Which mortgage would you choose?

[Andrea Hewitt]

Which mortgage would you choose?

You have $90,000 set aside to invest with.

Option 1: 20% down + 1 point + closing fees =$83,850
5year fixed/30year amortization at 6.75%
There is a 5 year prepayment penalty
At this rate the property will cash flow $26,000/yr
ROI for year one is 31%

Option 2: 10% down + 1 point + closing fees =$45,350
2 year fixed/30year amortization at 9.625%
There is a 5 year prepayment penalty
At this rate the property will cash flow $14,600/yr
ROI for year one is 32%

So, do you chose to invest all at once into one property for an extra $11,000 for the year. Or do you hold on to $38,000 cash and that extra 1% ROI?

The real question may be, can I turn that extra $38,000 into an investment that wil cash flow at least $11,000 per year.