Posted by VIKKI on September 20, 2004 at 14:14:07:
Unless you plan to stay in this house for an extended period of time, go for the option arm. These start at 1.5%. I know of one that if you go into the equity builder program you can actually pay it off in 25 or 26 years and that is paying the minimum payment. Plus you can get an option that in year 3 to 6 you can convert it to a fixed rate loan.
COFI ARM - Posted by Nox(CT)
Posted by Nox(CT) on September 17, 2004 at 23:27:54:
Looking at a home, and going through the financing options. A norm 30 fixed is a little on the high side, so I looked into some other choices. I came accross the Cost of Funds Index, together with an ARM for 1 year, that makes the payments less than rent, for a beautiful home. My intention is to hold off for a year or 2 and wait for appreciation, ( 5 - 10% + from my research) while providing myself with a nice place.
Pro’s / Con’s?
The article stated that it is less volatile and that “savvy borrowers” prefer them.
I then followed up with several RE Agents and Lenders, who alll basically agreed that they do not fore see the rates jumping in either direction for the next year+ in this area.
Almost sounds too good to be true, hopeing its not.
Re: COFI ARM - Posted by Rook
Posted by Rook on September 22, 2004 at 13:53:36:
If you are staying in the property for a short period of time an option ARM would be a good idea. One thing I would consider is that if you are staying for such a short period of time look at other indexes as well. You don’t necessarily have to look for a stable index because you will only have one or two rate changes and most arms now have pmt caps were they can only go up or down 7.5% a year so you won’t get pmt shock and if you do what one of the posts recommended and do a min. pmt option of 1.5% or whatever, your pmt will go up anyway. So, what does that all equal? If you are going to do an option arm look for the lowest index you can find if you are only going to be in the property a year or two.
Re: COFI ARM - Posted by Joel
Posted by Joel on September 20, 2004 at 21:39:50:
The biggest con is relying on appreciation. if the deal is a not so good now then move right on. never rely on appreciation to make the deal. you can rely on it to enhance the deal.
The same is true with option Arm’s which is paying minimum payment or very close to that, Meaning you never pay of debt. you only use it if you have a steal of a deal and you cant afford the monthly payments you go for option arm and then you sell or cash out.
Here is what the write about option arm
Consider an Option ARM If:
You want to minimize your house payment to pay off other debt. (meaning for a very short time)
You want to control the amount of tax-deductible interest you pay each month.
You want to maximize your buying power.
Your income tends to fluctuate or you’re confident that your income will rise over the years.
The last one is the most important please make sure it is your case.
I would only recommend an option Arm on rental units where you can use an option arm to create monthly cash flow, but not on a primary residence.
Lots of luck
Joel
Re: COFI ARM - Posted by James Strange
Posted by James Strange on September 18, 2004 at 09:14:34:
If going stay less than 2 years you will only have one rate adjustment. So you will know what your cost will be. That is what I would do.
Have you also taken insurance, upkeep and taxes into account?
But ask yourself what will you do if property values go down 5 or 10%? Property values don’t always go up.
Re: COFI ARM - Posted by Nox(ct)
Posted by Nox(ct) on September 18, 2004 at 12:33:16:
Hello James,
I have calculated Tax & Ins into the plan, as well as upkeep. Another reason I like ttis one so much, is that everything is new within it, as well as outside, roof, siding, windows, etc.
After looking at 25 homes in the last several months, this was the only one in the price range that was somewhat decent.
As to the prices going down, that is going to be a risk in any property I place myself in, isn’t it?
Also I could use other creative solutions to get myself out of it in a worst case scenario. (L/O - Owner financing, Rent, etc)
The plan is to work towards building my own home eventually, so I am thinking use this financing and hold for a bit.
Re: COFI ARM - Posted by James Strange
Posted by James Strange on September 18, 2004 at 12:38:26:
It is good that you have calculated all of the cost. I often see people who have not done so. And in a lot of areas property taxes are very high so this comes as quite a surprise to some people.
As for prices they go up they go down. So always have a plan B. But as long as rents in the area stay you should have no trouble riding the storm out.
Good Luck
James
Re: COFI ARM - Posted by Nox(CT)
Posted by Nox(CT) on September 18, 2004 at 13:02:56:
I had to learn the hard way, when I foudn the home, placed an offer, then went back to the lender who had approved me, to find that the tax and ins brought the payments to a range I was not comfortable with.
The original 30yr fixed wold have been $1500 (tax & Ins included) (5% rate)
From my reasearch, if I can get a 1 - 2 yr COFI ARM my paymetns would be around $1000 (Tax & Ins Included) and would start at around 1 - 2%, then go to around 3% from what I can see.
Thanks again James.
Re: COFI ARM - Posted by Nox(CT)
Posted by Nox(CT) on September 23, 2004 at 23:03:48:
Thanks for all the replies,
It’s been a busy / crazy week, thought I would give an update.
I told my lender that I wanted to keep my payments at $1300 or below, including tax / ins.
This is what he came back with
(Good faith Estimate)
Owners asking 209k, offer accepted for 205k with 5k back at closing.
Loan
$207k sales Price
Loan Type 80 / 20
Interest only initial 2 years, after which switches to ARM. Refi at this point if I decide to keep the home. Sell otherwise, get bigger place.
This loan buys some equity, at least up to 41k correct?
#1 Princ / Interest = $690
RE Tax = $266
Haz Ins. = $40
Total = $996
#2 Princ. Int. = $307
Combined = $1303
I am borring the extra 2k of the 207k so that all closing costs are paid, all said and done, once I receive my 5k deposite back minus apprasial / inspection, this is 100% financed.
It seems to add up to me, but I am not a professional in this, all and all I am very happy if they pull this off.
let me know what you think.
Thanks
Neil
Re: COFI ARM - Posted by Amy
Posted by Amy on September 23, 2004 at 14:32:16:
Most of the Options ARM programs only go up to 95% LTV max. If you could come up with the other 5%, then this might be a good option for you. Another option is to look into some 100% LTV 3 or 5 year interest only programs.