Rates Going Up - What is your long term strategy?

Question

Since the Feds tipped their hat and are planning on three 1/4% rate increases in 2017, how are you going to lock in rates for longer than 5 or 10 years on a commercial loan for a SFR rental?

I am just about tapped out on residential loans and looking to get a commercial loan for longer than 5 or 10 year rate lock. Sure, the banks will amortize for 30 years, but a 5 year lock is a sure bet in favor of the bank.

What do you suggest?

Adrian Stamer · Answer

Small banks are all different call them all until you find the terms you want.

Patti Robertson · Answer

My personal strategy is to use all our cashflow to pay down the commercial mortgages as quickly as possible.  Beyond that, I don't worry about it too much.  1/4% is nothing.  All the economists I have listened to have said we have several more years of interest rates being below 5%.  I am far more worried about the rising purchase prices.

Peter Amour · Answer

i have a done a few fixed rate 15 -20 year loans with a smaller local bank . they are out there , but not typical .

Dennis King · Answer

Thanks for the suggestion Adrian Stamer. I will call some local small banks to see what they can do.

Dennis King · Answer

Are there any longer term commercial loans? Something like 15 years? I can't pay off the homes in 5, but 15 is doable with the cashflow I am attaining in the nicer (B and higher) neighborhoods.

When factoring in the refi charges (appraisals, title, doc prep, etc. etc.) and increased rates every 5 years, I'd like to get a 15 year mortgage and be done with it.

Kenneth Garrett · Answer

@Patti Robertson I like the way you think.  I'm usually the one that is lagging on responses.  The hunt and peck method is slow but effective.

Patti Robertson · Answer

LOL - @Kenneth Garrett - You and I must have been typing at exactly the same time.  I didn't see your reply until mine posted,but we had essentially the same strategy and advice!  Great minds think alike!!!

Kenneth Garrett · Answer

Dennis,

I only use commercial loans for my SFR investments.  These loans are typically 5% @ 25 years amortized.  I like the fact that they are not limited to the number of loans like residential loans. I'm ok with the 5 year balloons.  First the tenant is paying my principal down (at 5.75 on 100K at 5 years my principle is 89,605).  I receive the advantage of deducting the interest, property taxes, repairs and depreciation.  When I refinance it's at a lower principle.  At 5 years at 5.75% my balance is 89,605.  if I refinance at 6% payment is 577 versus at 5.75 at 100 was 629.

I would love the 30 year fixed commercial loan, but I can live with the 5 year balloons.  My strategy is to pay them off as soon as possible with the cash flow from other properties.  The sooner you payoff the mortgage the better we will all be and not let the banks become richer.

I was at a seminar about interest rates.  On a 30 year fixed rate at 6% they said double the rate and add a zero that is the actual interest rate you are paying (120%).  The goal is to pay them off as soon as possible.  Its called the sweep strategy, they are out of Hawaii, but there are other systems similar take a look and let me know what you think.  The website is sweepstrategies.com    I am not recommending them, but it is an interesting concept about mortgage financing in the United States.

Rates Going Up - What is your long term strategy?

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