If you are an investor who knows how to buy property well below market value and you’re a person who feels secure about managing your personal and business finances, there are some mortgage products available that are worth discussing.
Recently “Option Arm” mortgages have taken a bad rap and I wish to clarify some misconceptions around a inovative product that if managed properly can be a useful vehicle to provide investment opportunities which may not have been deemed “affordable”.
My experience with Option Arm
Let me relate a recent personal experience: In July 2006 I purchased a property which I felt was listed well below “market”. I wanted low payments. In my business some months alot comes in; others not so much. Having the “option” to make a very low payment anytime I want, is valuable to me. Also, I like buying properties for 65% of their value. When I do that, I am awarded the equity and I immediately improve my net worth and/or cash flow.
My mortgage is for $191,500 my (minimum) payment is $617.55 (i love that). My house is worth $265,000, I paid $192,000. A $265,000 house was not affordable to me given normal mortgage product offerings.
I shopped. I didn’t so much shop for mortgages (i am supposed to already know about them); I shopped for a great property and an excellent value.
What I am saying here is if you know you’ve got the right property located, and you’re buying it well under market price, then get a mortgage which makes the monthly payments affordable so you can realize the windfall of the “instant equity”.
Would you consider a mortgage of $200,000 for a payment of $642.00? Sure you would. Now lets talk…
A question I’m often asked is, how can I buy my Florida home and have a stable, low monthly payment for the first 5 years?
Would having an opportunity to make a super low house payment anytime you wanted for the first 5 years be helpful?
You buy (or refinance) a house for $100,000 that’s worth say $125,000. You pay $504.79 for the first 12 months at the end of 12 months you owe $103,000.
If this sounds interesting,...we have nationally recoginized banks with mortgages, offering borrowers the opportunity of making payments anywhere from a 1% rate upward. GreenPoint Mortgage has rolled out a 5 year Option Arm Product that’s guaranteed to be 3% under the market rate for the first 5 years.
Countrywide offers a 1% start rate for the first five years which is another spin on the same concept.
What does that mean to the person interested in purchasing a property with a mortgage of $450,000? For one thing it means a guaranteed minimum payment requirement requirement of only $1,446 per month for the first 5 years.
Another benefit of this product is there is no increase in interest rate for “stated income” borrowers. (Stated means you don’t have to prove your income. If it’s a reasonable amount that you state, the lender will take you at your word).
Option Arm Mortgages are good for:
- persons who manage their finances well
- persons who are buying a property that is too expensive for their budget; but, is too good an investment to pass by
- persons who are only buying to resell and they’re absolutely certain of making a good profit in a very short term.
Option Arm mortgages are bad for:
- people who consistently spend outside their means
- people who do not manage themselves well
- people who are about to lose a large segment of their income
I may or may not be an expert in what mortgage offerings best suit anyones needs; however a product which is at an interest rate 3% under the prevailing market is worth some further review and consideration.
Should you wish to discuss “lower interest rate” products, or mortgage scenarios in general, feel free to contact me. Your dollars are always guarded.