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Originally Posted by Hardknock
I'm different. I feel no sympathy whatsoever for those individuals who let themselves get suckered into those interest only and negative amortization mortgages. They deserve whatever they get. This is where market research before buying comes into play. Stretching yourself to the limit just to buy a house is something you NEVER want to do.
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Interest only products need to be put into perspective.
On a 30 year $300,000 mortgage @7% the payment is $1995 of which $250 goes toward principle reduction in the first year per month. The same at 6% is a $1798 payment of which about $298 goes toward principle in the first year per month. Unless you buy at the worst time in the worst market real estate appreciates.
According to this article (GOOGLE search: 'Average car payment') the average car payment is $378.
http://www.finalcall.com/artman/publ...cle_2267.shtml
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The average car payment is $378 over 63 months. I tend to work with people whose car payment is over $500 per month. Let’s say that you invested $378 every month, instead of making car payments from age 30 to age 65 (35 years). If you average a rate of return of 12 percent (which is doable), your money will grow to $2.4 million. Do you still want the car?
I understand that a car is a necessity. That, however, does not imply that we need car payments or that we take the butt whooping on depreciation. Below are some guidelines you should follow when you’re in the market for a car, if you want to drive away from poverty and into wealth.
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Interest only can make the difference between a person being able to buy a home and start building financial security, they may be risking about $300/month in the example above. Some will say this is risky and unwise. I don't. If that same person buys a new car and finances it they are going to pay on average $378/month and some will compliment that person on his shinny new ride while they don't really own anything and have no networth.
Do you really believe interest only loans are that risky or is it just hype.