Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Need more info but I probably wouldn’t
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David J.
OP
Investor · shawnee oklahoma · Member since 2017 · 194 posts · 148 votes
8y
The more information is that the 7 year ARM can get rates as low as traditional financing (almost) and won't require reserve funds for other loans. Which makes it easier to keep growing and get loan 8, 9 and 10
Also it will be amortized for 30 years but rate can adjust after year 7
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Ty Downing
Lender · Ponte Vedra, FL · Member since 2013 · 28 posts · 5 votes
8y
@David J. Whats the down payment requirement and would you still need to pay mortgage insurance?
1 Reply
David J.
OP
Investor · shawnee oklahoma · Member since 2017 · 194 posts · 148 votes
8y
Down payment 25% no PMI
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Brian Garrett
Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
8y
Sounds like a pretty standard commercial/portfolio loan to me.
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Ty Downing
Lender · Ponte Vedra, FL · Member since 2013 · 28 posts · 5 votes
8y
I agree with Brian, you will just have to weigh the options of are you willing to risk a rising interest rate in 7 years or do you want to play it safe and keep the same rate for the life of the loan. I suppose you could refi out of the ARM but it costs money. Find what works best for your investing goals but I think ARM's are risky and can be costly.
1 Reply
Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
What’s the rate on that and how many loans do you have currently?
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Only way I’d do this is if I planned on having it paid off before or at year 7. If you don’t then I wouldn’t do it
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David J.
OP
Investor · shawnee oklahoma · Member since 2017 · 194 posts · 148 votes
8y
rate could be 5.75 or 6 and I have 7 loans currently
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
No I wouldn’t do that deal most likely. ARMs are dangerous if you get caught with a rising interest rate and have a lot of other loans to
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
If you’re married you can have 10 loans in their name to, hence 20 conventional loans
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Nathan M.
Philadelphia, PA · Member since 2018 · 50 posts · 43 votes
8y
@David J. I'm kind of surprised that anyone was willing to give such definite advice with so little information. What type of investment is this? Buy and hold rental? Or are you planning on making capital improvements and refinancing? Because if you can cash out refinance in under 7 years, the only relevant question is: what has the lower interest rates (and thus, payments) among loans amortized over the same period of time?
You can't answer a question like this in the absolute without looking at the deal as a whole.
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David J.
OP
Investor · shawnee oklahoma · Member since 2017 · 194 posts · 148 votes
8y
I am hoping to buy and hold
0 Reply
Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
8y
I have a 7 year arm on one property, and a 5 year arm on another, both resetting in about 4 years.
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1 Reply
David J.
OP
Investor · shawnee oklahoma · Member since 2017 · 194 posts · 148 votes
8y
I feel like if the market has a downturn right about the time when my arm expires I’ll be facing lower rents and higher interest rates at the same time. Seems risky
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Jason J. That’s now how interest rates usually work. If your arm expires and there’s a recession the FED will lower rates, thus lowering your rate as well.
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David J.
OP
Investor · shawnee oklahoma · Member since 2017 · 194 posts · 148 votes
8y
yes but it takes the fed awhile to react.
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Caleb Heimsoth
Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes
8y
Correct I’m just telling you when there’s a recession rates likely won’t go up long term.
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Nathan M.
Philadelphia, PA · Member since 2018 · 50 posts · 43 votes
8y
@David J. I think you just need to re-analyze your deal to account for a higher interest rate. Decide what your tolerance for risk is. If your rate adjusts higher in 7 years, you have to weigh that against your short term gains from the lower interest rate and figure out the time differential, which is to say how long past the adjustment you are still technically ahead of where you would be with a fixed rate. If it was a good deal to begin with based on the 30-year fixed rate, I doubt the ARM adjustment will be large enough to cost you more on the whole in at least the first 3 years after the adjustment. And if it does adjust higher than you want, you can always wait it out until rates go down a bit and refinance into a 20 or 15 year mortgage at a much lower rate.
