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TRISTAN
You will never pay off an “interest only” loan by paying only interest. Usually, these loans are “interest only” just for an initial short period of time.
SANTOS
100% of your payments are profit for them, you still owe 100% of what they gave you in 30 years. You HAVE to come up with that amount in full in 30 years or they own the house.
The other way they “profit” is if you default on the loan. They foreclose on the house (they may actually loose here if it in not worth what they gave you) AND you are still in default for the money.
KYLE
From the sounds of it, you are not paying off anything. As I understand it, sometime in the future, you start to attack the principal.
As far as a profit goes, I think when companies receive interest only, they are actually more profitable than those that receive blended payments.
My logic is this. They receive a payment. From that they must pay their costs. Office, interest, are so forth are paid.
Now they have to do something with the remainder (or profit)
Now there are 3 basic choices with cash residual, They can reduce their own debt (which increases profit in future), pay out dividends, or find new mortgages. There are always costs associated with the last option.
So what can happen is when companies reinvest in mortgages, they are often taking on greater risk of default. They may have possibly a greater return on equity but if a wave of defaults hit the interest premium can evaporate quickly.
This is a little wordy but in conclusion some companies have made choice to hold a relatively low number of solid loans as opposed to a larger number of riskier ones.
Guess which choice I would have made
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