OfflineI saw a quote on another post and wanted to cover some basic information.
True the fixed rate may never increase but if you understand the ARM you can do just fine. You just have to know, and consequently follow the term of the loan. If you do a 3/1 arm you would not have an increase for 3 years. I don't hold property normally for longer than 3 years anyway. If I planned to hold longer than 3 years I will refinance or get a credit partner to do a refinance with me.
Another part of the ARM to consider is the Index. The index is what the interest rate follows. So, if the Index goes up so does your interest rate. Each index is different, some aggressive in movement, others move slow but in large strides.
Here is a list of common Indexes:
- Prime Rate
- Cofi (said coffee - which is the cost of funds index)
- Libor (London Inter Bank Offered Rate)
- CMT (constant maturity treasury)
Another you may find but that are harder:
- CD's (certificate of deposits)
So if you understand the loan, your options and what is happening, ARM's are not bad. The credit problems we have right now are because people were put in houses they could not afford - the ARM's are just additions to this.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
I do agree with Nate. Right now the media has created a perception that arms are the cause of the credit crunch and the real estate problems were are seeing now. Arms can be a good tool to give you a lower interest rate for the first couple years of the loan. You do need to be informed on what the arm will do when it adjusts so make sure you understand the term of the arm and what the adjustment rate will be. For the most part the rates are going to follow the Libor index which Nate metioned above. Another way to lower your interest rate is to do a stream line refinance where the mortage company just rewrites your loan with a lower interest rate.
If you would like the chance to work with me or one of my fellow real estate investor coaches and our advanced training programs, give us a call anytime to see if Dean's Real Estate Success Academy and our customized curriculum is a fit for you. Call us at 1-877-219-1474 ext. 125
i also think an ARM can give you one more tool in your arsenal for aquiring property for the cheapest payment possible, like the coaches said unless you plan on keeping property longer than 3 years then maybe FIXED would be the way to go, but for SHORT TERM the ARM saves the most money, YOUR HERO,SULLY.
YOUR HERO, SULLY
arms and intrest only loans are GREAT for flips!!! Lower monthly payment.
D
Don't Wish the Past, Create the Future! - DH
if your interested in ARM's you need to be familiar with Chapters 3-5 in BaREM. If you will be holding properties for an extended period of time that may be beyond the "fixed" period of the ARM, you need to be on top of the interest rate "trend". As D stated, ARM's are fantastic for flips. Just don't forget, you're only paying interest unless you pay more than the required payment each month. Some people tend to "forget" that part. So if you're one that uses your other properties equity for money towards another property, make sure you fully plan out how your using your ARM's.
This is correct. You should ALWAYS match the duration of your assets and liablities. ALWAYS.
This means for long term rentals (keepers), fixed rate loans are the only choice.
The financial landscape is littered with the corpses of "genius firms" who ignored this. Bear Stearns is the latest.
I like ARMs- right now my ARMs are lower than what you can get in a fixed rate. I like to use the banks money. I pay the minimum payment until the year is almost up. I save the extra money I would have paid to them for the amortised payment in a savings account, then pay the neg amortization to them before they add it to the principle. Then at the end of 5 years I re-fi if interest rates are low or sell if the markets' good. Can work, doesn't always.
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