Q. I wish to rent my home and keep it as an investment property. I currently have a 30-year fixed-rate mortgage of 5.5% on this property. It's appraised at $240,000. and I owe $104,000 on the loan. Should I refinance with an option arm just in case it doesn't rent?
A. The way we see it, you have a great rate on your first home and a relatively small balance left. If you refinanced to almost any other type of mortgage you'd have to pay a higher rate -- or would have to pay a higher rate very soon after the low promotional rate used to lure you into the loan reset. Option ARMs are the worst when it comes to raising rates. While traditional adjustable rate mortgages wait at least one year before resetting, some option ARMs begin raising rates after the first month.
The other problem with option ARMs is that you'll be tempted to make the "minimum payment" each month. That payment is lower than with any other type of loan because it isn't even enough to cover the monthly interest charge on the loan. The difference is added your balance and so your debt actually grows each month. You've got a lot of great equity in this house and reducing that is no way to build wealth.
So why not stick with the great mortgage you have now and see if you can make it work before trying to refinance into a loan that could wind up costing you more or adding to your debt?
By: http://home-equity.interest.com
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