Hello.
I am buying a duplex and trying to decide what type of mortgage to go with.
Here's my options:
1. 5/1 ARM at 5.5% - so the rate is fixed at 5.5 for 5 years, then can go up 2% (if rates are going up) per year after that.
2. 7/1 ARM at 5.875% - same as above but for 7 years.
3. 30 yr fixed rate at 6.375%. Obviously the safest.
Here's my dilemma. Since it's a duplex, we're thinking about keeping it after x years and renting out both halves, as an income property (or a tax write off as the rent will probably JUST cover the mortgage). We're not totally sure on this and might just end up selling the whole thing after 5-7 years instead...
However, the 5 year ARM is cheaper than the 30 year by $300 a month. The 7 year ARM is cheaper than the 30 year by $200 a month.
So, I am highly enticed by the prospect of saving 2-300 a month but, am somewhat frightened by the idea of having my mortgage payments baloon by $700 bucks in year 6 (or 8 ).
Has anyone used an adjustable mortgage? Any advice for a first time homebuyer?
Thanks guys.
Oh, I''m sorry, this isn''t MortgageBrokerswithjobs.com....IS IT?!!!!
My personal advice? Avoid ARMs unless they''re absolutely necessary.
If you really are going to get out of the property in 5-7 years, by all means go with an ARM. Remember that most of those loans are loaded so that you pay off the interest first, though - if your property values don''t go up, you won''t build up any equity for a few years.
EDIT: I''m not a professional, so take my advice with a grain of salt.
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Speaking as a banker and mortgage lender, maybe I can lend some knowledge on this one.
First thing you have to ask yourself is what is your ultimate goal with the property? Most people move or change addresses every 3-5 years, and with that in mind, an ARM is a very safe choice, and actually can save you a lot of money if you arent going to be there for the whole time.
Second, if you do in fact move, are you going to retain ownership of the asset, and turn it more into an investment property for yourself? If so, you may have a new income stream from renters that may help things out, but you now have to perform maintenance, or hire someone do that for you.
Finally, do you expect any major life changes in the near future? Getting married, having a kid, changing jobs... All these factor in to how much of a mortgage payment you can afford. And could stand to make if something changed quickly.
I''ll keep trolling here, so if you have questions, please post and I''ll try and answer as best I can.
"When will then be now?"
GWJ FF 2004 CHAMPION!
Fredster, thanks for the advice. And those of you above as well.
The thing that puts me off on the ARM''s is that in 5 years, mortgage rates could be at 10%. If I wanted to hold onto it as an investment property I''d be in deep trouble because even if I re-mortgaged into another 5 yr ARM, the rates would be 4.5%higher than I have now.
If I go with a 30 year mortgage, would the tax savings per year kind of balance out the amount of money I would be saving by going with the 5 or 7 year ARM?
Thanks again. I really appreciate it.
<--- just locked the mortgage for his new house at 5.5% 30y fixed.
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Hey belt500, I am currently refinancing my house from a regular 30 year mortgage to a 5 year arm because of the interest rate (I got 4.65%). You can save the 300 bucks a month now, and then refinance or sell in 5-6 years. First time home buyers usually get shafted on their rates anyways. No matter how good your credit is. Chances are you will get better interest rates when you refinance anyways, because you will already be a home owner. If I was you, I would take the lowest interest rate possible. Do you have to pay PMI?
All right Timmy, where did the angel touch you?
Depending on your income, the tax savings would be minimal. A difference of maybe 700 bucks, where as saving 300 bucks a month for 12 months is 3600 bucks! I good math!
All right Timmy, where did the angel touch you?
belt
Thats the fun in mortgages! Who knows where the rates will be in 5 years?
In all seriousness, let me answer the second question first. You will be getting tax savings whether you are in an ARM or a conventional thirty year mortgage. The difference is, with an ARM, you are building equity much quicker, whereas with a conventional, you are getting more of a deduction on taxes. My own personal preference is to have control over my money as much as possible. Having a bigger tax break is nice, but having more money on my balance sheet is much better.
