Comments on: Interest-Only Mortgage Update

By: Question From a Reader: What to do With My Mortgage?—AllFinancialMatters

Question From a Reader: What to do With My Mortgage?—AllFinancialMatters — Mon, 04 Feb 2008 21:57:01 +0000

[...] Interest-Only Mortgage Update [...]

By: AllFinancialMatters » Blog Archive » The Top 5 Reasons to Pay Off Your Mortgage?

Mon, 14 May 2007 15:31:00 +0000

[...] Interest-Only Mortgage Update [...]

By: Dnis

Dnis — Sun, 15 Apr 2007 04:08:03 +0000

I was recently told of a 40yr “fixed” interest only loan. What I don’t understand is how I could possibly only pay interest for 40yrs? Isn’t there a maximimun amount of interest that would be written on the settlement agreement, and wouldn’t that mean I’d actually start paying on the principle before 40yrs is up?

By: Mighty Bargain Hunter » Roundup for week of 1 April 2007

Mighty Bargain Hunter » Roundup for week of 1 April 2007 — Wed, 11 Apr 2007 15:30:55 +0000

[...] All Financial Matters might tip his hat to interest-only mortgages under certain circumstances. [...]

By: AllFinancialMatters » Blog Archive » JLP Responds - Interest-Only Mortgages

Mon, 09 Apr 2007 18:19:19 +0000

[...] I’m a little behind on reading the comments to some of the posts over the last few days. DB of Debt Blitzkrieg left the following comment on my Interest-Only Mortgage Update post: On the other hand it would be interesting to see where you’d be if you paid off that mortgage in 25, 20, 15, 10 and 5 years instead of either 30 year option, and then invested the full payment each month of the remaining 30 years. [...]

By: lorax

lorax — Fri, 06 Apr 2007 01:04:25 +0000

> A recently-retired person is still a long-term investor. Sure, it
> may hurt to take a 20 – 30% haircut but it can be overcome.

This really depends on how much you take out, and especially if you can adjust your withdrawals based on the amounts left.

Take a look at Bernstein’s analysis… . Relying on the returns of stocks can be a real problem if you get hit early in retirement.

http://www.efficientfrontier.com/ef/998/hell.htm
http://www.efficientfrontier.com/ef/101/hell101.htm
http://www.efficientfrontier.com/ef/901/hell3.htm

By: zen

zen — Thu, 05 Apr 2007 18:51:55 +0000

Okay, I’m looking at buying a home soon – looking at this makes it seem like what I’m looking at spending (160-170k). Interest only would mean much less payments up front, and also allow me to invest the difference… I’ll have to weigh in on this before I commit.

By: db

db — Thu, 05 Apr 2007 04:52:27 +0000

I think I’m going to start stashing my cash under my mattress. That’s in my rental unit of course. I don’t even own the bed. (Who needs equity?)

By: JLP

JLP — Thu, 05 Apr 2007 02:15:44 +0000

lorax said:

“This is a common misconception about the stock market. In truth, the risk is there at any time, from short to long. Example: you planned to retire in 2001 and had almost enough in your 401k. You’d been saving for 40 years for this moment. Then in a matter of months you’ve lost 20% (if you’re lucky). It takes years for the market to recover.”

That’s why understanding HOW the market works is important. A recently-retired person is still a long-term investor. Sure, it may hurt to take a 20 – 30% haircut but it can be overcome.

By: lorax

lorax — Thu, 05 Apr 2007 00:38:58 +0000

> In the short run, sure you’ll have some volatility. However,
> over the long run, you’ll most likely do fine.

This is a common misconception about the stock market. In truth, the risk is there at any time, from short to long. Example: you planned to retire in 2001 and had almost enough in your 401k. You’d been saving for 40 years for this moment. Then in a matter of months you’ve lost 20% (if you’re lucky). It takes years for the market to recover.

That short run risk is ever-present. Even at the end of a long haul.

And this leaves aside the problem of getting 10% (based on valuations a total stock market return will be lower) and leaves aside the US market survivorship bias.

On the other hand, if you’re young enough to ride out a down market, you’re in the catbird seat… so long as it happens early.

I think we’ll have to agree to disagree. I see the risk increasing since you’re now buying stocks on margin. Sure it might pay off, but then again, we might have a stock market crash and a property market crash.

To quote Kaynes: The market can remain irrational longer than you can remain solvent.