Mortgage (real estate, refinance, loans)

[cys19]

Hi-

I'm looking to buy a home in a few years, but the home would just be a short-term investment. Is there some sort of binding contract between the mortgage lender and borrower so that if the borrower decides to pay off his/her loan before the contract ends, there is some sort of penalty?

I.e. - Does 10-fixed lock the borrower into the contract for 10 years? If so, which is the most flexible?

I'm looking to buy the home, stay in it for just four years, then move out. In this case, would some sort of hybrid ARM, e.g. 3/1 or 5/1 ARM, make more sense - that is, if the ARMs have shorter contracts?

Confused.

[EscapeCalifornia]

I think you should be more concerned with transaction costs and market fluctuations over such a short time period.

Some loans have pre-payment penalties, some do not. Read the paperwork carefully.

[CAVA1990]

Most mortgages don't have a prepayment penalty as that would be a pretty unmarketable feature in a country where people move or refinance about every 5 years.

[cys19]

Originally Posted by EscapeCalifornia

I think you should be more concerned with transaction costs and market fluctuations over such a short time period.

Some loans have pre-payment penalties, some do not. Read the paperwork carefully.

What are these transaction costs should I be aware of? Thanks.

[DowntownVentura]

Prepayment penalties don't exist much these days except for B or worse loans.

If you plan to keep the loan for 4 years, I would not consider an ARM. Fixed rate loans are so cheap now, much of the advantage of a variable is gone.

A lot of people figure 10% transaction costs to sell. 6% is real estate agent's commission and there are fix-up costs too. 10% is a good rule of thumb although it is probably high.

[DMenscha]

You might want to repost this in the mortgage or real estate forum here on CD.

[DMenscha]

Originally Posted by cys19

Hi-

I'm looking to buy a home in a few years, but the home would just be a short-term investment.

Housing is NOT a short term investment. Housing is a place for you to live that may have long term financial benefits.

The way the housing market has been over the past 5 years leads me to believe that if you are going to buy a house in a few years, you should probably ask these questions when the appropriate time comes as any advice you get today might be outdated and just plain wrong in a few years. (including this advice)