For your first issue, rate changes, nothing states that you have to wait until the end of 5 years to refinance. If you go right now for an ARM and the rates start to climb past a point you are comfortable with, lock in to a 30yr at that point. The key concern with this is making sure you are aware of closing costs, and their impact on your personal finances and equity.
What I would recommend you do is talk to the lenders you are currently working with, and ask them for the APR for loan packages you are considering. The APR gives you the true picture of the loan itself by incorporating closing costs, and all other expenses into the picture. This way you can be sure you are looking at apples-to-apples.
(shameless promotion) Finally, if you are looking for a loan in the great state of Maryland, I would be happy to help out! And help out any one else who passes by this thread. (/shameless promotion)
"When will then be now?"
GWJ FF 2004 CHAMPION!
I am curious about this statment, how do you figure?
PSN ID: Haul_N_Oats
I locked in a 30 year fixed a 5.375 w/ 1 point. The lender was kicking 3K towards closing costs, so that eats the point, and then some.
I looked at doing a 5/1 or 7/1 ARM, but I plan to be in this house for many years, so I didn''t feel it was worth it (esp since they were only an eighth or quarter point down).
Do those ARMs have lifetime rate caps on them? I would assume so. Usually they cap at 8 or 9. Granted, depending on what interest rates do over the next couple of years, I could see you hitting a cap a few years after the fixed period is over.
It''s hard to imagine an ARM that would make sense in the current interest rate climate if you''re not absolutely sure you won''t be holding that loan at the end of the fixed-rate period.
We''re at the lowest point of the interest rate cycle at this point. It''s a very safe bet that interest rates are going to go up from here (it''d be almost impossible for them to go down any lower). If they go up by only two points, the gains you made by opting for the slightly cheaper ARM will very quickly be eclipsed by the additional interest. If they go up from there, you could be in real trouble. Interest rates were well over 10% not so long ago, so this is no idle threat.
Completely unsolicited advice from someone who did a lot of research on his current abode: I''d be very leery about depending on selling any property you buy in the current real estate climate. Several places, especially large popular cities like Boston, are experiencing housing bubbles that will almost certainly ""pop"" to some degree when interest rates rise. Depending on the deal you get on the property, that may leave you with a property that can''t be sold for even what you owe on it. Just heard a report on NPR the other day about the masses of houses being sold in Austin foreclosure auctions because they couldn''t keep up the payments, and couldn''t sell the house for what they owed. Ouch.
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Ugh, I know. It doesn''t help that it''s a two family house either.
that''s what worries me though. Rates, I''m told, are starting to rise a bit again. I would be royally screwed if I had to re-finance into even 7.5%.
No. The way we did it is that we are taking a mortgage out for 80% of the cost, then taking out a home equity loan for 15% of the total cost, then putting down 5%.
So, the 5% down and that 15% equity loan is saving us PMI (by accounting for the 20% down to get out of PMI)
BUT, it''s almost acting like a PMI as we basically have 2 loans. It ends up that it''s cheaper this way, than with PMI by about $150 a month.
Yo belt! Brookline reprazent!
I''ve got a condo, 30yr fixed at 5.5, plus a HELAC for 15% of it, with 5% down.
First step is to get around the PMI, which is where the Home Equity Loan Account (HELAC) comes in-it lowers your overall level of debt by essentially drawing against your homes equity to pay off the interest.
Then, you have two payments per month-one, which is for the mortgage itself, which is primarily priniciple, and the other which is for the HELAC.
In MA, with housing values, taxes, and interest the way they are here (unpredictible at best), lock in everything you can so you can maintain a budget. It may not seem that way now, but a hike of .5% can add to your monthly payments quickly.
Tell you what, PM me, and I''ll put you in touch with the guys we worked with.
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The 2nd mortgage''s rate gotta be much higher, though.
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Hey I''ve been to Brookline a couple of times. Depressing place, and nowhere to park, too!!
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I point you towards these two articles:
MSNBC
Washington Monthly
I would go with the fixed rate as rates will not be going down but rather up in the future and then we can only hope that the housing market doesn''t stall/collapse.
The median price of homes in my county has risen like crazy the past year.
Do you ever walk alone like a drifter in the dark?
EAST SIDE!!
ahem...
