From: "Mike" 
Newsgroups: misc.invest.real-estate
Subject: Re: Where's the gain for a speculator with an interest-only loan?
Date: 27 Jul 2005 11:09:28 -0700
   posting-account=HnTbKQ0AAAA0sK5L8syrQAkCAdMBrsiX

The sepculator that gets an interest-only loan with 0% down may be
depending on the house appreciating in value over the course of the
loan. If he buys a house that apreciates at a greater rate than the
interest payments on his loan, and a greater amount than his holding
costs, he'll make out O.K.

An investor might use an interest-only loan with 0% down because he
expects to make a greater income from the rental of the property than
the costs of his payments.  If he sells the house at the end of the
loan term for what he paid for it, his profit is the cashflow he was
able to generate during his ownership. Any apreciation is gravey.

A home owner might want to use an interest-only loan in order to be
able to afford the kind of property he or she would not be able to
afford otherwise when interst rates are unusually high.  When my mom
bought her current house, she got a loan at 16% and was happy to get
it.  If the buyer anticipate they will be selling the home within a
couple of years ( and they would be paying mostly interest over the
first few years anyway) or that they will be able to refinance the
house at a much better rate in 5 years or so, or that their income will
be going up shortly, they may feel it worthwhile to get an interest
only loan with monthly payments they can afford now, even though they
might not be building much equity.

 - Mike

easytoremember123@email.com wrote:
> If a speculator get's an interest-only loan with 0% down, and his house
> appreciates and he decides to sell, wouldn't he have 0% ownership in
> it? Unless he sold it after 10 years, or whenever it is that capital
> payments start on the loan? What's the gain from speculating with those
> loans if you won't receive any of the higher price when you sell 1 year
> later?