15, 20 and 30 year Amortization via Portfolio Loans .....

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15, 20 and 30 year Amortization via Portfolio Loans .....

Michael Dunn
Olive Branch, MS · Member since 2013 · 452 posts · 10 votes

Good Morning,

I have recently been on a quest to learn and find out everything I can regarding Portfolio Loans . I feel that I have a good grasp on how they work ( the Financing structure, the funding of the Repairs into the Loan, Interest Rate, Points, Seasoning Period, Down Payment, etc. )

What I'm still unsure of , is what is meant by a 5 or 7 year ARM ( as the Initial Loan that you get when you use a Portfolio Loan from the Get Go , But then after that time is up ( the 5 or 7 years ... depending on which ARM you went with ) , how then does the Financing , and More Importantly my own Personal PITI on the Property get effected, by me then having a 15, 20 or 30 year Conventional ?

It would seem that if My Loan was say a 5 year ARM when I first got the loan, that I would want to go with a 15 -20 year Conventional and NOT a 30 year , as I have just paid on my Loan for 5 years , yes ?

Although I'm sure you get better rates ( Interest particularly ) if you go with a 30 year vs a 15 or 20 ?

If my goal is to Purchase Investment properties as Rentals, using Portfolio Lending ...... Which Financing do I need to go with , and why please ?

Thank you for the help

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  • Michael Seeker
    Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
    10y

    @Michael Dunn- there are a few different types of loans and your particular situation as well as what you're trying to accomplish will dictate which makes the most sense.  Here's an overview of what you're likely to find out in the real world:

    1. Conventional, Fixed Rate - Typically 15 or 30 year loans which have a term that matches the amortization, meaning you make the same payment for the entire life of the loan.  Usually only available on 1-4 unit properties held in your own name.

    2. Adjustable Rate Mortgage (ARM) - There are a lot of different varieties of these, but the basic idea is similar to a conventional loan, however your rate is not locked in for 15 or 30 years and it will reset, usually after 5 years. This would almost certainly be a TERRIBLE idea to use today as rates will almost certainly be higher in 5 years than they are today which would mean your monthly payment would increase.

    3. Commercial Mortgage - These are most easily found at local banks, however some larger banks offer smaller commercial loans typically with a minimum anywhere from $100K on up.  These will usually be on a 5 or 10 year term with a balloon, meaning you must refinance or pay off the balance at the end of the term.  Most banks will refinance the loan at the end of the term so this isn't a big deal.  These loans are usually amortized (split up) over a 20-25 year period so payments are reasonable.

    There are a variety of other types of loans, but these would be the 3 most commonly used for buy-and-hold investing.

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  • Michael Seeker
    Investor · Louisville, KY · Member since 2011 · 1k+ posts · 1k+ votes
    10y

    Additionally, you asked about how PITI would be affected...it's important to know that the "TI" portion of this will not change one bit. Regardless of what type of loan you utilize, the taxes and insurance will be the same (though some lenders may offer/require escrow for these items).

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  • Michael Dunn
    OP
    Olive Branch, MS · Member since 2013 · 452 posts · 10 votes
    10y

    Michael, Thanks so much for replying and going ino detail about the 3 main different Loan types

    The Commercial Mortgage is the one I Initially understood the least about .

    You definitely helped me now understand the Loans and how they work

    So if I go with say a 5 year term with a Balloon via a Portfolio Loan , Then I will have a 25 year conv. loan when  go to refinance my loan when the 5 year mark is up ?

    How is the Interest Rate factored into this type of loan ...... Is the 5 year Fixed, and then when I go to do the refi. after 5 years, I can Lock in the Rate on he remaining 25 years

    OR

    Can I lock in the Same Interest rate for the Entirety of my Loan ( 30 years total ) ? This would definitely be Ideal , given how low Rates currently are

    Thank you again, really appreciate it

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