My take on Interest-only loans...

[Michael Johnson]

First a simple question.. 

Is it true that Interest-only loans are only Commercially backed and more than 750k?

Is Seller-financing the only other way? 

My perspective is that an Interest only loan would be among the best way for a newbie to start. If you have vacancies or an emergency. You have the option of paying your mortgage or not. 

(Basically the same mindset of getting a 30yr over a 20yr because you can pay it down faster if you want to. But why box yourself in.)

In addition you have the ability to stack a small emergency reserve amount early on with a month or 3 of rent (in theory)

PLUS, you have the ability to Cashflow on any given month as if it was free and clear. Just your taxes, PMI. etc. Then on the next month pay down the mortgage in chunks.

After lets say a 7 year period. Or even before If you wanted. When the loan is coming to an end you can refinance, Starting the loan process again. OR just sell it at a discounted quick sale price to get out from under the first loan. 

Is this feasible?

Thanks a bunch BP!

[Chris Mason]

Originally posted by @Michael Johnson:

ok gotcha, I just figured it would be an awesome way to turn a rental house into a practically immediate cash cow. But thanks for the numbers for me to wrap my head around too. @Chris Mason

admittedly I dont know much about mortgages, except its from latin, Mortuus for dead. and like old french for pledge until death.. Something like that. Im just working my way through each step. Im getting closer to Financing so Im testing the waters.  I heard the big short was good. @Dan Vleck Why so bad? from like a Lending/economy perspective or an investor/investment perspective?

With an i/o neg-am ARM, it will be until death, because you would literally likely never pay it off.

Just about everyone I do a 30YF mortgage for, I try to 'sell' them on paying it off in 20 years. Here's a pretty standard pitch you will hear from me, if you get a mortgage from me:

• If you're 30 years old and buy a bunch of investment properties with 30YF mortgages that you pay off at the age of 60 (in 30 years), and do absolutely nothing special, then you can probably retire at 60. Boom, able to ACTUALLY retire at 60 means you're already in the top 15% of Americans in terms of financial security right there. Good for you.
• If you're 30 years old, buy a bunch of rentals with 30YF mortgages, and pay them off in 20 years at the age of 50 (stepping up your payments by 3% a year will cover it, and if you're increasing rents by >3% a year then you aren't the one paying for it), now you're retiring a decade early without even doing anything special or advanced! And then once your 401k/IRA hits at 60 (you max it out each year, right, even if that means you drive a non-fancy car?), you're living a great life in your golden years.
• Pair that with the other stuff folks talk about on BP to chop off 5 years here, and a decade there, as you please, to reach whatever early retirement goals you might have. But understanding the implications of taking on mountains of debt, and acknowledging that plain simple fact that this is exactly what mortgages are (mountains of debt), needs to be a part of the plan.
• This flies in the face of traditional/prevailing BP wisdom about always being hedged to the max, and that's OK. I'm bringing balance to the force. :)