FYI: Interest Only Loans

Posted by John Pollard on July 20, 2008, 2:20 pm

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Over the years, there have been quite a few questions about
interest only loans, and quite a few mistaken answers. A user
in the Quicken Forums said: "I can find no way to have quicken
calculate "interest only" payments. It shows P&I What am I
missing?" Two other users answered that "question" and
suggested that Quicken could not handle "interest only" loans.

Quicken's Loan Wizard can, indeed, handle "interest only" loans.
You set them up pretty much like any other loan, with two
exceptions: you must Quicken there is a "balloon payment" at the
end of the loan; and you must enter the "exact" amount of the
payment (the exact amount of the interest

[If you do not know the payment amount (not sure why this would
ever be), you can get around the problem by entering almost any
payment amount, completing the loan setup process, then looking
at the Quicken loan "Payment Schedule" and noting the amount of
interest for the very first payment. If you then modify the
loan and change its payment amount to the amount of the interest
from that first payment, you should find the principal amount
for all payments goes to zero and the full amount of the loan is
shown as a balloon payment following the last interest only
payment.]

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John Pollard
First initial underscore Last name at mchsi dot com
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Posted by John Pollard on July 20, 2008, 2:22 pm

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John Pollard wrote:

> You set them up pretty much like any other loan, with two

> exceptions:

> you must Quicken there is a "balloon payment" at the

> end of the loan;

That should read:

" you must tell Quicken there is a 'balloon payment' at the end
of the loan;"

> and you must enter the "exact" amount of the

> payment (the exact amount of the interest

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John Pollard
First initial underscore Last name at mchsi dot com
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Posted by Han on July 20, 2008, 3:27 pm

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$yE1.132108@attbi_s21:

> John Pollard wrote:

>> You set them up pretty much like any other loan, with two

>> exceptions:

>> you must Quicken there is a "balloon payment" at the

>> end of the loan;

> That should read:

> " you must tell Quicken there is a 'balloon payment' at the end

> of the loan;"

>> and you must enter the "exact" amount of the

>> payment (the exact amount of the interest

Of course this is mostly valid for fixed interest rate loans. If the
interest rate is adjustable, the payment will have to be adjusted as the
interest rate changes.

In addition, the wisdom of getting an ineterst only loan is (IMO)
questionable, since you'll never get out of the hole. What will happen
if you lose your job or get into other (medical comes to mind)
difficulties. But then maybe you're a succesful speculator <grin>.
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Best regards
Han
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Posted by John Pollard on July 20, 2008, 4:28 pm

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Han wrote:

>> John Pollard wrote:

>>> You set them up pretty much like any other loan, with two

>>> exceptions:

>>> you must Quicken there is a "balloon payment" at the

>>> end of the loan;

>> That should read:

>> " you must tell Quicken there is a 'balloon payment' at the

>> end

>> of the loan;"

>>> and you must enter the "exact" amount of the

>>> payment (the exact amount of the interest.

> Of course this is mostly valid for fixed interest rate loans.

> If the

> interest rate is adjustable, the payment will have to be

> adjusted as

> the interest rate changes.

A very good point ... which I had intended to make when I
started the original post, but forgot somwhere along the way.

> In addition, the wisdom of getting an ineterst only loan is

> (IMO)

> questionable, since you'll never get out of the hole. What

> will

> happen if you lose your job or get into other (medical comes

> to mind)

> difficulties. But then maybe you're a succesful speculator

> <grin>.

Not me. I'm no fan of interest only loans. But some people
seem to be.

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John Pollard
First initial underscore Last name at mchsi dot com
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Posted by John Pollard on July 20, 2008, 4:35 pm

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John Pollard wrote:

> Han wrote:

>> Of course this is mostly valid for fixed interest rate loans.

>> If the

>> interest rate is adjustable, the payment will have to be

>> adjusted as

>> the interest rate changes.

> A very good point ... which I had intended to make when I

> started the original post, but forgot somwhere along the way.

And, I also forgot to mention, that Quicken doesn't handle any
variable interest rate loans; standard, or interest only.
Indeed, there is only one "formula" that the Quicken Loan Wizard
will use for creating a loan payment schedule, and among other
assumptions, is a fixed interest rate for the life of the loan.
You can modify the rate during the loan, but the recomputation
will assume the new interest rate for the remaining life of the
loan.

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John Pollard
First initial underscore Last name at mchsi dot com
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