My name is Wallace Hobbs and I am a full time Real Estate Investor.
I use the buy and hold stragegy and collect cash flow properties.
I am funding these with a product most investors say they have never heard of.
Is there any Serious investors out there in the world who know and have used a MTA loan at all.
My broker has done the last 5 for me and they have worked well, just wanted to hear some feedback on anyone else using this product.
Are you using the minimum payment strategy? You are aware that this has a potential for NEG AM? Did you know that a negatively amortorizing loan will negatively affect your credit score? when high balance owed exceeds the original balance your scores will drop. This goes for maxed out credit cards as well. also in a market of increasing rates wouldn’t you feel more comfortable with a fixed rate ARM 2/28, 3/1, or 5/1? MTA loans have a time and a place and if used correctly can be beneficial, but with a buy and hold strategy i would consider something fixed that equals your HOLDING time.
Thanks, I pay extra to keep the neg am a non issue.
At 1.65% for an investor my payments are low and cash flow is high.
What are the rates on an Arm 2/5/7 etc.
Hey no problem the mta is a great loan when used properly. Its not the type of loan a wage earner should use in order to get more house! MTA loans have a min pay option which would be equal to the 1.65 which is your start rate then you have an interest only option margin plus index, a 30 year fixed and a 15 year fixed option. The drawback with this type of loan is it’s based off of bank indecies not something that you can get detais on, like the libor or treasury index. These are made up indecies by the bank and who knows it could be similar to prime which goes up every month lately. my original thought regarding neg am is reflective of the 1.65%. These also require good scores and at least 20% down for investors. They also have stiff prepay penalties. Practically, a 1 month ARM or 6 month arm I/O is a more attractive fully indexed rate. the 3/1 is at 4.75, 5/1 at 5.0 and 7/1 at 5.275, look at your interest only payment and it’s probably closer to 5.5% and it can adjust monthly. this was a great program when rates were going down but not when there going up.
What do you suggest for a buy a hold stragety if not the MTA.
I have 5 rental properties now and 4 on on the MTA and only one is a 30 yr fixed. My Hawaii property.
what is your holding time frame?
The arms are very attractive and c-30 rates are good too! let’s determine what a good strategy is, because everyones situation is different. also determine if you might want to cash out later on to purchase more!!! what is your exposure for a down payment?
Thanks for the reply.
My nitche is New Builds, Bread and Butter Properties, 3/2 with a garage etc.
I plan on holding onto these for years as long as they cash flow positive.
I am scared of the Interest Only Arms, ie 5 year arm, because on a $100K loan in month #58 I still owe $100K, and the prime may be 8% or so?
Plus my monthly debt service is more at say a 5% (5 yr Arm), where on a MTA it is 1.65% and I have a small debt service, and I have the option to pay more at anytime on the principal, and can lock into a fixed rate at any time for No charge.
Also the MTA is an Arm. Just a monthly ARM tied to the very stable T bill.
Where traditional arms are tied to the Libor or the Prime.
This is my thinking on using the MTA, Flexiblity and Cash flow.
what happens when your MTA goes to rates like back in 2001,
http://www.moneycafe.com/library/mta.htm#chart this chart may make you sick.
Rates are on the uphill climb mine stay’s fixed for 5 years, and your program Adjusts every month! When you see it at 7 or 8 percent and you have been NEG. AMing, there going to call the loan and start to accelerate the payment schedule. So if your paying just the interest only why not a 5 year arm? It’s fixed for 5 years! And it won’t screw up your credit. the fully indexed rate is less then your interest only pay option! You can only lock in between the end of year 3 thru year 7 (lock in is about .5 to .75 higher than the standard 30 year fixed), the first three years it adjusts and has a prepay. When you make a 1.65% payment they tack onto your loan balance the difference between that 1.65 and the Fully indexed rate probably around 5.6%. So in month #58 on a 100k loan you will probably owe 107k or so! 5 mortgage balances exceeding original balance will damage your credit severely.
I like this loan program in declining markets, its concept is for sales or commission people or self employed borrowers, it was spawned out of the coffee or cosi loans because these groups usually get a minimal salary through out the year and then get hit with big FAT bonuses. This allows them to make comfortable payments throughout the year and pay down some principal when the big fat commission or bonus check rolls in. Your on a fixed rental income. If your depositing the difference in a mutual fund in 5 years you may come out ahead. I know I might sound like I’m bashing this loan, I’m not, I even sell it in the right situation. The reason why I feel strongly is because the people that sell this and don’t explain it properly and are taking advantage of first time home buyers, investors and home owners.
What kind of down payment are they requiring?
rahter than an MTA loan i would opt more for something like a CODI or COSI loan they are a bit more stable. I know of one bank who even has a conversion option where you can convert to the fannie may rate at certian times during the life of the loan.
I think these are great loans for investors who own more than one property. You can bascially pay minimum or interest only payments on all the properties and use the added cash to paydown the balance on one property at a time thus creating more equity if you need it or to lower your balance and payment this creating a higher profit margin.