Mortgage choices (insurance, home loan, interest rate, escrow)

[radjob]

I am on the conservative side with 20% down on a 500K home planning to keep the house for 5-15 years. I am also a regular individual investor in my stock funds. Would someone recommend fixing a conventional 30yr loan and lock in the current historically low interest rate or going for a 30yr fixed but first 10yr interest only and intesting the money I save every month with the lower monthly payments. I haven't done my due diligence yet to see what the long term cost are but thought someone has likely been through this thought process as well and I have a hard time trusting brokers, bankers, or anyone else who stand to benefit from my transaction.
Thank you in advance.
Joe

[KMCopeland]

Originally Posted by radjob

I am on the conservative side with 20% down on a 500K home planning to keep the house for 5-15 years. I am also a regular individual investor in my stock funds. Would someone recommend fixing a conventional 30yr loan and lock in the current historically low interest rate or going for a 30yr fixed but first 10yr interest only and intesting the money I save every month with the lower monthly payments.

Get the 30-year fixed, and lock in the rate the minute you're ready. Interest only financing is fine in a red-hot seller's market with sky-high appreciation when you plan to turn the property over quickly. It is a terrible idea in almost every other scenario. The risk far outweighs the potential reward. In this housing market, nail down that long-term fixed product. You can always tweak it later if things change and you want to get creative.

Next make sure your purchase price is at market value or below. This is at least as important as your financing vehicle. Do not trust yourself to assess that unless you do this for a living. The input of a sharp realtor, broker, developer or title attorney is well worth what it costs. The least expensive among them is a realtor, and it's also who seems to do it best, but do not try to do it yourself. It's the place where the most money is lost on real estate -- paying too much at the get-go.

Get a professional's input. How do you choose one? Scouring their backgrounds and credentials can certainly tell you how long they've been doing it and that has value. It can also cause you to overlook some very gifted newbies with a real flair for pricing. The best advice I can give you about that is trust yourself. Don't let all those letters after a realtors' name deflect you from bad chemistry. It's not hard to pick the right one. It really isn't. Do not work with someone over a nagging feeling when you meet them that you shouldn't. This is not a science -- this is an art. Let the force be with you.

If you buy property at or below market value, especially in a down market, it's very hard to go wrong. Not impossible -- but hard. You already understand the ROI formula, since you invest in stocks. Assuming intelligent financing, the beginning and the end of your profit curve is what you pay up front.

[UseJeff]

This example has to do with investing and a 15 year vs a 30 year mortgage, however the same principle applies for a comparison of a 30 year vs a 30 year 10 year I/O.

It's a 3 meg PDF, but a very interesting idea if you do invest your money.

http://www.realgroup.com/Asset_Manag...g-Mortgage.pdf

[yellowsnow]

I took the 30yr fixed with 1st 10 years IO. This gives me a really low payment and I can still pay to principal any time I choose. I did this because right now almost any investment I make is worth more than principal in my house. Even my money market is outpacing home appreciation! Cash is worth more than a home of comparable value right now.

This is only a decent strategy if you ARE investing the difference in the payments every month. You will never come out ahead if you just do the lower payments. I am trying to sell the house I just refied and even in a worst case scenario, I can't imagine being there many more years. I already own 75% equity in the home. And it's going down in value! I also removed the escrow account and I will take care of my own tax and insurance payments.

[UseJeff]

"Even my money market is outpacing home appreciation"

One thing to note, is that your houses value with increase or decrease regardless of what you do with your money... I think you made an intelligent choice taking the lower payment, with a safe 10 year loan. It allows you much more flexibility.

Congrats on the loan...

[radjob]

Thanks for your comments everyone. Great reference article.

[songcry]

my sister told me of a program that she and her husband started using recently that uses their current income to cut the amount that they will pay in interest of their mortgage. i didn't get all of the details, but from what i understood the program consolidates your checking account and your mortgage. she said that so far they have been paying less interest without changing their lifestyle. Home Ownership Accelerator | AmeriCorp Home Loans (broken link)

[AZMonsoon]

My advise is to be very careful in the up coming months if you plan on purchasing/refinancing. Non-Conforming Loans ( Jumbo Loans and Sub-primes Loans) are taking a major hit in our economy in regards to interest rates and qualification. Expect to see lenders/mortgage broker services that are supported by investors to drop out. That was evident last Friday when America's Home Mortgage Company ( was a top ten lender) fold and now Aegis is done as well. On that note.......in areas where Jumbo loans make a big impact such as California/Nevada/Arizona home prices may dip 20% in value and that also hurts the new home buiders that have large inventory. Today, the FEDs decided to not doing anything with interest rates and that the fear of inflation is already upon us. So.......my point is that be careful when deciding to go on the interest only route.....