If I can get a 10 year loan at 5% should I take it?

[rnmcd]

I plan to buy a house in the next two years. I wouldn't be surprised if mortagage rates are up from today's approximately 5.8% to over 7% at that time.

I may have found someone to loan me $100,000 at 5% (APR) for a term of 10 years. But I have to do it soon.

Do you think this makes good financial sense...even if I don't plan to buy for at least another year?
My payments would begin immediately.

 

[Frew]

poll would be good

 

[rsd]

I'm no expert, but doesn't sound good to me. I'll let someone who knows more explain.

 

[J0hnny]

Sounds good to me.

 

[sniperruff]

5% on such a large amount is reasonable.

 

[rnmcd]

apparently the financial gurus are off tonight

I am looking for reason for the yay vs. nay

 

[tnitsuj]

What is that a mortgage, a line of credit, ? Will you be purchasing the home soon? Or are you just going to sit on the 100k and pay interest until you find a home. Where you are...will 100k cover the price of a home?

I just locked in 5.625% on a 380k mortgage after putting down 20% and they also offered be 5.125 on a 5 year ARM. So 5% is not a bad rate depending on the loan product and how you are going to use it.

 

[ArmenK]

take the loan, put it in a treasury direct federal bond for the desired length

 

[rpl318]

So if I understand this correctly, you could potentially be paying a mortgage on a home that you do not yet own? I'm assuming that this financing is being provided by a private party (correct me if I am wrong). One large factor to consider is that even though 5% is a good rate in today's market, a 10 year term will give you a very large payment. Are you willing to commit yourself to that large of a payment compared to a standard 30 year note? On top of this there are many other factors to consider:
How long do you plan on staying in the home?
Just how much home does 100K buy in your area?
How old are you?
How long have you been employed with your current employer?

One thing to always keep in mind when dealing with mortgages is that rate is not everything. You have to look at the entire picture to know if a deal is good or not.

 

[rnmcd]

Originally posted by: tnitsuj
What is that a mortgage, a line of credit, ? Will you be purchasing the home soon? Or are you just going to sit on the 100k and pay interest until you find a home. Where you are...will 100k cover the price of a home?

I just locked in 5.625% on a 380k mortgage after putting down 20% and they also offered be 5.125 on a 5 year ARM. So 5% is not a bad rate depending on the loan product and how you are going to use it.

I'm just going to sit on the $100k and pay interest until I find a home...it will be at least a year. The $100k will not cover the price fo the home.

 

[kranky]

What kind of loan agreement are you both going to sign? Can the person loaning you the money cancel the loan at their whim, leaving you to come up with $100K on short notice? What collateral will they require?

In other words, what are the terms of the loan?

 

[Wag]

You can get that anyways.

I got that a while ago.

 

[rnmcd]

Originally posted by: kranky
What kind of loan agreement are you both going to sign? Can the person loaning you the money cancel the loan at their whim, leaving you to come up with $100K on short notice? What collateral will they require?

In other words, what are the terms of the loan?

This loan will be treated like a mortage. They can't 'cancel' nor can I default w/o penalty. No collateral on my part is required just my current paycheck verification.

 

[welst10]

If you don't plan to buy for a yr, why do you get loan now? You're gonna pay the interest right away. don't do it. 5% for 10yrs is not bad, but not that great either.

 

[kranky]

It's surprising that someone would make a $100K personal loan with no collateral.

But in any event, I'm not sure why you would borrow now if you don't need to. You'll pay about $5000 for the first year in interest, and if it takes you two years to buy a house, you'll have paid about $9556 in interest over two years. That could be reduced somewhat by investing the money in a risk-free money market or savings account, but it will still amount to thousands of dollars, for a loan you don't need now.

A $100K, 15 year loan at 5% is $790.78 a month. Let's say rates rise to 7% as you expect and it takes you two years to buy a house. You could take the $9556 interest you would have paid to reduce your loan amount, therefore ending up with a $91,000 loan at 7% for 15 years. Your payment would be about $23/month higher. If rates rise to 6.5% after two years, your payment would essentially be the same.

Would I take on $100,000 in debt I don't need - debt that might affect my ability to get a real mortgage when I buy a house - to protect against rates rising to 7% in two years? No, I would not. But the numbers indicate to me that it couldn't be called a stupid move.

 

[GasX]

Who the hell would give you an unsecured $100,000 loan?

 

[JeffreyLebowski]

Vinnie the Thumbs loan shark emporium???