Analyzing A Deal with a 7/1 ARM

[Camille T.]

I have thus far only done fixed rate and fixed term deals. Easy to plug into the BP calculator and see if it makes sense. Any suggestions on how to analyze ARM deals? I'm looking at a portfolio of properties, local lender will do a 7/1 ARM for around 4%. How to pencil out after the 7 year term since interest rates will be unknown. Would love to hear people's experience with these sorts of deals and financing.

[Jason Wray]

Camille,

That option is really best calculated as "refinance in less than 7 Years". That's a decent rate for a portfolio loan I would just wonder if is has a soft or hard prepayment penalty. Just assume you will be using it's collateral in 3-5 years to buy more and that would require a change in terms in conditions, unless you opted for LOC.