Real Estate Investing Forums

Real Estate Investing => Financing, Hard Money Lenders, Private Money => Topic started by: zoey on June 30, 2005, 12:03:28 pm

Title: Low Monthly Payments
Post by: zoey on June 30, 2005, 12:03:28 pm
I live in an area where a house costs 1 million+.  I own a home but want to invest.  Any suggestions on how to get low monthly payments while fixing up or renting a home.

I know interest only will help some but it doesn't appear to be a big difference from what I have read.

My hubby and I have excellent credit.

Thanks!

Zoey
Title: Re:Low Monthly Payments
Post by: trinee523 on June 30, 2005, 06:36:04 pm
You can use the Option ARM program.  With an Option ARM, you can choose from one of four payment choices each month -- which gives you the flexibility to change your mortgage payment as your needs change.  Since you know that you will be selling the property you can opt to pay the minimum payment each month until you sell.  The minimum payment is the smallest amount of interest and, if applicable, principle that you must pay each month.  Alot of investors are going this route because they are not worried about negative ammortization since they'll be selling in the near future.  Hope this helps. :)
Title: Re:Low Monthly Payments
Post by: richmortgagebroker on July 01, 2005, 01:55:24 am
You could get a HML loan and have the payments differed until you sell the house or refinance

You can go and IO loan and get Cash out at closing if there is enough equity in the house and then use that money for fix up and monthly payments
Title: Re:Low Monthly Payments
Post by: Maciej on July 01, 2005, 01:43:43 pm
I agree with teh pay option arm. It gives you a great start rate and they particular popular with any sor to fo investment.
Title: Re:Low Monthly Payments
Post by: rbaxter on July 02, 2005, 05:01:22 pm
Yes, payoption is the lowest possible payment you will find.  However, you will defer some of the interest with this program (your balance could go up).  IO will reduce your payment quite a bit on this loan amount and your payment and interest will not change for at least 5 years.
Title: Re:Low Monthly Payments
Post by: thailanddave on July 03, 2005, 01:57:40 pm
I would agree with the option arm for an investment. If you are looking for positive cash flow. The option arm is going to average about 6.5-7% over time. So you WILL have negative amortization. Current start rates are around 1% but thats only for the first month, then you go up to the index + margin which is currently around 5.5% and rising. The neg am can help you reduce the amount you have invested in the property as a down payment, because you will be giving it back a few hundred dollars a month as your loan balance grows. Keep in mind that you are saving the same few hundred per month that you would normally be paying if you took out a fixed or an interest only.

This may sound negative, but its really not. I would imagine for most people, the reason to buy a rental property is to produce monthly income, not own the property free and clear. The Option ARM lets you do that. With an interest only loan or a fully amortizing loan, you may only break even and hope it appreciates for a gain when you sell it. If its appreciating more than the loan balance is building, you get the best of both worlds.

One thing I always tell clents is "you can't beat the bank". If the going interest rate is 5.5% they want that kind of return on their money. Pay me now or pay me later.

One other note, if you want to own the property free and clear someday, get a fixed. They are the only loans that have a set time period for the loan being paid off. Any other loan option, whether its an interest only or Option ARM is only going to delay the time to where you either need to refinance or sell. Since thats the case, you might as well go Option ARM and get the cash flow.
Title: Re:Low Monthly Payments
Post by: rbaxter on July 03, 2005, 03:25:28 pm
Well said-

One other note:  The payment based on the 1% rate is available for the first 5 years of this loan, however, that is where neg am figures in.  If you make the minimum payment, you will cash flow, but will incur neg am.  In the first month, they give you a break, and you do not incur the neg am with the 1% payment.
Title: Re:Low Monthly Payments
Post by: kdhastedt on July 05, 2005, 07:40:49 am

There are only three factors in a loan payment:

 -- Principal (amount of the loan)
 -- Interest Rate
 -- Term

To lower the payment, you need to lower one or more of these factors or negatively amortize.

The most common ways are a bigger down payment and a lower interest rate.  The other way is a longer term.  When I bought my first house, 30 year mortgages were almost unheard of in the area where I lived!  Almost everyone was on a 20 year term.  The point is, if you are going to resell, there are some longer period loans out there (at least I understand that there are!)...

Keith
Title: Re:Low Monthly Payments
Post by: rbaxter on July 05, 2005, 07:46:34 am
There are 40 year terms out there, but they will not lower your payment a whole lot, and the $$ per month initially that you will be putting toward principal is minimal.
Title: Re:Low Monthly Payments
Post by: kdhastedt on July 06, 2005, 07:22:33 am

True ehough but the original question was getting lower payments while fixing up or renting...

If you're fixing and reselling, you won't be holding long term so there is no huge difference.

Keith