ARM if amortized over same period as fixed rate loan. Your total loan costs over the holding period will be lower if you sell in a couple of years. Hold the property longer than seven years, and the fixed rate loan usually turns out to be a better deal in the long run.
Of course, you don't say what your ARM index is. If it is the Cost Of Funds Index, I would take that one over a higher fixed rate. If the index is the one year treasury, or even a moving average of the one year treasury, then a short holding period usually favors the ARM over the fixed rate loan.
If the down payment requirements for the loans are different, then you may need to do a return on investment calculation to decide which loan product generates the better yield on your investment.
Hi its grabi777 with more info... its a MTA monthly adjusting ARM WITH 2 YEAR SOFT PREPAY PENALTY PURCHASE PRICE IS 329000
MAY HAVE TO SELL IN A YEAR!!! I BOUGHT A 333000 PRECONTRUCTION THAT WILL BE READY IN 11 MONTHS!!!
1.2% start rate
5.4% second month
OR take 6.625% 30 year with 2 YEAR Prepay penalty of 10K OR 7% 30 YEAR NO PENALTY
Please whats best to take? The arm requires 20% down the 30 year only 10% down NO PMI!!
If the prepayment penalties are based on the loan balance, then it would seem that a larger downpayment which reduces the loan balance would be a large factor.
You have to compute the loan costs for both products and assume that you will incur the prepayment penalty. Add together the points and origination fees, the cumulative monthly mortgage payments you will pay, and the prepayment penalty for each loan product. Which has the lower total cost? The arithmetic might answer your question if you must sell.
On the other hand, do you have to sell? Could you convert the property to a rental for a year to "wait out" the prepayment penalty? How about using a lease purchase to lock in a sale at a future date, which just happens to occur after your prepayment penalty expires? Even if these strategies put your property in a negative cash flow posture, is the cumulative negative cash flow less than your prepayment penalty?
Lots of things to consider. How firm is the construction delivery date? Will a short delay in delivery get you out of the prepayment period? I have purchased six pre-constuction properties over the years, and only once was the delivery on time.[ Edited by NewKidinTown2 on Date 11/26/2004 ]
ARM if amortized over same period as fixed rate loan. Your total loan costs over the holding period will be lower if you sell in a couple of years. Hold the property longer than seven years, and the fixed rate loan usually turns out to be a better deal in the long run.
Of course, you don't say what your ARM index is. If it is the Cost Of Funds Index, I would take that one over a higher fixed rate. If the index is the one year treasury, or even a moving average of the one year treasury, then a short holding period usually favors the ARM over the fixed rate loan.
If the down payment requirements for the loans are different, then you may need to do a return on investment calculation to decide which loan product generates the better yield on your investment.
Hi its grabi777 with more info... its a MTA monthly adjusting ARM WITH 2 YEAR SOFT PREPAY PENALTY PURCHASE PRICE IS 329000
MAY HAVE TO SELL IN A YEAR!!! I BOUGHT A 333000 PRECONTRUCTION THAT WILL BE READY IN 11 MONTHS!!!
1.2% start rate
5.4% second month
OR take 6.625% 30 year with 2 YEAR Prepay penalty of 10K OR 7% 30 YEAR NO PENALTY
Please whats best to take? The arm requires 20% down the 30 year only 10% down NO PMI!!
If the prepayment penalties are based on the loan balance, then it would seem that a larger downpayment which reduces the loan balance would be a large factor.
You have to compute the loan costs for both products and assume that you will incur the prepayment penalty. Add together the points and origination fees, the cumulative monthly mortgage payments you will pay, and the prepayment penalty for each loan product. Which has the lower total cost? The arithmetic might answer your question if you must sell.
On the other hand, do you have to sell? Could you convert the property to a rental for a year to "wait out" the prepayment penalty? How about using a lease purchase to lock in a sale at a future date, which just happens to occur after your prepayment penalty expires? Even if these strategies put your property in a negative cash flow posture, is the cumulative negative cash flow less than your prepayment penalty?
Lots of things to consider. How firm is the construction delivery date? Will a short delay in delivery get you out of the prepayment period? I have purchased six pre-constuction properties over the years, and only once was the delivery on time.[ Edited by NewKidinTown2 on Date 11/26/2004 ]