All Forum Posts by: Arsalan J Khan

@Arsalan J Khan

You are referring to what's called a hybrid loan.  There are a few different iterations, but essentially, you have a 40 year fixed rate that is broken up into two parts; the first ten years is interest only, then automatically "converts" to an amortized loan over the next 30 years.  There are a few advantages to this structure, but the real questions are two things; how long to you plan to hold this property?, and is there a Prepayment Penalty on the loan?

If you plan to hold this loan for 30 years, your total interest paid will be way higher compared to a traditional 30 year fixed loan.  If you are hedging the market for a few years to see what happens and plan to refinance if/when rates fall, then it may be a good option to increase your cash flow in the interim.  I am not recommending Prepayment penalties any longer than 3 years right now.  Some of my clients even opt for 1 or 2 year PPP.  If conventional, then PPP is not an issue.

Cheers!