In short, if you don't want to deal with a refinance in 5-10 years (even though it might make you thousands of dollars), then the 30-year fixed rate is the lower risk option. I'm having trouble understanding your aversion to refinance, though.
It really sounds like you don't want to do the ARM and you came here looking for people to tell you not to. But we can't analyze the deal without all the numbers. It's not cut and dried.
1 Reply
Justin Fox
Software Developer · Vidor, TX · Member since 2015 · 922 posts · 639 votes
8y
Yeah I would only do an ARM if I planned to sell before it reset. I wouldn't sink money in to the payoff. I've paid off a house in 4 years before. It's not as exciting as it sounds. You get a piece of paper letting you know your lien was released, aaaaaaaand then you cash-out refinance.
Can you not get an eighth loan but conventional 30-year fixed? Lower DP and rate a little better.
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David J.
OP
Investor · shawnee oklahoma · Member since 2017 · 194 posts · 148 votes
8y
Originally posted by @Nathan M.:

@David J.
It really sounds like you don't want to do the ARM and you came here looking for people to tell you not to. But we can't analyze the deal without all the numbers. It's not cut and dried.
I wouldn't say that. I essentially came here the have the topic discussed so I can hear everyone's perspective. If I am playing devils advocate a bit, it's only to try and force complexity into the discussion for the benefit of deeper analysis and understanding.
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David J.
OP
Investor · shawnee oklahoma · Member since 2017 · 194 posts · 148 votes
8y
Originally posted by @Justin Fox:
Can you not get an eighth loan but conventional 30-year fixed? Lower DP and rate a little better.
I in theory can but it's getting REALLY difficult due to reserve fund requirements. I think my next house might require $200K going this route which would take me quite a long time to save up.
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Nathan M.
Philadelphia, PA · Member since 2018 · 50 posts · 43 votes
8y
@David J. I'm always in favor of playing devil's advocate, but it's not possible to "force complexity...for the benefit of deeper understanding and analysis" when we have no details of cost, upfront cash, closing costs, rents and room for raising them, etc, etc.
And a response like "I feel like if the market has a downturn right about the time when my arm expires I’ll be facing lower rents and higher interest rates at the same time. Seems risky" feels disingenuous because the obvious answer is: "Refinance out in under 7 years, or reanalyze to figure out your tolerance for risk." If you were a first-time investor it would seem genuine, but you said this is your seventh mortgage.
You also haven't given any reasons for not refinancing or trying to value-add and then refinance.
People can only answer based on their experiences which may be totally different from the actual situation you're in, even if the surface questions (should I get a 7/1 ARM?) is the same
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Jed Devine
Investor · Charlottesville, VA · Member since 2016 · 34 posts · 113 votes
8y
7 year ARM over 20 years is standard for commercial loans around me currently at 5.75%. Might want to see if there is a cap to the increases. One loan I have can’t increase by more than 1.5% every 7 years so I don’t have to worry about it turning into a 20% loan overnight. Might want to talk to your lender.
1 Reply
David J.
OP
Investor · shawnee oklahoma · Member since 2017 · 194 posts · 148 votes
8y
Believe me when I say I have better things to do than troll. We may have confused fear for disingenuous posting. I think the bigger point is that FEAR isn't always rational. I may have some FEAR of an ARM and I need to work though which parts are rational and which parts are simply inhibiting me from thinking clearly.
As far as all the details rents, etc. I don't have those to offer. My negotiations with the lender so far are as described in this thread. We realize that conventional 30 is going to be very difficult for me going forward. My lender thinks that the go forward vehicle to get me into more deals will be a 7 year arm.
My lender has incentive to sell me a product, so I can't always assume the idea is prudent simply because he likes it. Don't get me wrong, I do trust my lender but I just wanted to bounce the idea off of some additional folks to gain perspective.
Thank you :)
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