Fixed VS. variable

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>Fixed VS. variable
Posted by: Brian Dec 20 2003, 02:11 PM
Hi, just need a little advice. I have a 6.75% 30 yr. fixed on my home that I bought approx.. 1 1/2 yrs ago. I got sick and fell behind a bit and trying to regroup. I have been offered a 3.99% open on a variable interest only for 10 yrs. and principle @ prime for 15 yrs. thereafter. Can someone give me an idea of what the market might be doing in the 2 to 5 yr. arena and then maybe a projection outward? They say good decisions come from wise council. Is this a good idea? Input welcomed and appreciated… Brian……….
Posted by: loanuniverse Dec 20 2003, 04:59 PM

Ok let me get this straight, the loan offered is interest only for the first ten years, and then it starts amortizing at prime for the remaining fifteen.

I am not a fan of variable rates. Right now they are very tempting, but if you look at a time graph, you can see that the prime rate has been under 5% for less than two years. I remember doing loans for income producing property using a 9% just three years ago.

Frankly, if I could predict interest rates, I would be a very rich man. The consensus is that the rates will creep up as the summer of 2004.

If I were in your position, I would ask myself the following questions:

a- Can I still afford to pay principal and interest?

b- Has my credit been damaged in a way that I can not qualify for refinancing into another 30-year mortgage {rates are around 5.5% today}?

c- What is the base rate for the variable rate? Prime? T-Bill? Find out which one at then look for a historical graph. Get the average rate for the last ten years and use that rate plus whatever premium to calculate your payments.

d- Make sure that you understand that if you go with an interest only loan for the next ten years to replace your mortgage, you will still owe the same amount in the house ten years from now.

e- Is that 3.99% rate an introductory rate or is it the actual base rate with the premium included. Be vary careful or you might end up paying more really quick. It might seem much less because it is only interest, but it is actually more.

Hope this helps.
Author: Commercial Loan Underwriter