Quick refinancing question

[TallBill]

Looking into possibly buying a condo and I really really want to get a 15 year loan so that we're actually building equity. But if payments end up killing us, is it hard to refinance to a 30 year loan?

 

[amdskip]

Why don't you go for a 20?

 

[LegendKiller]

So, housing market is tanking faster than the Titanic, rates are higher, things are about to get worse, and the your only decision is what mortgage to get so you can build equity? I think you need to consider this a bit more.

 

[Whoozyerdaddy]

With a 10/20 interest only you can make the same payments you would on a 30 year loan (lower than a 15 year) and pay it off usually in less time than a 15 year loan.

 

[TallBill]

Originally posted by: LegendKiller
So, housing market is tanking faster than the Titanic, rates are higher, things are about to get worse, and the your only decision is what mortgage to get so you can build equity? I think you need to consider this a bit more.

Yes, don't make assumptions.

 

[mattpegher]

Go for the best overall interest rate, usually a 30 year is lower. Also as long as you get a loan with no prepayment penalty you can always pay it off sooner. In NJ, prepayment pentalties are illegal.

Although we may not have hit bottom yet in house prices, buying now is not necessarily a bad idea as prices are low and will mostlikely increase in the next 7-10 years. As long as you don't intend to sell anytime soon. Are we talking vacation home location. Rental property. Many beach condos can be rented out seasonally which is much nicer than renting all year long to one person. My condo assoc allows renting out for a max of 6 months out of the year and for a minimum of one month at a time.

 

[vi edit]

Really depends on the lender and what sort of refi deals you can get with them. But with most you'll be looking at doing a standard refinance which will require a new closing on the home which could amount to several hundred to several thousand dollars.

 

[vi edit]

Originally posted by: mattpegher
Go for the best overall interest rate, usually a 30 year is lower. Also as long as you get a loan with no prepayment penalty you can always pay it off sooner. In NJ, prepayment pentalties are illegal.

Huh?

15 years have better rates than 30. 20 is usually a wash.

 

[mattpegher]

Originally posted by: vi_edit

Originally posted by: mattpegher
Go for the best overall interest rate, usually a 30 year is lower. Also as long as you get a loan with no prepayment penalty you can always pay it off sooner. In NJ, prepayment pentalties are illegal.

Huh?

15 years have better rates than 30. 20 is usually a wash.

Doh your right. LOL But on my last refi they were really close, so we went with the 30 for flexability and plan to prepay some.

 

[TallBill]

Ok, rerunning the numbers its highly doubtful that i'd have to, just seeing any future options. Its a $109k condo that would be cheaper on a 15 year then pretty much any rental in the area. I'll only be living in it for roughly 4-5 years during school. I also have quite a bit banked up right now, so could possibly put 20% down. I also have a VA loan as an option as well.

 

[bctbct]

If you only plan on staying ther for 4-5 years you would be wise to get the 15 year. With a 30 year you would have little equity unless the property increases in value. How much difference in the paymant? $200?.

Keep cash in reserves to help with payments if money is tight.

To help you decide, look at the total payback, 15 year is a no brainer.

edit, I thought the VA loans often had higher rates now?

 

[mattpegher]

I often regret not buying a place for the 5 years prior to buy my current house because I would most likely have built up some equity especially with the increase in house prices through the 90's. You didn't say if there were any prepayment penalties. Although it might be more difficult, I would still suggest paying off early if you can.

 

[JEDI]

Originally posted by: TallBill
Looking into possibly buying a condo and I really really want to get a 15 year loan so that we're actually building equity. But if payments end up killing us, is it hard to refinance to a 30 year loan?

arent u career military?

just buy houses near each base your at and rent them to young lt and privates. by the time you hit your 20yrs to retire, you should have at least 4 houses all over.

there should be LOTS of google info on this.

as for your question, obviously get a 30yr loan if finaces are tight.

oh, and the primary reason to get a 15yr loan is not to build equity, but the .5% cheaper loan rate

 

[vi edit]

Originally posted by: JEDI

Originally posted by: TallBill
Looking into possibly buying a condo and I really really want to get a 15 year loan so that we're actually building equity. But if payments end up killing us, is it hard to refinance to a 30 year loan?

arent u career military?

just buy houses near each base your at and rent them to young lt and privates. by the time you hit your 20yrs to retire, you should have at least 4 houses all over.

there should be LOTS of google info on this.

as for your question, obviously get a 30yr loan if finaces are tight.

oh, and the primary reason to get a 15yr loan is not to build equity, but the .5% cheaper loan rate

No, the primary reason to get a 15 year loan is so that you pay about 1/3 the interest of a 30 year if you take the full terms to pay each loan.

