How Do I Figure This Number Out?
I realized how dependent I am on those “on-line” mortgage calculators. You know, the ones that tell you how much you’ll pay monthly in for P/I based on the term length, percentage and amount borrowed. Well, I was told that it is better for me, and the only option given by the majority of lenders, to use a 5/1 ARM.
When doing my cash flow calculations, I was stumped how to figure out the monthly payment for a 5/1 ARM. I couldn’t find any calculators on line that I understood. Can someone tell me how to figure this out?
thanks!
Try this site http://www.mortgageselect.com/paymentchart.asp?[ Edited by davmille on Date 02/17/2004 ]
It's simple. You take the beginning interest rate, which will be fixed for 5yrs, and use it on a thirty year term. That will be your beginning monthly payment and will continue for 5yrs. After that the rate will adjust depending on the current interest rate and the terms of your loan.
Roger
Thanks
So I can still use those neat caculators... I just type in the intrest amount with a 30yr timeline (knowing this will change after 5years or the length of the ARM).
I was kinda' guessing that, but I wanted to make sure.
Just curious. Why were you told that the 5/1 ARM was your best (only) financing option?
What investment strategy, or personal financial hurdle, makes all the other loan products unsuited for you?
I was originally inquiring about a 30 year fixed and a few lenders told me that they would only concider a 3/1 or 5/1 ARM with an investment property of 4 units or more. When I spoke to a friend who invests in residential real estate he suggested a leveraged (?) loan... one that is set at prime and then a few percentage points above and this adjusts monthly. I have excellent credit but no experience buying that first property yet So as I'm figuring out numbers I was scratching my head when it came to the debt service portion as I'm only familiar with the "traditional" stuff.
Are you only buying property with more than four units?
I only buy property that falls under the residential lending guidelines (one to four units). The full range of loan products is available to me ranging from 30-year fixed rate loans to one year ARMs. I currently have one year ARMs, 5/1 ARMs, and 30-year fixed rate products on my investment rental properties.
For larger properties, I go to my commercial loan officer and my financing options are more limited.
We have to look at properties that will support us using a managment company as we are a military family and we get moved about frequently. I don't object to managment, I just have to concider that I may not be in one location for very long.
So, your problem is cash flow. With professional property management, your net operating income is the limiting factor. Because you have less money to cover your debt service, you are forced to consider lower rate mortgage loans.
Has your mortgage broker offered you a LIBOR or COFI indexed ARM. You should be able to get a COFI ARM at around 4.5%. The rate will adjust monthly, but the movement in rates is very slow. I know that Washington Mutual offers this product.
That's the term my investor friend used...
"LIBOR", not leveraged. I haven't spoken to my broker about this yet, but I will definatly bring it to the table
Thanks for all the insight!
Your friend doesn't have it quite right.
LIBOR stands for the London Interbank Offered Rate and is the rate of interest at which banks borrow funds from other banks, in marketable size, in the London interbank market. The LIBOR rate is the index for the loan and has nothing to do with the Prime Rate.
Similarly, the 11th District Monthly Weighted Average Cost of Funds Index (COFI) is another index for adjustable rate mortgages. The monthly COFI reflects the actual interest expenses recognized during a given month by all savings institution members of the Federal Home Loan Bank of San Francisco. The Prime Rate doesn't figure into this one either.
Thanks