Seller concerned about variable rate

[Guest Big Don]

Guys,

I was just talking to a potential seller (L/P). She is concerned that the interest rate will go up during the option period. Since that means that her Mortgage will increase, she was wondering if she should get a fixed rate first. Her current situation is she is considering purchasing a new home. Potential closing would be at the end of October. What do you guys thinks?. Would that hurt her chances of qualifying for the new home ? She's contacting a loan officer tomorrow. I need some suggestions quick.

[Adam King (MI) 1]

Big Don,

Man, sorry this post is coming so late.....

 

I was just talking to a potential seller (L/P). She is concerned that the interest rate will go up during the option period. Since that means that her Mortgage will increase, she was wondering if she should get a fixed rate first.

 

I wouldn't worry about an ARM versus a fixed rate. It's an old school way created by fear from the banks to take a short mortgage and pay off the property. Let me ask you this, if you're going to get a 15 or 30 year mortgage at a good fixed rate so you won't be screwed by an ARM, then why is the average refi 4 years 9 months? hum......

 

I would tell her not to worry about it because the national index is based on LAST YEARS numbers. That means if the rates go through the roof THIS year, she will have an entire year before it effects here. Therefore giving her an entire year to refi and get a fixed.

 

I advocate interest only loans on investments properties if you're going to do something to invest the money. This will give you higher cash flow and take some of the sting out of a vacant property situation. There are also tax benefits to doing it this way. The interest can be written off and any points derived from the loan can be subtracted from any capital gains if there are any.

 

Would that hurt her chances of qualifying for the new home ?

 

If she can't show that her debt on the home she's not going to live in is taken care of, that could stop her from getting a new loan. If she can show a lease or sales agreement, then the bank could allow her to get a second mortgage.

Hope that helps,

Adam