LOOK HERE!!!.......please. - Posted by tang-0-rang

Posted by Barry (FL) on July 05, 2003 at 16:23:01:

$59,000 X .0525(5.25%) = $3097.50
$3097.50 / 12months = $258.13 / month, interest payment
After 5 years with no interest payments made, total owed will be $76201.34

LOOK HERE!!!..please. - Posted by tang-0-rang

Posted by tang-0-rang on July 05, 2003 at 15:52:01:

I would really appreciate some advice on this deal.
I am trying to buy this home for my family.
The numbers are…
FMV= $167,000
asking $159,000
seller agrees to carry $59,000 for five years with no payments. BUT she wants 5.25 interest on her money… so after trying to figure this out on my calculater I came up with $77,000 and some change, due in five years…(right???).
My question is… how should I structure this deal?? I know I could get financing for the $100,000, were talking 63%LTV. I don’t like the idea of paying 77k later. I’m thinking about an interest only payment so the balance doesn’t increase. How do I figure that out? My goal is to live in it for a year or two and then L/O it out to someone else. Sound good? any thoughts?
thanks for your time.
Todd Williamson…(CO)

Re: LOOK HERE!!!..please. - Posted by Alexander Manuel

Posted by Alexander Manuel on July 06, 2003 at 09:17:24:


The question I would ask before you agree to pay interest only is whether you can realize a return greater than 5.25% with that money on your own. The only savings you would realize by paying interest only on the loan is the difference between the interest only and the compounding effect of allowing it to accrue. Your cashflow would look something like this:

Period…Pay Interest Only:…Pay Nothing

Year 1…$3,097.00…$0
Year 2…$3,097.00…$0
Year 3…$3,097.00…$0
Year 4…$3,097.00…$0
Year 5…$3,097.00…$0


By paying interest only for 5 years, your total interest paid is $15.4K, and if you let it accrue, the total interest is then $17.6K (you would save about $2K in interest). The real question however though is “What are your opportunity costs?” I don’t think any investor in this forum would go for the Interest Only payment option since it would not be too difficult to realize returns in excess of 5.25% with that money. If you’re not an active investor, then perhaps the interest only with a little amortization might be the way to go.

Sounds like a great deal though- I’d do it.

Alexander Manuel

Re: LOOK HERE!!!..please. - Posted by GL - ON

Posted by GL - ON on July 05, 2003 at 19:12:56:

Grab it fast. What a deal. No payments for 5 years and a 5.25% interest rate on a second mortgage? On a no down payment deal? How good do you want it?

If the prop is worth $167,000 now, don’t you think it will be worth $177,000 5 years from now?

If you really don’t want to pay the interest, take the deal anyway. Live there for a year or 2. L/O the property. And when your tenant buyer wants to cash you out, go to the seller and ask how much of a discount they will give you if you pay off the mortgage right away. If they knock off $10,000 that will reduce your interest rate to less than 3%.