirement, etc.

But what did you do?  You did none of the above and instead you bought new cars and ran up even more credit card debt and didn't save a dime!

Number two, then when your I/O loan started to re-amortize and values started to drop, did you down size in cars? No. You blamed the mortgage industry and filed for BK, went FC and/or did a Short Sale! Or gotta love the classic, the borrowers who only had 5% or nothing to put down and were given a chance to become a homeowner, years later say they should have put more down, as if that extra 3.5% or 5% down payment would have made a difference when values dropped 40%!

NOTE: and had the government and industry not allowed it to become so easy to go BK, FC or to do a Short Sale, there would not have been such an avalanche of borrowers walking away from their Financial Obligations and Promises To Repay and values would not have plunged so far down!

Well, I/O mortgages are making a comeback, but hopefully this time borrowers will respect and use them for the awesome financing tool they're meant to be and not act like a deer caught in the headlights when after 5yrs of choosing to make the OPTIONAL interest only payment that the loan balance is still the same!

[Thomas S.]

Generally the American consumers are financially illiterate. Without tight government controls they are like lemmings headed to the cliff. They are driven by immediate gratification and rarely consider the consequences. Canadian consumers were not hit very hard by the recession of 2008 due primarily to our very tight financial regulations and since then they have tightened up even more for home buyers and the like. 

I see every day in the US a loosing up on regulations and that combined with the growing of your economy will, in my opinion, lead to another crash.

American consumers and the regulatory bodies have learned nothing from their mistakes and once again you will be facing the very same abuse of credit. Home buyers will once again be allowed to get into zero down low interest buying with no fore thought as to how they are going to pay for it.

We see it on here every day and it is growing. Most will fail and so will your financial house of cards. Regrettably the mantra "America First" is not at all understood by the by the American consumers and each individual has a different interpretation of what it means.

History is regrettably destined to repeat. 

On th eup side when the shoe drops smart investors will have a feeding frenzie once again. Canadien investors will again flood in to snap up virtually free properties.