[Homestead] The Usury Business, How To Avoid Going To Jail

Gene GeRue genegerue at ruralize.com
Fri Sep 3 09:41:51 EDT 2004

> >We already have interest-only loans
>Gene, how do those work?  Does the borrower only pay to service the loan 
>but not any on the principal?   What's the difference between that and rent?

Yes, nothing pays down the principle unless the borrower chooses to do so 
with payments greater than the interest. The difference is that the 
borrower has the deed to the property, subject to the note and deed of 
trust. The borrower can deduct all interest payments from income before 
computing income tax. And the borrower/owner receives the benefit of any 
appreciation on the property. It works fine in a rising market. It founders 
in a falling market. These loans may or may not require a down payment. 
Lenders make no-down-payment, interest-only loans to borrowers with 
excellent credit. The trend is to look more to the borrower's credit than 
the property. The theory is that those with superb credit will make 
payments come hell or high water. Top credit is equated with top character. 
I think of it as the same character as once was exemplified by a simple 
handshake between two honorable persons.

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