All Forum Posts by: Francesca Perez

@Przemek Kos

What is an Interest-Only ARM

An interest-only adjustable-rate mortgage (ARM) is a type of mortgage loan in which the borrower is only required to pay the interest owed each month, for a certain period of time. During the interest-only period, only interest accrued each period must be paid, and a borrower is not required to pay down any principal owed. The length of the interest-only period varies from mortgage to mortgage, but can last anywhere from a few months to many years.

After the interest-only period, the mortgage must amortize so that the mortgage will be paid off by the end of its original term. This means that monthly payments must increase substantially after the initial interest-only period lapses. Interest-only ARMs also have floating interest rates, meaning that the interest payment owed each month changes in market conditions.

You can read the rest on here: https://www.investopedia.com/terms/i/interestonlyarm.asp

@Carl Fischer and @Wayne Brooks thank you gentlemen for taking the time to reply to my post. It is a land trust that he was offering to sign.  I have decided not to go this route and instead taking the traditional approach. 

@Lynnette E. thank you so much for taking the time to provide me with such an in depth explanation.  I have decided to not go that route due to the fact that I don't fully understand it and its more than I can take on right now. As a new investor I am going to focus on this first property and getting the experience I need to be able to continue this new jorney of mine.  In the future I may revist the trust options, for I know it has its benefits.

If you are looking for interest only loans then you need to find lenders that offer what is called an ARM loan (adjustable rate mortgage). There are several different types available, such as a 5/1 which tends to be the most common, 7/1, or a 10/1. Depending on which you choose you would be paying interest only for the first leg of it the 5, 7, or 10 years at a fixed rate. Then there after your rate is subject to the martket, making it variable. They do have caps on the rate, so your payment doesnt quadruple in the next month but these caps are annual so they will continue adjust. Understand that if you go that route, although your payment is lower, you will have not paid down any of the principle balance. So while it may seem lucrative to jump in, you should try to have a better understanding of the loan so that you don't get in a position where you have been paying interest payments for 10 years and still owe the full purchase price. Try to have an exit strategy so you can see if this type of loan will work for you.

Good luck :)

I am a new investor and I have found a property I am very interested in purchasing for rental purposes. The current owner is suggesting to change the beneficiary on the trust to me in lieu of a recorded sale.  Stating I will have the greatest advantage due to my property taxes remaining low, based on the last recorded assessed value from 2010. My question is wouldn't that create a bigger problem from me down the line if and when I try to sell the property?  The property was valued at $67500 in 2010, annual property taxes of $1300. My purchase price would be $265K, which would raise annual taxes to approximately $3500. If hypothetically I were to sell the property for $400K, would this mean I would be taxed on capital gains for the profit of the difference between the $67500 and the $400K? Or because a contract is signed showing that I purchased the property at the $265K, will I be only responsible for the difference from my purchase? I have asked a few local investors but no one is able to give me a clear answer.