30yr Fixed Or 5/1 ARM
I am trying to weigh the risk/cost advantages of fixed vs adjustable mortgage. I am buying a 2family in boston. I am looking at 30yr fixed or 5 yr ARM.
I am getting 5.875 for 30yr and 5.5 for the 5yr adjustable. The expected IRR is roughly 50% annually.
I am not really sure that I would be looking for long term investment or short term and sell in 5yr. This is a 2family so it is a perfect candidate for condo conversion but we are assuming market is not going to change significantly.
The mortgage lenders I talk to always say go short term save and then refinance.
Any advice would be appreciated.
Thanks
With today market - I think you have to go with the fixed. Especially since the % difference is so small.
How much does that effect you monthly payment?
seems to me you answered your own question. Going fixed will give you the flexiability without much out of pocket monthly cashflow.
Interest rates can only go in one direction now.
Yes and no.
If you look at how much more you will be paying for principal over time (with NO tax deduction) and considering appreciation is what accounts for equity buildup at least in the beginning I am leaning towards the 5/1 ARM. Saving the first 5 years on a lower interest only loan and property price appreciation would likely more than make up for a possible rate increase.
I am actually also going to roll in my closing costs for a 0.125 rate increase.
But you are paying 5 years worth of premium (principal payments) versus the interest only 5/1..
My view is you can never forecast interest rates so go with what looks good all things being equal 5 years from now. Yes, in 5 years rates may be up but property prices + rent increase in general should absorb that change.
if (state tax elimination) is your goal, check out your state tax authorities rules.
In CA you must be registered as a CA entity or a Foreign entity (out of state corp, llc, etc) to "legally" do business in CA. If this is the case, you have to pay the minimum 800 in tax.
another thing to consider. If you are trying to get conventional fianancing, you wil have trouble getting it as LLC or any form of company. Not many lenders allow that.
I agree. As long as the loan is not in default though it is usually not a problem.
I spoke to my attorney who is also attorney for my lender and he said that the lender would rarely invoke a DoS clause.
Well if she wont sign you really cant do much. I would NOT give her 15k in this situation. The person sounds unreasonable and doesnt understand the situation she is in. They will take a credit for a long time basically.
a hit on her credit*
Walk away. 2 weeks is going to be hard to short sell the property in that amount of time. Also short sales typically require getting a lot of things from the seller such as paystubs, W2s, bank statements, etc, so if the seller is being like this then imagine when you start asking for that stuff. There are plenty of deals out there for short sales so I would just move on.