That''s exactly what we''re doing. It''s pretty cool but, feels like we''re trying to pull a fast one or something...
Yeah, I''m buying in Waltham, on the border of Newton, so taxes might get hiked in the next 5 years too.
Rokk wrote:
First time home buyers usually get shafted on their rates anyways. No matter how good your credit is.
If this is a concern, and you feel you are being raked over the coals, there are a million lenders out there. The best advice I can give you is to shop around. If your credit is strong and can take a couple of inquiry dings, by all means go somewhere else if you are getting a bad vibe from the lender you are currently working with. The best thing you can do is tell them that you are looking at other companies, and have them get in a price war over you. Before I was in the industry, I thought I got a deal when I bought my house....now that I have experience, I could have done much better.
Having companies compete can only help you. When I refi''d, I had three companies fight, and ended up 5/8ths of a point lower on the rate, and a full point lower on the front....
Again, if you need to have a private conversation, I''m available once I get out of this place tonight (but before the 2 hours of reality tv I have lined up for tonight.)
"When will then be now?"
GWJ FF 2004 CHAMPION!
quote]
Quote:
I''ve got a condo, 30yr fixed at 5.5, plus a HELAC for 15% of it, with 5% down.
First step is to get around the PMI, which is where the Home Equity Loan Account (HELAC) comes in-it lowers your overall level of debt by essentially drawing against your homes equity to pay off the interest.
That''s exactly what we''re doing. It''s pretty cool but, feels like we''re trying to pull a fast one or something...
[/quote]
Ultimately, you are pulling a fast one on the industry. 80/15/5''s and 80/10/10''s didn''t exist until a few years back, and they are taken advantage of the concept of PMI and MIP. As stated above somewhere, make sure you keep an eye on the rate on the second.
Make sure you also look at HELOC''s...Home Equity Lines of Credit. These you can use for purchase money, but can stay open for you once you pay them off. They serve as Lines of credit, using your equity as security. You still get the tax benefit because it is secured by real estate that you own, and you can use this as a line of credit to do the following (1) pay off high interest credit cards, (2) emergency funds for home repair, (3) make large purchases at a better rate.
Because of my employer, I get a cut on the rate, but my line of credit is at 3.75%, as a non-employee it would be 4.00%. I''ve got my whole house on it right now, and my monthly payment is $400. I still pay $1000 to build equity, but now that my wife is off work for awhile, if we are short funds one month, we can get away with a $400 mortgage payment.
I would not recommend that path for everyone, but the HELOC is a very viable, and financially lucrative path if you can manage it right...
"When will then be now?"
GWJ FF 2004 CHAMPION!
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Why the F**** was I born in Boston....I know, I could move but...I did that for a while and am a much happier person around my family and friends.
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All this depends on where you live and the trends in your area as well. In 1 1/2 years the value of my townhouse has gone up 80,000. But that is the trend in Loudoun County, Northern Virginia. Houses go way way up every year, so I can get away with an ARM, sell my house in 5 years, and make a profit on it for a down payment on an overpriced single family house!
All right Timmy, where did the angel touch you?
My monthly payment is $400....for now. I''m trying to build as much equity as I can during a low interest rate period. Things are starting to edge upwards, but won''t jump a lot until after the elections....
"When will then be now?"
GWJ FF 2004 CHAMPION!
My monthly payment, with taxes ($250) and insurance ($58 ) will be $3358. Bear in mind I''ll be renting out half for 1300-1500 a month.
My monthly paymint is going to be about $2,800.
But that''s not Arkansas.
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Holycrap. That''s more than 66% of my GROSS monthly pay. Granted, you are in Boston, MA and I''m in RTP, NC... but still. Yikes!
Well, it''s my fiance and I financing this shindig, so two paychecks helps out.
man, just be happy that you aren''t buying in the bay area. The MEDIAN house price around here is now at $475,000. And median houses around here are not all that great.
-t
We just finished moving into our first house. We ended up going with a 30 year fixed simply because that 1/2 percent on an ARM just isn''t that big of a deal in the end. Sure, it''ll be a couple thousand, but you can always overpay to cover the difference.
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