"DSK" wrote in message
.. .
... if a 30 (the
way to go IMHO based on historical interest rates) then she's getting
ripped off.


NOYB wrote:
Not really. The average 30 year fixed rate in most of the east coast
markets is over 6.3%...which is what John H said his daughter was
getting.
Plus, that 6.3% is with points.

I assumed his daughter was also in the DC area, not necessarily a valid
assumption.

In any event, looking at macroeconomic events and doing the math, over
the next 30 years it seems almost a certainty that interest rates will
go up, and stay up, enough to make a 30 year mortgage at current rates
very attractive.



I would have locked a 30-year fixed, but I couldn't afford a fully
amortized
(interest and principle) 30 year fixed loan at this point in my life.

Not to get personal, but this suggests you have too much house.

Normally, I would say that I agree with you. However, in my personal
situation, it makes sense. The house in on the water, which is why it is so
expensive. As a boater, I was paying nearly $500/mo. to store 2 boats. I
was also paying another $400/mo in homeowners' association fees for my old
house. I used that "saved" $900/mo towards the mortgage on the new
house...since I don't have association fees and I don't have to pay to store
my boat anymore.



... In 5
years, my practice is paid off and I can afford to pay the principle.
At
that point, I can either refinance the loan, or let it adjust to the new
rate.

Paying "interest only" is not a great idea unless: 1) housing is
appreciating very rapidly, and 2) your income will be significantly
higher
in the near future...at which time you can pay a fully amortized payment
which includes principle.

Agreed. #2 is not an assumption a real conservative would make, though.


It makes sense for me since my business is paid off in 5 years. That frees
up an additional $6000/mo. that flows through to me as income...income that
I can use to pay down the principal if I so desire. That's why it's safe to
assume that my income in 5 years will be significantly higher than it is
today...even with zero growth in my business. I know I won't see the full
$6k due to taxes...but since most of the payment is principal by now, I'm
personally taxed on the 6 thousand *as if* it were income...but never get
the 6 grand since it goes to the bank.

Every year, I pay cash to update my office and equipment, so I won't have to
take out a large loan again when this one is paid off.

Sure, the house is too expensive for me at this point...but I look at it
this way:

I'm effectively renting the place for 5 years with an option to buy it in 5
years at today's price. I'm also getting a nice big mortgage deduction on
my taxes...which plain ol' renting wouldn't give me. With housing on the
water averaging 26%/year appreciation over the last 5 years down here, it's
a no-brainer.

Even if the house goes up only 5%/year, it'll be worth almost 28% more than
I paid for it. I'll have 33% equity in the place without ever paying a
dime towards principal. I can consolidate the first and second and get a 15
year mortgage for 70% of appraised value. By age 57, the house is paid
off...and very likely worth three to four times my purchase price. By then,
the house is paid off and the kids are through college...and I'll retire
with no debt at age 60.

If the value goes up 10%/year (much more realistic for waterfront in
Naples), then in 5 years, the house will be worth 61% more than I paid for
it. I'll have a little over 40% equity in the place...without ever paying
principal.

If you're young enough, foresee a higher income in the near future, and are
buying a house in an area with rapidly appreciating housing values, then
"interest-only" (and maybe even "negative amortization") loans make sense.

If you're older, have a pretty level income for the foreseeable future, and
are buying in a housing market where home values increase very little, then
interest only loans make *no* sense.