Which Loan terms would you choose and why

Question

If given the choice between two loans, which would you choose and why? 1.1M loan amount

7 year term, 25 year am, 3.49 percent interest10 year term, 25 year am, 3.65 percent interest

Byron Bohlsen · Answer

Thanks team

Jon Kelly · Answer

@Byron Bohlsen 2nd option. The longer term the better, especially with low rates. The difference in monthly payments is less than $100... This buys you 3 more years to sell or refinance

Ryan Howell · Answer

I would go with the 10y if your goal is to lock in the low rate as long as possible.  If you know you're pulling out equity or refinancing within 7 years, I'd go with a 7yr or even 5yr.  You just need to weigh the interest penalty vs likelihood of refinancing early.  10yr also helps ensure you get through a market cycle before your balloon is due which I'm a big fan of.

Timothy Hero · Answer

The difference is about $100/month. On a $1.1 million loan, this is peanuts.

James Hamling · Answer

@Byron Bohlsen

I would select the 7yr but pay on it at the payment of the 10yr.

In a growth/expansion phase for REI I am never going to let equity sit untapped past yr 7, so the 3yrs is a non issue. The savings are almost incidental but, savings none the less. Now, myself, I know the value of stealing from myself, I never pay the required minimum on any funding, I always pay at a rate of 110% or better. This gives me more ROI via destroying the interest curve, gives more clout with funding partners for future funding or if I ever would have to discuss any whatever....

Bill Crow · Answer

@Byron Bohlsen

Both options exist because each serves a different purpose better than the other. Know your purpose and you’ll know your answer.

Mack Benson · Answer

Depending on your pre-payment penalty I would lean toward the second one. Today I am not sure how long it is going to take before things come back after covid so the longer term is tantalizing. Plus, getting the extra three years is only going to cost you around $75 per month which really isn't much.

Byron Bohlsen · Answer

What if there is a strong potential to want to pull equity out before year 10?

Curt Davis · Answer

2nd one