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Interest-only loan Questi
(by Paul [WA])
Mar 17, 2004 3:20 PM
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Interest-only loan Questi
(by Bandit [FL])
Mar 17, 2004 5:10 PM
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Interest-only loan Questi
(by Arif [GA])
Mar 17, 2004 5:12 PM
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Interest-only loan Questi
(by tyler [nc])
Mar 17, 2004 5:17 PM
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Interest-only loan Questi
(by Mayta [WA])
Mar 17, 2004 5:58 PM
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Interest-only loan Questi
(by don [LA])
Mar 17, 2004 7:16 PM
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Interest-only loan Questi
(by CAW [OR])
Mar 17, 2004 8:00 PM
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Interest-only loan Questi
(by Suzanne [TX])
Mar 17, 2004 8:03 PM
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Interest-only loan Questi
(by cz [or])
Mar 17, 2004 8:57 PM
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Interest-only loan Questi
(by Jo Ann [MI])
Mar 18, 2004 7:23 AM
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State Specific Question About: WASHINGTON (WA) I am looking at a duplex in Snohomish, WA. The asking price is $165,000, which is one of the best prices I've seen in this part of WA. Most are $200k+. My question is regarding financing. I could get an interest-only loan on the property, and pay $275/mo @ 2% (165000*.02/12). Each unit is a 2bd 1ba, which rents for 500-600 in that area. Even renting out a single unit would yield a positive cash flow. I know I don't pay off ANY of the principal this way, but in this part of Western WA, homes steadily appreciate 5-10%/yr. So I will still build equity in the appreciation, and my odds for a positive cash flow are greatly increased, as my monthly payments are so low. I know that some interest only loans turn into APR's in 3-5yrs, which I do not want. I would stick with a pure interest only loan, until I build enough equity (from appreciation) where it makes sense to refinance and pull out a chunk of the equity out. With that, I will refinance the home, and having managed the property for over a year by then, I will know exactly what kind of cash flow the property yields, and what the costs of maintenance are, so I can get into a loan that makes sense for the long haul. I have the feeling I've overlooked something critical. Being as I am a newbie and want to start acquiring rental properties, if any of you experts reading this see a flaw in my thinking, please point it out. Thanks in advance for your replies. -Paul (WA) --66.42.38.117 |
| This doesn't help at all, but I MISS WA! Used to live in Lacey. Bought my first house there and duplex. Sold later for nearly twice what I paid for it... --65.222.116.72 |
| The only thing is I don't think you can get an interest only loan on investment property. Assuming you did find a bank that would do it then I would say go for it. Remember that real investors make their money when they buy so I wouldn't buy a property unless it was undervalued relative to the area. Never count appreciation until you sell because you can never predict when that housing price bubble might burst in your neighborhood. --68.47.72.38 |
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I'm of the old fixed rate crowd and prefer the locked in rate.....but, there is an argument for this type of loan too.....However, you are adding more issues to the equation by doing this.... will you truely collect, save, and reinvest (wisely) that excess cash flow for down the road and will it be available if and when you need it.....is this rate variable....how often does it adjust and what is the cap (max it can go to).....You assume appreciation rates will just click along at a steady annual rate of 5-10%....certainly cant do this consistently year end year out forever -don't get me wrong i'd love it.....i read (and jeez i hate to quote without whole fact) but since housing prices have been tracked the average annual appreciation is 5.6% vs. stock market of 12%.....know obviously we can accelerate this greatly with leverage....but just as leverage can be your friend..., it can be your enemy too... pencil out all the true pros & cons....be honest with yourself regarding how you handle money management, and do what pencils out and your comfort level.... those are a few rambling thoughts....others will post too....i'll think of something else...later on... boy....165k for a place that will only collect 1000-1200/month....thats tough...personally i like better pricing...but you know your market better than i....to me that doesn't make sense...don't get me wrong i can pay that for a property here too...i choose not to....i suggest starting a program to find property alternative ways instead of mls listings..... --64.12.116.208 |
| Hey Paul... I'm doing the same thing with a duplex I picked up in Bellevue last year. I know you should never count on appreciation, but it has definitely paid off already. Check out the portfolio products from WAMU - they'll do interest only on investment property. --12.129.246.212 |
| I am looking at the same here in LA. Wells Fargo has the same product..investment property they require 20% down, and the lender recommends. I too am concerned that with fixed rates being as low as they are that this isn't the best way to buy my first prop. The cap rate for the int. only is 18%...that could be dangerous..and if you close the loan within the first 3 years you incurr a $500 penalty. The pros...one doesn't pay all the normal fees to buy prop. I'll watch the post as well, trying to make the same decision. --65.0.8.128 |
| Here are the downsides: you will pay all the bank fees and appraisal fees and escrow fees twice. In a year or two or three, when you go to re-finance, interests rates might possibly be a lot higher than they are today. --216.228.163.41 |
| You might consider an Option ARM. You choose one of a number of payment options, and can change your option each month if you want depending on your cash flow needs. Pay interest only when the property is vacant, or pay P&I calculated for a 30 year loan or a 15 year loan, for as long as you have good cash flow and want to reduce the principal. I just saw one of these from Countrywide where the cap is 2% increase a year with a lifetime cap of 6% over the start rate (3.75 with a 3-month intro rate of 2.25%). It is possible to get this on investment property. Also Wash Mutual has a similar program as well as Security National and Colonial mortgage. Just remember these are ARMS and are best for if you plan on changing the loan before too long anyway. If you really plan to hold the property 15 or 30 years, it makes more sense to lock in the fixed rates available now for the long term. --65.64.247.164 |
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2% for an interest-only loan is unusual in this part of the country. I've investigated this, and most lenders, even those that sell the loans to indivisuals or syndicates, want higher rates (above 4%) and lower LTV (.75) for interest-only loans. Have you considered taxes, insurance, maintenance, etc. when figuring cash flow? Your taxes will probably be greater than your interest payment up there. BTW - I miss that area. I grew up in an old farmhouse in Mukilteo overlooking Puget Sound. Unfortunately when my folks passed away 30 years ago I didn't have $20000 to buy out the other heirs and keep the property. An 80+ year old guy across the street bought it, and sold it five years later for $90000. The property is worth 10 times that today. --216.239.160.71 |
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I just spoke with a mortgage broker who was telling me that Washington Mutual has a modified adjustable rate mortgage for 1.95% index rate for 5 yrs and can be converted to a fixed rate (at 5 yrs) with a cap of 3 pts. Even at 4.95% fixed you can't go wrong. On top of this it's a 90% LTV loan! The broker I use is in Ohio and I'm in MI but they may still be able to service other states or you may have someone in your area who deals with Washington Mutual. Jo Ann --68.40.5.220 |