All Forum Posts by: Jonathon Morris

@Marcus Gaethke

Choose 5/1 arm. no brainer.

If you don’t pay discount point, the 30-year fix rare is like 6.25%.

Given the 1/1/8 cap, the 5/1 rare will not hit 6.5% until year 8. Even if it continues going up by 1% every year afterwards, the break-even point of fix rate versus 5/1 rate is on like year 13 (you save money for first 7 years and pay more after year 8). That is the worst case scenario that we assume rate is up significantly.

So at year 13, the property value will probably doubled. You want to cash out refinance to pull your equity out.

In reality, you will likely be able to refinance to get a lower rate when rate is low in the future, and you will cash out refinance to pull equity way sooner than year 13.

 The 5/1 for long term is a gamble at best although for the next 8 years or so, it's much more profitable than the 30.  I think I'd save my money and take the 5/1 and gamble on interest rates settling down.

You don't necessarily have to sell to get out of an ARM. You can refinance out of an ARM. No one has any idea what interest rates will be in 5 years, but it's still an option.

Congratulations on your success.  At 26, having 4 properties and looking for more is quite the story.

KeyBank man should be ashamed of himself.

I'd disagree with some of the assumptions in this thread.

Rate locks don't need to be for more than 30 days.  45 days can cost you a quarter point depending on the lender and it's really not necessary.

Always remember that origination points and discount points are two distinctly different things.

For us, some origination fees can be just 2 points and some are just 3 points. It depends on what you qualify for and what lender works best for your situation. 

Here's an example.  One of our lenders charges no points, but they charge a $1995 underwriting fee and a $600 closing charge.  Another lender charges 1 point and $999 to underwrite.  Either way, US Commercial is going to charge 2 points and a $450 processing fee.  Both lenders will go to 75% cash out.  Lender 1's rate is 9.49% on a 30 year fixed and Lender 2's rate is 7.5% on a 30 year fixed and both have a 5 year declining prepay.  Loan amount is 200K.  The borrower is a long term hold borrower.  Using just those variations of closing costs, Lender 1's closing costs would be (not counting our 2 points) $2595.  Lender 2 would be $2999.  But oh no, you paid a point!!  The monthly payment for Lender 1 would be $1680 and the monthly principal and interest payment for Lender 2 would be $1398.  Same 200K loan.  

Why would we send you to Lender 1 vs. Lender 2? Lender 1 doesn't require reserves. They don't care where the money for closing comes from and they don't need to season the funds. They just care that you have it and they really don't care if your property has a 1.0 DSCR or not. They want to make sure you have the credit and not much else. Lender 2 requires 6 months reserves. they want the borrower to document any large deposits and they want mortgage statements on any investment properties listed on the 1003.

The point is different lenders do different things and it's important to not generalize as a broker, but interview the borrower, find their pain points and marry them with a lender that will minimize those pain points for a successful close.