Why does nobody talk about how interest-only loans reset and wreck your payment?

I took out an interest-only loan on a duplex in Phoenix 3 years ago, and the reset last month nearly doubled my monthly payment to $2,400. Has anyone else dealt with the shock of that payment jump and how did you handle the cash flow crunch?

3 comments

3 Comments

tara_jones947d ago

I was in almost the exact same boat with a rental property in Denver when my IO loan reset back in 2021. The payment jump caught me off guard and I had to scramble for a few months while I figured things out. What finally worked was refinancing into a 30 year fixed before rates went totally nuts, and then I raised the rent by $150 which covered most of the difference. It sucked for a while but I also started putting any extra cash toward the principal so the next reset wouldn't hit as hard. Hang in there, the first few months are the worst but you can totally manage it if you shop around for refi options and tweak your budget a bit.

thompson.nathan7d ago

I get where you're coming from but I gotta disagree on the refinance part. Locking into a 30 year fixed right now with rates where they are could end up costing way more over time than just riding out the IO reset. Sometimes the cheaper play is to take the higher payment for a bit and then refi when rates drop again.

pat_coleman6d ago

@thompson.nathan has a point about riding it out but that cash flow hit is brutal. I had a duplex in Mesa and the IO reset took my payment from $1,800 to $3,100. Had to do a cash out refi at a higher rate just to stay afloat, cost me like $8k in closing costs too. Raised rent $200 on both units but still took a year to feel normal again.