My Option ARM for SLC Townhome #2
November 13th, 2005 by KenricWhen I bought my townhomes in SLC, I opted for an option ARM on Townhome #2. I guess I wanted to see how this would work out. The difference at that time was:
5/1 ARM at 6.5%
Option ARM at 1.375% for 3 months and then 1yr MTA + 2.95% (which was 5.75% at the time)
I decided to take the risk and go with the Option ARM. My first 3 months of lowe 1.375$ payments are done and I am faced with my first option payment.
They are:
$491 - Minimum payment and Negative amortization
$686 - Interest only
$800 - Principal and interest based on 30 year amortization
$1089 - Principal and interest based on 15 year amortization
Remember, the above numbers include a $97 tax escrow. The interest only payment corresponds to a 6.125% interest rate. So, I’m still ahead of the 6.5%, 5/1 ARM which I could have picked. I will make the interest only payment every month that it is rented. However, it is nice to have the option of paying only $491/mo when the unit is empty.
So new numbers for townhome #2
Purchase price - $141,000
Closing costs - $4,000
Total price - $145,000
Loans - 20% @ 6.5% IO = $157.00
80% @ 6.125% IO = $589.00
Taxes - $95.00
HOA - $97.00
Insurance - $10.00
PM - $80.00
Total monthly expenses = $1,028.00
Rent $965.00
Cashflow = -$63.00/month
BTW, if I decide to pay the negative amortization payment, my cashflow would be +$132.00/month. However, my mortgage balance would be increasing by $195/mo. So I’m not really making any money. Bottom line is that I’m still -$63.00/month on this property, the difference is where is the money located, in my pocket or in the mortgage balance.
Posted in Real Estate | 
Stumble it!
Not many people think of it in that way that you may still be minus $63.00 on the property either way but with the option arm you keep the money in your pocket not in the banks pocket. So now the question is what do you do with that extra cash flow?
By Anonymous on Dec 13, 2005