If you are paying less in interest each month you are building equity much, much quicker.

 

[bctbct]

Basic numbers

Loan Amount 80K 6.5%

15 year P&I $697 month

30 year $5o6

After 60 payments

15 year 19k paid on principle

30 year 6k paid on principle



13k diffence in equity.


If you live in flat housing market after 5 years you could have out of pocket expense to pay a realtor to sell your house. You may lose some tax benefit from deductions.

 

[TallBill]

To answer a few questions. I'm getting out of the Army to go to school and do ROTC to come back in as an officer. I don't plan on a 30 year loan. As many pointed out already the difference equity is enourmous. I already know this. The origional post was just curiosity in case we fell on really hard times or something. Same with the VA loan. I actually like to explore all options.

A 30 year loan is almost completely out of the picture. And I have several family friends that are realtors, so not to worried about the hit on that either. Assosciation fees are $160 a year. The deciding factor will be property tax and income tax deductions. Still trying to figure out those two parts.

 

[TallBill]

On a side note, when I reenter the Army I'll be much higher on the pay scale and would probably try to get a 7 year loan. Don't think I want to handle rental properties, but thats way down the road, so I wont worry about it now.

 

[Daverino]

If you're only going to keep the place for a few years, I'd suggest going with an interest loaded ARM so long as you are POSITIVE you're going to sell before the adjustment. You will build no equity, true, because most or all of your payment will be going towards interest. However, you'll be able to maximize your deduction from your federal and state taxes, because all that interest will be deductible. It sound like a 5/1 or a 7/1 ARM is best for you, possibly an interest only.

The truth is that even with a 30 year mortgage, the interest is front loaded to help guarantee the bank's money. So after seven years, you won't have put much money into it anyhow. A 15 year will raise your payments because you have less time to pay, but more will go towards equity. Essentially, the 15 year will minimize your tax deduction. A good rule of thumb is to calculate your yearly interest payment and reduce it by 30% to calculate your 'actual' annual payments to adjust for the money coming back in taxes.

All bets are off if you keep the place past the end of the ARM. You're gonna get nailed if you do.

 

[vi edit]

Originally posted by: Daverino
If you're only going to keep the place for a few years, I'd suggest going with an interest loaded ARM so long as you are POSITIVE you're going to sell before the adjustment. You will build no equity, true, because most or all of your payment will be going towards interest. However, you'll be able to maximize your deduction from your federal and state taxes, because all that interest will be deductible. It sound like a 5/1 or a 7/1 ARM is best for you, possibly an interest only.

The truth is that even with a 30 year mortgage, the interest is front loaded to help guarantee the bank's money. So after seven years, you won't have put much money into it anyhow. A 15 year will raise your payments because you have less time to pay, but more will go towards equity. Essentially, the 15 year will minimize your tax deduction. A good rule of thumb is to calculate your yearly interest payment and reduce it by 30% to calculate your 'actual' annual payments to adjust for the money coming back in taxes.

All bets are off if you keep the place past the end of the ARM. You're gonna get nailed if you do.

But on a 100k loan he'd be lucky if his interest amounted to more than the standard deduction. Plus if you are already in a low income bracket (assumption given the home value) the deduction is further minimized. It's quite possible the interest deduction could be less than $.10 on a $1.00. You save far more money going the 15 year route.

 

[Mill]

Originally posted by: vi_edit

Originally posted by: Daverino
If you're only going to keep the place for a few years, I'd suggest going with an interest loaded ARM so long as you are POSITIVE you're going to sell before the adjustment. You will build no equity, true, because most or all of your payment will be going towards interest. However, you'll be able to maximize your deduction from your federal and state taxes, because all that interest will be deductible. It sound like a 5/1 or a 7/1 ARM is best for you, possibly an interest only.

The truth is that even with a 30 year mortgage, the interest is front loaded to help guarantee the bank's money. So after seven years, you won't have put much money into it anyhow. A 15 year will raise your payments because you have less time to pay, but more will go towards equity. Essentially, the 15 year will minimize your tax deduction. A good rule of thumb is to calculate your yearly interest payment and reduce it by 30% to calculate your 'actual' annual payments to adjust for the money coming back in taxes.

All bets are off if you keep the place past the end of the ARM. You're gonna get nailed if you do.

But on a 100k loan he'd be lucky if his interest amounted to more than the standard deduction. Plus if you are already in a low income bracket (assumption given the home value) the deduction is further minimized. It's quite possible the interest deduction could be less than $.10 on a $1.00. You save far more money going the 15 year route.

I don't remember but it isn't it possible to get a 5 or 7 year ARM based off of a 15 year loan? With a lower rate, he be a bit less tight on money than a true 15 year. I believe there are option ARMs where he can make a 15 or 30 year payment depending on his cash flow.

