What morgage would you prefer?

Question

What would you prefer?

Residential investment property

80% ltv at 4.625% on a 10/1 arm (30 year)

OR

75% ltv at 5.5% on a fixed 30 year

I’m not concerned at all about the 5% ltv up front so please don’t let that be a factor. More looking at interest rates and adjustable vs fixed.

Obviously a lot lower interest rate on the first, but the adjustable rate scares me some. What happens if we go back towards the Carter days when interest rates were up in the high teens? Would be nice to have a fixed rate if we did in fact go there. But if we don’t then it would be awesome to pay 1% less over the term of the note.

What are your guys thoughts?

Thanks!

Dylan

Account Closed · Answer

@Dylan Thomas

The 30 year fixed rate without a question...but I would also pay close attention to what the closing costs are for each loan. For example, do you have to pay points on one but not another, etc?

Anthony Dooley · Answer

If you are going to hold it, the 30 year fixed is always best when interest rates are this low.

Chris Coleman · Answer

@Dylan Thomas

Have you estimated what the actual payments will be in both scenarios?  I’m guessing it’s probably not a significant difference.  Assuming the ARM is not Interest-only, right?

If that’s the case, then I would go with the 30-yr fixed.  You’ll sleep better at night...

Jose Batista Abikarram · Answer

Hey @Dylan Thomas this is my opinion only but especially now that we are in an all time low of interest I believed the fixed rate is much better. The percentage difference will make a difference but at the same time you could pay it quicker to save on some interest. In saying that it really depends on your strategy. If you need the extra cash the first option doesn’t seem that bad. It’s certainly a hard one!

Dylan Thomas · Answer

thanks everyone for the responses! I guess ultimately it comes down to your strategy. If you are going for value add and sell in 5-9 years then the 10/1 arm would be best. If you are a true buy and hold then 30 year fixed is where it’s at.

What morgage would you prefer?

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