Cheapest mortgage loan

[Chris Kendrick]

Would doing an interest only mortgage be the cheapest for lowest monthly payments, i want to get the most cash flow as possible,  is the interest rate on that higher or maybe doing like a 5 percent 5/1 arm be better or lower payment,  what eveyone thinks

[Stephanie P.]

Quote from @Chris Kendrick:

Would doing an interest only mortgage be the cheapest for lowest monthly payments, i want to get the most cash flow as possible,  is the interest rate on that higher or maybe doing like a 5 percent 5/1 arm be better or lower payment,  what eveyone thinks

 Interest only loans can lower the monthly payment and increase cash flow, but there are caveats.  The interest rate is generally a little higher than a 30 year fixed, but because there is no principal paid, the payment is a little lower.  

A 5/1 ARM is a better option in my opinion. You get a 30 year amortization and it will adjust after 5 years. Usually the caps will protect you from too much fluctuation in payment.

In your scenario, the max cap is probably 7% above the start rate. Usually ARM's have 3 caps; initial adjustment, regular adjustment and max adjustment. For example if a 5/1 ARM starts at 5% it will have a max initial adjustment (let's say 2%) and a yearly adjustment of maximum 2% and then a max adjustment of say 6%. In 5 years, it will go to a max of 7% and change yearly with the potential to go up 2% per year until it gets to 12%. If it's a 5/5 ARM, then the adjustment period is every 5 years and the same adjustment principal as above applies.

Hope that helps

Stephanie