house insurance cost comparison
Is an interest only loan a good thing when renting out a home?
My home has a $167k loan on it My current payment with taxes, insurance, and PMI is $1425. rate @ 6.75%
Goal is to remove PMI (been 6 years)
1st option: 6.125% 30yr fixed $1260; $1425-1260= $165 savings per mo.
$5K in closing costs $5000/$165=30 months to cover the closing costs
2nd option:
6.25% 30yr fixed; first 10 yrs is an int only loan.
$1110 for the first 10 yrs
3rd option: 5yr ARM 5.75%, int only for 5 yrs. Payment to be $1039; I would refi in 5 yrs in this case
Savings in 5 yrs between 2nd and 3rd options: ($1110-$1039) x 5 yrs = $4260
I plan to own the home for the next 10 yrs and plan to start renting it out at the end of the year. The broker made a good point about the int only loan in my case: The home is worth $295-310k – said there is enough equity that I don’t need to chip in on lowering the loan amount for safety in case the housing market dropped. Does paying on the principal for 2K to 3K per year seem that necessary in comparison with equity?
I am not sure that I understand your questions but if your goal is to remove PMI then call your lender and tell them to take it off. If your home value is as you say $295,000 and your loan is $167,000 then your LTV is 56% PMI should be taken off after 80% LTV and sometimes they will at 87%. Because the bank will get there 56% back if the house is foreclosed on they no longer need PMI. I would not do an Interest only or an ARM. You are not looking at the risk that goes with both loans. Don’t do an ARM because we are at 40 year lowe with interest rates and all ARM’s do is protect the Bank not you. Interest only is a stay in debt forever loan and when you do sell you still have to pay the full balance of the loan off. If you really want to make the best move refin to a 15 year fixed rate. Today’s rate on a 15 year is 5.62% My calculation of $167k for 15year at 5.62% payment would be $1,369.44 plus taxes and insurance. I don’t know what you are wanting to get in rent but when you do rent it add that to the $1,369.44 payment and I bet your will pay off this house in like 5-8 years. Then when you sell in 10 years you will get $295k-310k cash at closing. The real question is do you want a little cash now (savings with the interest only loan and or arm) or a lot of cash later?
Filed under Home Insurance by on May 20th, 2010. 
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