ARM based on 11th District Cost of Funds

Financing, Hard Money Lenders, Private Money
1

My broker is suggesting that I refi 2 properties using an ARM based on 11th District Cost of Funds. What’s your experience with this kind of ARM for investment properties? I would gain monthly cash flow, important right now. Is he worth his mettle? Quickstudy

2

There is nothing wrong with using the COFI index for an ARM as it is one of the most popular indexes out there for that purpose.

Here is a good site to read up on different indexes:

http://mortgage-x.com/general/mortgage_indexes.asp

One of the things you should learn here is that some indexes are leading and some lagging. Therefore some are better in a rising interest rate market (as we are currently) and some are better in a falling rate market.

What you need to find out and understand is the actual program you are being presented. Is there a period the rate is fixed? For how long? Once that ends, how often does the rate change? Etc…

Just to say you are being presented an ARM product tells us nothing of what the actual product is except that it is an ARM and not a fixed rate…

3

Thank you, Wes. You’re right, the broker has not provided any of that information to me–I’m mulish when pushed until I know all the caveats, hence this post. I instructed him to put the refi’s on hold until after the closing is completed on a fixed rate investment property. I, too, need more information and I thank you so much for helping me know what to ask! I appreciate the link, I’ll do my homework…! Thanks again,
Quickstudy

4

It depends on your investment goals- if you think you will keep the property for the long term, and retirement planning is your objective, consider a fixed rate- especially if the rents will pay the mortgage. If monthly cash flow and eventually selling the property in 3-5 years is your objective, then a COFI ARM may be a good choice. The option ARM is a good choice, and that is likely the type of ARM your broker is suggesting. With an Option ARM, you can also tie to the MTA which is a very stable index in a rising interest rate environment because it is a 12 month average, so will move slower as rates go up.

5

I greatly appreciate your input. This property has tremendous commercial potential, not one I plan to sell anytime soon. I’m retirement planning and a cash-out refi is what I want–I’ve owned the property 10 years this coming July. The proposed COFI ARM has a prepayment penalty (which I don’t like)…the loan payments are less. I have reservations about this product. Yes, the broker is working toward cash flow, although with refinancing from an 8% interest rate and doing away with PMI, I’m wondering whether a 30-year might be a better way to go…? ???

6

You should be able to get a better rate than 8% if you are 80% or below LTV.

7

I apologize. I meant to say the rate I have is 8, thats why I want to refi–also take cash out. Yes, I have >than 80% LTV.

8

I don’t think that an ARM would be the best choice for a person who is going to hold the property for a long term rental.
If you would like some charts on the COFI send me an email and I will send you the latest trend information.
Good Luck