Don't go interest only. I see no reason for you to do that if you are gonna be there 5 years.

 

[Whoozyerdaddy]

Originally posted by: Mill

Originally posted by: vi_edit

Originally posted by: Daverino
If you're only going to keep the place for a few years, I'd suggest going with an interest loaded ARM so long as you are POSITIVE you're going to sell before the adjustment. You will build no equity, true, because most or all of your payment will be going towards interest. However, you'll be able to maximize your deduction from your federal and state taxes, because all that interest will be deductible. It sound like a 5/1 or a 7/1 ARM is best for you, possibly an interest only.

The truth is that even with a 30 year mortgage, the interest is front loaded to help guarantee the bank's money. So after seven years, you won't have put much money into it anyhow. A 15 year will raise your payments because you have less time to pay, but more will go towards equity. Essentially, the 15 year will minimize your tax deduction. A good rule of thumb is to calculate your yearly interest payment and reduce it by 30% to calculate your 'actual' annual payments to adjust for the money coming back in taxes.

All bets are off if you keep the place past the end of the ARM. You're gonna get nailed if you do.

But on a 100k loan he'd be lucky if his interest amounted to more than the standard deduction. Plus if you are already in a low income bracket (assumption given the home value) the deduction is further minimized. It's quite possible the interest deduction could be less than $.10 on a $1.00. You save far more money going the 15 year route.

I don't remember but it isn't it possible to get a 5 or 7 year ARM based off of a 15 year loan? With a lower rate, he be a bit less tight on money than a true 15 year. I believe there are option ARMs where he can make a 15 or 30 year payment depending on his cash flow.

Don't go interest only. I see no reason for you to do that if you are gonna be there 5 years.

Actually IO is the fastest way to create equity. It's kind of counter intuitive but it's true.

When you pay a normal 15 or 30 year mort payment, that payment is made in arrears. Meaning, the payment you make this month pays off the interest that accrued last month. If your payment due date is the 15th and your check arrives on the 5th, they hold the money until the 15th and then pay. So you pay an extra 10 (or whatever days) worth of interest on the principal that wasn't touched because they held the check until the due date.

With an IO loan you send in two checks. One is for the interest which will be held until the due date and one is for the principal which is applied to the balance as soon as it is received. This means that the principal (the amount of the second check) isn't accruing interest anymore. It also means that a small portion of your interest payment is then coverted to principal.

Obviously we're not talking big money on the first or second payment. But if you stick with it, you can pay off the loan in 12-15 years making the same payment you would have if you had pulled a straight 30 year loan (lower payments than the 15 year loan) and in the same relative time frame as a 15 year loan. (meanng a 10/20 IO is also cheaper in the long run than a 15 year) And in the process you are building equity faster than either loan.

 

[redgtxdi]

I think the bigger question is........

What are you gonna do for employment once Hillary takes office & subs a national military for neo socialist utopia???

 

[vi edit]

Originally posted by: Whoozyerdaddy

Originally posted by: Mill

Originally posted by: vi_edit

Originally posted by: Daverino
If you're only going to keep the place for a few years, I'd suggest going with an interest loaded ARM so long as you are POSITIVE you're going to sell before the adjustment. You will build no equity, true, because most or all of your payment will be going towards interest. However, you'll be able to maximize your deduction from your federal and state taxes, because all that interest will be deductible. It sound like a 5/1 or a 7/1 ARM is best for you, possibly an interest only.

The truth is that even with a 30 year mortgage, the interest is front loaded to help guarantee the bank's money. So after seven years, you won't have put much money into it anyhow. A 15 year will raise your payments because you have less time to pay, but more will go towards equity. Essentially, the 15 year will minimize your tax deduction. A good rule of thumb is to calculate your yearly interest payment and reduce it by 30% to calculate your 'actual' annual payments to adjust for the money coming back in taxes.

All bets are off if you keep the place past the end of the ARM. You're gonna get nailed if you do.

But on a 100k loan he'd be lucky if his interest amounted to more than the standard deduction. Plus if you are already in a low income bracket (assumption given the home value) the deduction is further minimized. It's quite possible the interest deduction could be less than $.10 on a $1.00. You save far more money going the 15 year route.

I don't remember but it isn't it possible to get a 5 or 7 year ARM based off of a 15 year loan? With a lower rate, he be a bit less tight on money than a true 15 year. I believe there are option ARMs where he can make a 15 or 30 year payment depending on his cash flow.

Don't go interest only. I see no reason for you to do that if you are gonna be there 5 years.

Actually IO is the fastest way to create equity. It's kind of counter intuitive but it's true.

