So confused about loan programs..

I just don’t know which program is right for me. I am buying 5 new homes and 2 resale’s in Texas.

I am doing a 1031 and the first 4 homes will satisfy it.

Here is one quote:

106,000 loan 80%
Conventional ARM 6.375 for 360 months
Margin 2.25 1/5 first change 2010
prepay yes
payment includes taxes, ins and HOA: 930.46
will rent approx. 1200

I am confused about interest only loans and ARMS, etc. I plan to hold some houses for a few years and others longer.

I have option loans on 2 other AZ houses for the last year and that has worked out well.
I go stated income, verified assets and my score is 757.

I am very confused as everybody has a different opinion and I need to decide which way to go on these new loans.
What are the pros and cons on interest only and ARMS? What kind of questions should I be asking?

Well, as a comparison - the last mortgage I took on an investment property (about a month and a half ago) was a cash-out refi at 6.25% fixed fro 30 years…I’m thinking this is high. In addition, it could go all the way to 11.25%!

Pros and cons of an interest only are low upfront payments for a while (pro)…the prices can change drastically (according to the article in this month’s Money magazine by as much as 50% under a worse case…)

The same with ARMs…

I personally don’t like instability in my investment numbers and will always use a fixed. Now, if you’re absolutely sure that you will sell the propertry before the rates jump, then they may be a great way to go.


Hi Keith,

I read somewhere about a cashflow option ARM loan that has an additional option for a 5 year fixed rate.

This may work for me. What do you think about this type of loan?

I have no knowledge and no opinion of it – I use 30 year fixed so that I KNOW what my expenses will be with some degree of accuracy.


I am not suprised that you are confused. Don’t worry, you are not alone.

There are so many financing options available today that is next to impossible to understand them all. I am in the business and I don’t.

The only way that you can make a decision is much like the way that you invest. Since it is an investment after all.

Decide what your goals are. (long term and short) Are you planning on retaining the property for a specified period or are your intentions to “rehab and flip”.

If you are planning on retaining then you should, as Keith mentioned, probably go with the less volatile conforming fixed programs.

If you are not planning on keeping, then find the lowest rate and shortest program that you can find, which are ARM products.

Depending on your credit situation and loan scenario you may not have a multitude of choices/options.

Some of the new hybrid programs are not available on N/O/O properties and if they are the LTV’s are extremely low.

Make sure that you talk with your loan advisor before you become to concerned about the types of programs.

Good luck

Rates will continue to rise. Prime just went up again yesterday.

Investing Lady,

You should find out a couple more things:

(1) your pre-pay penalty… Is it a Hard pre-pay or a soft? This is going to determine whether you will be able to refinance or not should you need to within a couple to a few years… Is it a 2 yr ppp or a 3 ? Better not be a 5 yr ppp!

(2) a cashflow option Arm is not going to have a 5 yr fixed payment option… This would not make any sense. Read more about cashflow arms at

I didn’t think there were any fixed arms either…but I saw this on the internet and just left a message for them to call me. Am I reading this wrong??

Option ARM: Minimum Payment
Interest Only Payment
Fully Amortizing Payment Options
The option Arm Mortgage allows you to choose your index from the 1 month LIBOR or the MTA .

Additional Options If you want the security of a fixed payment , there is a 5 year fixed payment option. With the 5 year Fixed Payment option, you have a fixed minimum payment for five years. You may increase the term of your option arm from 30 to40 years lowering your payment further. LTVs are available up to 100% !

Here’s the problem with that. What we in the mortgage lending business refer to as a 5 yr fixed payment mean is that the loan is fixed for the first five years and then amortizes into an ARM product for the remaining 25 years… but…

with your option arm… why would you have a 5 year fixed payment if you already have the option of a 30 year fixed payment? This just doesn’t make any sense. Normally, your going to pay the minimum for the first two-three years anyway, then pay interest only until your loan requires the 30 year payment. The option ARm or cash flow Arm as it is known, is so designed for a short term cash flow production. In other words, it allows one to save money for a few to 10 years and invest that money in other areas of financing. Originally, the option Arm was a product provided by Financial Advisors which would allow Investment Brokers to take equity from the clients home and reinvest it into short term stocks. Fun stuff.


  1.  1% to 1.25% "Minimum payments." 

2% with loan amounts over 2 million.

Have you considered the min payment advantage in an increasing interest rate market? Read this!

  1.  "Interest-only" payment.
  2.  "Fully Indexed" (Index + Margin) payment. - (The "Minimum" payment, "Interest-only" pmt. & the "full P.I." payment your mortgage will still be paid off in 30 or less.) 
  3.  "15 yr." payment.
  4.  Pay any amount over the "Minimum" pmt. - (This option is always left blank on your monthly statement.)