Posted: Thu Apr 12, 2007 4:44 am Post subject: Should I opt for 15% long term or short term loan?
I have a quick question about 80/15/5 loans. I am a first time buyer and about to deal with a broker who has arranged for the 80/15/15 loan. He has set up the 15% loan as interest-only for 6 year period with a lump sum balloon payment at the end. He said it will be convenient for me to refinance prior to the 6 years is completed. Then I would be able to get a lower interest rate (the 8% which is fixed) on the current 15% loan since I had to build up equity. What I want to know is , is it a good option to go for a longer term 15 % loan and not have to worry about refinancing in 5 years. _________________ Need help choosing the right loan? Get free consultation from community lenders/consultant
Mac_7 Guest
Posted: Thu Apr 12, 2007 4:51 am Post subject:
Frankly speaking, had i been a first time buyer, i would have never opted for a 80/15/5 loan. I would have rather saved money for a 20% down payment or a little lesser and the opted for a fixed rate loan.
Abiel Guest
Posted: Thu Apr 12, 2007 4:52 am Post subject:
But Mac, I will be having substantial rise in income this year.
If there is a substantial rise in your income, then i think it will be better to pay off the interest-only within the 6 year term rather than go for refinancing. _________________ Procrastination is the enemy of your financial success
As I'm sure you well know, the loan programs available to you depend on your current income, credit, debt, and a variety of other factors.
But one thing to keep in mind about doing a loan with a balloon payment is, no one knows for sure what's going to happen over the next 5-6 years. And it may not necessarily be as easy to refinance as it is now.
Depending on your personal financial situation, I would suggest getting a loan that does NOT have a balloon payment. Talk to your broker and see what your other options might be available to you.
Posted: Mon Apr 23, 2007 10:26 pm Post subject: RE: 15 year fixed rate loan makes sense
Abiel,
It is better to avoid an interest-only loan as it requires you to pay a lump sum balloon payment. Well, if you have good source of income, which is quite achievable. But if your income is that good enough, why not pay off the second mortgage in 5 or 6 years and avoid refinancing. Otherwise, you will have to manage two loans at a time and this is quite cumbersome.
Being a first time buyer and new to the field of mortgage, you can try out with a 15 year second loan at a fixed rate. In general, 15 year loans are of two types – 15 year amortized loan and 15 year loan with 30 year amortization and a balloon payment at the end of the 15 year term. The benefit of going with the second option is that you can make lower monthly payments. But do not forget the balloon payments. So, if it fits your budget, go with a 15 year amortized loan.
adonis