When you pay a normal 15 or 30 year mort payment, that payment is made in arrears. Meaning, the payment you make this month pays off the interest that accrued last month. If your payment due date is the 15th and your check arrives on the 5th, they hold the money until the 15th and then pay. So you pay an extra 10 (or whatever days) worth of interest on the principal that wasn't touched because they held the check until the due date.

With an IO loan you send in two checks. One is for the interest which will be held until the due date and one is for the principal which is applied to the balance as soon as it is received. This means that the principal (the amount of the second check) isn't accruing interest anymore. It also means that a small portion of your interest payment is then coverted to principal.

Obviously we're not talking big money on the first or second payment. But if you stick with it, you can pay off the loan in 12-15 years making the same payment you would have if you had pulled a straight 30 year loan (lower payments than the 15 year loan) and in the same relative time frame as a 15 year loan. (meanng a 10/20 IO is also cheaper in the long run than a 15 year) And in the process you are building equity faster than either loan.

A theory that is only as good as it's practice. When it comes to be Christmas time or if you want a new car it's awful easy to forget doing that second payment.

Plus with lenders really tightening down lending practices you will find I/O loans increasingly more sparse.

 

[Whoozyerdaddy]

Originally posted by: vi_edit

Originally posted by: Whoozyerdaddy

Originally posted by: Mill

Originally posted by: vi_edit

Originally posted by: Daverino
If you're only going to keep the place for a few years, I'd suggest going with an interest loaded ARM so long as you are POSITIVE you're going to sell before the adjustment. You will build no equity, true, because most or all of your payment will be going towards interest. However, you'll be able to maximize your deduction from your federal and state taxes, because all that interest will be deductible. It sound like a 5/1 or a 7/1 ARM is best for you, possibly an interest only.

The truth is that even with a 30 year mortgage, the interest is front loaded to help guarantee the bank's money. So after seven years, you won't have put much money into it anyhow. A 15 year will raise your payments because you have less time to pay, but more will go towards equity. Essentially, the 15 year will minimize your tax deduction. A good rule of thumb is to calculate your yearly interest payment and reduce it by 30% to calculate your 'actual' annual payments to adjust for the money coming back in taxes.

All bets are off if you keep the place past the end of the ARM. You're gonna get nailed if you do.

But on a 100k loan he'd be lucky if his interest amounted to more than the standard deduction. Plus if you are already in a low income bracket (assumption given the home value) the deduction is further minimized. It's quite possible the interest deduction could be less than $.10 on a $1.00. You save far more money going the 15 year route.

I don't remember but it isn't it possible to get a 5 or 7 year ARM based off of a 15 year loan? With a lower rate, he be a bit less tight on money than a true 15 year. I believe there are option ARMs where he can make a 15 or 30 year payment depending on his cash flow.

Don't go interest only. I see no reason for you to do that if you are gonna be there 5 years.

Actually IO is the fastest way to create equity. It's kind of counter intuitive but it's true.

When you pay a normal 15 or 30 year mort payment, that payment is made in arrears. Meaning, the payment you make this month pays off the interest that accrued last month. If your payment due date is the 15th and your check arrives on the 5th, they hold the money until the 15th and then pay. So you pay an extra 10 (or whatever days) worth of interest on the principal that wasn't touched because they held the check until the due date.

With an IO loan you send in two checks. One is for the interest which will be held until the due date and one is for the principal which is applied to the balance as soon as it is received. This means that the principal (the amount of the second check) isn't accruing interest anymore. It also means that a small portion of your interest payment is then coverted to principal.

Obviously we're not talking big money on the first or second payment. But if you stick with it, you can pay off the loan in 12-15 years making the same payment you would have if you had pulled a straight 30 year loan (lower payments than the 15 year loan) and in the same relative time frame as a 15 year loan. (meanng a 10/20 IO is also cheaper in the long run than a 15 year) And in the process you are building equity faster than either loan.

A theory that is only as good as it's practice. When it comes to be Christmas time or if you want a new car it's awful easy to forget doing that second payment.

Plus with lenders really tightening down lending practices you will find I/O loans increasingly more sparse.

The OP is career military. I'm sure he knows a thing or two about dicipline. And if you stick to your payments the way I described, it is a superior loan product to any 15/30 year straight ammortiztion loan.

A LOT of stated income products are going to dry up on the first of August. Option ARMs are evaporating. The whole sub-prime market is rethinking their busiess model. But I haven't seen the IO products (not like what I described anyway) on the chopping block yet. Not to say that they won't become sparse later on, but it doesn't look that way right now. Besides, a 10/20 IO loan is fairly vanilla compared to the products that are going away right now.

 

[FoBoT]

just do a 30 and make extra payments
then if something changes, you don't have to re-fi