Conservative Loan Philosophy

[Ed Matthews]

Suppose you were evaluating a potential 5-year MF deal. Which approach to loans would you consider most conservative at this point in the market cycle?

A 10-year fixed from Freddie Mac sounds pretty conservative. But if the economy slides into recession next year, the Fed would very likely lower rates, so an ARM could supply extra cushion against lower-than-expected rent increases in subsequent years. Would that make an ARM actually more conservative?

Thoughts?

Thanks!

Ed Matthews

[Doug Smith]

I was a banker for 25 years. You are in a very low interest rate environment right now. If they will fix it for 10 years and a great rate, the conservative move would be to lock it in. You could save money by rolling the dice on a variable rate loan, but it could bite you in the hind end if interest rates spikes. I suspect the markets will react to the Nov 2020 election pretty strongly.