Posted on: 12th Jan, 2010 06:50 am
Hello,
This is my first post on this forum, and I was looking for some opinions on what the best mortgage options are for my scenario. Me and my girlfriend just started looking into buying our first house. She currently has a home that is paid off, but doesn't want to sell it until we fix it up and the market gets better. We have been looking at homes in the 200K area. I will be putting the home we purchase in my name in order to obtain the 8K tax refund for 1st time buyers. Here is the dilemma, I will need to get a mortgage until my girlfriend sells her house and once that happens we will pay off the mortgage in full. We hope to pay off the mortgage in less than 2 years. What would be the best option in order to minimize payments for the 1st 2 years, and are there any downsides to these options? We don't have a problem with putting 20% down. Any opinions?
This is my first post on this forum, and I was looking for some opinions on what the best mortgage options are for my scenario. Me and my girlfriend just started looking into buying our first house. She currently has a home that is paid off, but doesn't want to sell it until we fix it up and the market gets better. We have been looking at homes in the 200K area. I will be putting the home we purchase in my name in order to obtain the 8K tax refund for 1st time buyers. Here is the dilemma, I will need to get a mortgage until my girlfriend sells her house and once that happens we will pay off the mortgage in full. We hope to pay off the mortgage in less than 2 years. What would be the best option in order to minimize payments for the 1st 2 years, and are there any downsides to these options? We don't have a problem with putting 20% down. Any opinions?
Sounds like a good plan.
If you want to be a little risky, 3/1 ARM and 5/1 ARM have the lowest rates, about 4.375% and 4.625% today. The risk is that the house does not sell in less than three or less than five years, so, 5/1 ARM is a little safer even though rate is a little higher.
30 Year fixed is, of course, really safe and the rate is around 5.125%.
If you purchase at $200,000 and put 20% down the mortgage is $160,000. AT 4.375% the monthly P & I would be $798.86 and at 5.125% it would be $871.18. The difference is only $72 a month for two years or less, so, you decide the risk of not selling in time to pay off an ARM. A 30 fixed cost you $1,735 over two years for all the safety in the world---the property never sells.
Depending on where you are, the ARM rates could be a little lower. I would say extreme safty does not cost that much, but, if you want to risk it, you could save under $2,000 with a short term ARM.
If you want to be a little risky, 3/1 ARM and 5/1 ARM have the lowest rates, about 4.375% and 4.625% today. The risk is that the house does not sell in less than three or less than five years, so, 5/1 ARM is a little safer even though rate is a little higher.
30 Year fixed is, of course, really safe and the rate is around 5.125%.
If you purchase at $200,000 and put 20% down the mortgage is $160,000. AT 4.375% the monthly P & I would be $798.86 and at 5.125% it would be $871.18. The difference is only $72 a month for two years or less, so, you decide the risk of not selling in time to pay off an ARM. A 30 fixed cost you $1,735 over two years for all the safety in the world---the property never sells.
Depending on where you are, the ARM rates could be a little lower. I would say extreme safty does not cost that much, but, if you want to risk it, you could save under $2,000 with a short term ARM.
So an Interest-Only loan is a bad idea?
Interest only is not a bad idea. I almost wrote about it, but, I was getting a little long winded.
Interest only rates are higher than fully amortizing rates, but, the monthly payment is less. To me, either interest only or fully amortizing is OK.
Interest only rates are higher than fully amortizing rates, but, the monthly payment is less. To me, either interest only or fully amortizing is OK.
john's given you good advice, and i suspect that his lack of comment on an interest-only option is telling, as you also do. he and i seem to be of a similar mind on many items, and i think that's another. i don't like interest-only plans, especially given the real estate market we've experienced in the last couple of years. it's too convenient, too easy, and doesn't really benefit you other than allowing for a lower payment.
i'm not afraid of adjustable rates, either. i bought a home in 1996 with a 1-year adjustable (t-bill based), and never paid more than 5% or so on it. the home i'm in now i bought with a 5/1 arm at 4.5% and i'm paying 4% now.
i'm not afraid of adjustable rates, either. i bought a home in 1996 with a 1-year adjustable (t-bill based), and never paid more than 5% or so on it. the home i'm in now i bought with a 5/1 arm at 4.5% and i'm paying 4% now.
to be honest, if you're looking at paying off the loan in a couple of years anyway, it's not going to make a big difference. may as well keep your outgoings down as low as possible and go I/O.