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  1. #1
    Join Date
    Dec 2013
    Posts
    1

    Default Interest Only Loan With No Defined Term

    My question involves a mortgage in the state of: California

    Is it legal to have an interest only loan with no endpoint?

    The original loan was for two years, then extended for another two years. After that time was expired, nothing else was done and the payments continued. The interest rate was high and the amount of the actual loan has been paid off if one ads up all the payments.

    The property is actually a modular home on land. The modular home is owned outright.

    This is a situation for a friend I am helping, and I may not have all the details.

    The loan amount exceeds the property worth according to county records.

    Thanks!

  2. #2
    Join Date
    Mar 2013
    Posts
    18,030

    Default Re: Interest Only Loan With No Defined Term

    Yes, it's legal.

    It's also very stupid to borrow on an interest only loan because the principal NEVER gets paid off and you can end up paying the interest for the rest of your life.

    Sorry for your friend, but the original loan amount is still payable.

    He needs to refinance into an amortized loan or pay the balance in cash.

    That the loan amount exceeds the property value is common since the real estate crash.

  3. #3
    Join Date
    Sep 2010
    Posts
    19,776

    Default Re: Interest Only Loan With No Defined Term

    Umm...that;s the way loans work. Even a conventional 30 year mortgage you'll have paid as much as you borrow in 12.5 years (but the principal will only be reduced by under 20%). Interest-only loans are only a good idea if you expect to pay it off in a couple of years (either refi or sell the property).

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