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Posted by lakepeir on March 22, 2007, 6:30 pm
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Hello,
I have an offer accepted on some investment property that I would like
to buy. I sent the offer to purchase to my bank and they came back
and said I was approved for a 3 year fixed 20 year amortization loan
at 9.25% interest rate. I orginally asked for a 10 year loan with the
option to pay off the loan early. I think the interest rate is very
high and the 20 year amortization can possibly change the interest
rate. Can someone offer me advice? Thanks.
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Posted by Jeff Strickland on March 22, 2007, 8:58 pm
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We do not know what your qualification is on the loan -- income vs debts --
and that may be playing a role here.
A 3yr Fixed on 20 means the loan payments will be amortized over 20 years,
and will be fixed for the first three. I assume the rate will go adjustable
after that.
You didn't say what your participation -- down payment -- would be, but I
agree with you that 9.25% sounds a bit steep. I'm not certain, but you
should be able to get a 10yr Interest Only based on a 30yr amoritization
with a better rate than that. Again, your qualification and participation
would play a huge role in the rate you get.
Any loan can be paid off early. You have to keep it longer than the
prepayment penalty period, normally 3 or 5 years, but after that, you can
pay the loan off whenever you want. All you must do to avoid the prepayment
penalty is to NOT pay more than 20% of the outstanding balance in any of the
first three years. Except for refinancing, most of us will never run up
against the prepayment penalty by making overpayments on principle.
Loan payments are allocated thusly, first, they collect any interest that is
due, then they collect any impounds that must be collected, then they write
down principle. If you have a regular payment of say $1500, and you make a
payment of $2000, then $500 EXTRA dollars will be written down from the
outstanding principle. The interest due assumes interest on principle from
the start date, so if you pay off massive chunks of principle early, then
you save interest on the back end of the loan because the term becomes much
shorter. All you need do is avoid paying 20% of the outstanding PRINCIPLE in
any year where the prepayment penalty is in affect.
You are right, a 10yr note should have a better rate than a 20yr note. But,
even with the lower rate, the payment could upset your ratios -- income vs
debts -- that I discussed earlier. I plugged some random numbers into my
payment calculator, and all things (rate and loan amount) being equal, the
difference in payment between 10- and 20- year amoritizations is roughly
$600 a month.
> Hello,
>
> I have an offer accepted on some investment property that I would like
> to buy. I sent the offer to purchase to my bank and they came back
> and said I was approved for a 3 year fixed 20 year amortization loan
> at 9.25% interest rate. I orginally asked for a 10 year loan with the
> option to pay off the loan early. I think the interest rate is very
> high and the 20 year amortization can possibly change the interest
> rate. Can someone offer me advice? Thanks.
>
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Posted by Donald Sievers on May 10, 2007, 6:00 pm
Please log in for more thread options Do you know what the LTV (loan to value) was for that loan offer ?
9.25 is not too bad for investment property. However, having it fixed
for only 3 years would worry me. That means it was either a 3/27 or
3/17. That means the rate could change drastically after 3 years.
You should be able to get a zero or one year prepayment penalty.
Send me an email and tell me what you actually want to accomplish.
I am a loan officer. We are licensed in all 50 states.
Donald Sievers
On 22 Mar 2007 15:30:12 -0700, lakepeir@yahoo.com wrote:
>Hello,
>
>I have an offer accepted on some investment property that I would like
>to buy. I sent the offer to purchase to my bank and they came back
>and said I was approved for a 3 year fixed 20 year amortization loan
>at 9.25% interest rate. I orginally asked for a 10 year loan with the
>option to pay off the loan early. I think the interest rate is very
>high and the 20 year amortization can possibly change the interest
>rate. Can someone offer me advice? Thanks.
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