5 Year Arm: Opinions?

Question

I'm working with a portfolio lender on two 5 Year 30 Amor. Arms with a fixed interest rate the first five years. I plan to have them paid off before 5 years. Down payment is 25% with an interest rate of 5.65. I've only ever done conventional before this and this sounds like a great deal to me. I only qualify for FNMA loans and I hate working with them. What do you guys think? Are these rates and downpayment typical for this type of loan? I had one other quote for 40% down, interest of 6.9% and that sounded way too much to me.

Steve Foth · Answer

Bill Gulley Excellent info--I didn't know the bank would have to disclose the amount they keep.  More info to keep int he back pocket.

Mehran K. · Answer

I learn something every day, thanks Bill! Going to ask my lender that today.

Bill Gulley · Answer

Yes, you can lose ten pounds and thousands of dollars might be a great deal for one night in jail, especially if you sleep like a rock

Put up with the nightmare, which isn't that bad, and get a better loan from Fannie.

With portfolio ARM loans you need to look at the floor and the ceiling rates, how far down it can go and how far up or the cap rate. You need to look at the index and do some research to see how volatile the index is. Then look at the margin, the spread between the index rate and the note rate. Then ask that lender what % of their loans are kept and how many are renewed. They have to tell you what they keep. Look at the APR to compare.

If you can, I'd say get a 30 year fixed right now! :)

Sean Kuhn · Answer

Deborah Burian

@David Beard

I'm assuming you currently have this type of loan, did your lender make you escrow? Is it common for them to demand an escrow? I'm considering looking for another lender as I hate escrowing. Thoughts?

Sean Kuhn · Answer

Bill Gulley

This ARM, according to my lender, isn't a balloon payment at 5 years. It stays fixed at my now locked in interest rate of 4.85 for 5 years, then fluctuates after that with a ceiling of 9.85%. As a side note I do actually prefer 30 year fixed but FNMA is wanting me to have 54K in cash reserves. Seeing as this new one is only my fifth rental property it would literally take me a year to save that up.

Elizabeth  Colegrove  My lender just told me its 4.85%. Does that sound any better?

Bill Gulley · Answer

Yes, they disclose the % of the portfolio loans held and sold, you want keepers, not sellers. Good luck :)

Bill Gulley · Answer

That should never bite you too hard, sounds like a good one with a ceiling under 10%, and that rate will basically be floating to the market. Lock it in! Good luck :)

David Krulac · Answer

@Sean Kuhn

I like fixed rate 15 or 30 year amort.

While you plan on paying off the mortgages within the 5 years, things happen and 5 years is a long time to predict the future, but a very short time when there is a balloon hanging over your head.

While nobody likes all the Fannie regs, the lower fixed rates are worth going after.

There was a post at the National Real Estate Post, just today about how people would rather spend a night in jail, or gain 10 pounds than go through the mortgage process.

http://thenationalrealestatepost.com/hilarious-mortgage-survey-is-very-revealing/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheNationalRealEstatePost+%28The+National+Real+Estate+Post%29

Kyle Hipp · Answer

I have gotten 2 commercial loans this year, one in march and on in November.  Both were 15 year ammortization with balloon after 5 years, highly likely to renew the note at market rates. They were also both at 5%. Escrow was not required.  These were refinances after I purchased the property with either seller financing or private investor and improved property, rented and then secured financing. The LTV value was 70%.

If you are planning on paying off within 5 years anyway, then I would definately look into a shorter ammortization in order to secure a lower interest rate.

Deborah Burian · Answer

@Elizabeth  C. Ahhh - that makes sense.  @Sean Kuhn if that's what you're referring to, no, all we have to provide is evidence of insurance.

5 Year Arm: Opinions?

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