I'm probably going to be buying a condo or townhouse in the next 2-3 months. Bank told me the following:
Purchase price of $232k
Loan amount of $220k
Monthly payments of about $1850 (they go down after 118 payments)

The thing is that's for a 15 year fixed loan. I don't feel comfortable paying that much monthy - it's $1k more than what I pay for rent!
The loan officer said that I should consider a 30 year loan to bring it down. OK - does that make sense for a condo or townhouse? I probably won't stay there more than 7 years.

Does 15 vs 30 make a difference when it comes to selling it in a few years? I wanna buy soon. Prices around DC are going up too fast!

 

If you do 15 you will have a good deal more equity. But as in both loans you will be paying mostly interest for the first couple years. If you do move in just a few years you will not have taken advantage of those higher payments

Here is the rule that i have heard a lot. Always take the longest loan you can. Because rates are still so low it is amazing you are much better having that money in your pocket every month. Think about what you could do with that extra few K a year.

If you really feel the need do the 30year loan put an extra few hundred a month extra directly to principle.

Good luck man. That is a pretty good monthly payment. With taxes and stuff my 30 year loan for almost the same amount is identical (GOD DAMN PMI SCREWING ME OVER).

 

If you do not plan on keeping the property more than 5-10yrs then why not do an interest only loan at under 5%. Your payments on 220k would be only $893.00 a month and if you are able to afford say another 300 a month on top of that over the course of 10 years you just knocked off 36000 in principa! You could never accomplish that on a 15 yr or a 30 yr loan. Just my coming from a mortgage broker.

 

phil, tell me more about this, specially the downsides.

 

Yes, please elaborate. I would think that an interest-first loan seems like a horrible idea for a short-term investment since at the end of 5-8 years you still have zero equity!

 

Phil has a good idea, the only problem with i/o is that you need to qualify, typically excellent credit and you need to be disciplined to pay down every month. Also, need at least 5% down. If you do not pre-pay, then you are just like leasing a car.

By dealing with a bank, you are limiting your options. Like Phil, I work for one of the largest lenders in this country, the only difference, I am not a broker, thus I do not get paid on your loan amount nor the products I offer.

There are products out there that are fixed for shorter time like 5 or 7 years. They are called ARMs. Rates are lower, payment is lower. Have to run, will review this later.

 

Do a 5 year ARM if you know you'll nly live their 7 years or less. That will save you big time

 

I got a quote for a 5/1 ARM and I'd be paying the same as a 30yr fixed. According to the worksheet they gave me, closing costs would be almost the same, montly payments almost the same, estimated finance charges etc. But of course they can't guarantee monthly payments after 5 years. Also, the ARM loan was for 200k while the 30yr was for 220k.

I think I'll go for the 30yr fixed. If I want more equity I'll put in additional money towards principal each month.

 

I am telling you that unless its 100% financing go with the interest only program....you wont regret it and you will have achieved more equity if you add a little money over the 5 or 10 yr period. If you are getting a higher payment on an arm then you are getting (trying to put this politely) :bananahump:ed because at no point should an arm be anywhere near a 30 yr fixed rate. Best of luck to you. If you life pm me or im me (pwagner518) before you make the wrong decision!

 

Don't forget about the tax credits you get from paying mortgage interest. It does make a difference at the end of the year and is something that is a bit hard to fathom when comparing costs to what you're paying in rent. Depending on your income, money paid on mortgage tax can be quite significant.

 

You are correct about the zero equity if you live in a depressing downturning realestate market! Like I said in my earler post If you are saving a few hundred a month on a I/O loan and apply just a measly $100 a month towards principal...in 5 yrs you will have killed at least 6000 in principal, which in fact is more in 5 years that you would have accomplished with a 30 year fixed mtg.

 

When I refinanced, I went from a 30yr to a 20yr. I didn't think I could swing a 15yr note at the time.

Not everyone offers a 20year, but some places do. Just another option to investigate.

 

Go for the 15 year if you can swing it. Every time I send a check to the mortgage company, it generates another bill. When it comes, I not only meet the minimum, I send them basically every spare penny I have. Next payment is due in January, 2005. My 1,200 sq. ft. condo will be paid for in 2007, I'll be 55, and very happy with what I have.

Now I have six months to invest in the stock market!

 

Like Phil said several times, simply adding $300 a month to your payment of $893 a month (for a total of $1193/mo) will pay off $3,600 a year.. and, also like Phil said.. over 10 years that $36,000 in principal which is a lot. The key is that you have to be diligent and pay the extra towards principal otherwise you're just paying off interest which will get you nowhere... but if you're on top of it.. you'll be ahead of the game vs. a 30-year. The only thing you'll have to watch is those damn interest rates. Right now the lending rate is 1.25%, but I've been reading it'll be around 2% by year end, and as high as 3-4% by the end of next year.... so just keep an eye on those.

FYR, my wife and I bought a townhouse last year and we will be out by next year.. but when we purchased we weren't sure how close to our goal we'd be out (we had originally discussed 3-5 years), but we still decided to do a 30-year. Why? Rates were low (5.75%)and you never know what's going to happen, so figured it was safer to lock in at that rate in case we got stuck here for longer then planned. Every month I pay several extra hundred dollars towards principal (how many hundred depends on the bank account and other bills) and at the end of the year make a full mortgage payment to principal only. So, for example.. a $200k mortgage @ 6% for 30 years = $1199/mo which is interest and principal. So every month I try to pay, lets say... $1600/mo... which is an extra $401 per month towards principal. Then in December I send in a payment of $2800... my "regular" $1600 which covers my required payment plus the extra principal.. then another $1200, towards principal only. I feel if you have the extra money, better off doing this (why keep the money in the account making less then 1% when you can pay off a 6% loan?). So even though I have a 30-year mortgage I will be paid off well ahead of time and probably around 15-20 years if we kept that payment schedule up (assuming we stayed), but by having the 30-year it allows me to keep my required payments lower then a 15-year... so should a month come that I don't have all that extra money... I can just pay $1199 and be covered. Now, those numbers are an example and not my actual mortgage numbers, but you get the idea.