10/1 Or 7/1 Arms
I was wondering if many of you use arms. I'm a little freaked becuase of all the gloom and doom talk that i should stay away from arms. I bought a duplex for 237500 took a heloc for 4.5% for down payment of 20%( doing intrest only at $180 a month) and trying to figure the rest of the financing. The duplex is a new build currently still under construction it will rent for 900 each side. I got a 30 year at 7% no points. I haven't looked into arms and actually not even sure if I can do an arm on a duplex in AZ.
mcq,
What are your objectives on this property?
An ARM that has a fixed rate for a few years is great for increasing your monthly cash flow (At least while the rates are low) If your objectives are to reap the benefits for a short period of time, and then sell to capture your appreciation, then the ARM is a great tool for you.
If you feel that your property will decline in value, then you probably shouldn't go for an ARM on the property to avoid being up-side down on the mortgage (Owing more than the property is worth) [ Edited by jeff12002 on Date 05/16/2004 ]
Quote:If you feel that your property will decline in value, then you probably shouldn't go for an ARM on the property to avoid being up-side down on the mortgage (Owing more than the property is worth) jeff12002,
Let's disregard the wisdom of buying an investment property that you suspect will decline in value (unless you get a great discount up front).
I have got to know. How does an ARM get one upside down on a declining property? You are implying that a 30-year fixed rate loan won't.
Can you show us the arithmetic? It is my experience that an ARM, with interest rates lower than the 30-year fixed rate loans, will reduce the loan balance faster during the fixed term of the loan. In other words, a 5/1 ARM will have a lower loan balance at the end of five years than a higher interest 30-year loan over the same time.[ Edited by DaveT on Date 05/16/2004 ]
DaveT,
I was apparently having an off-day. I was thinking interest only, (I think) not ARM. (At least on the second paragraph). My mistake!
Sorry everyone!
Jeff [ Edited by jeff12002 on Date 05/18/2004 ]
I have an interest only ARM on my primary residence. The current rate is still 3.0% and my payment on $110k is $285/month with no negative amortization. I'm sorry, but you can't touch that. I used to pay $800/month on my 30 year fixed and only $100/month was hitting the principal.
The only down side I see is some people arent disciplined enough to pay on the principal with the extra cash flow and then they wonder why they still owe so much....
-Chris
[addsig]