Which home financing option should I choose?

[Anonymous]

Option 1: 75/10/15 with the 1st and 2nd trusts 30 year fixed fully amortizing. Rates would be 4.5% on the 75 and 5.5% on the 10.

Option 2: 75/10/15 with the 1st a 30 year fixed at 4.5% and the 2nd an interest only HELOC starting at at 4.59% (prime rate (now at 3.25%) + 0.5% margin with floor of 4.59%).

The difference is total cash to bring to closing is negligible. Monthly payment on Option 1 is approx $150 more than Option 2.

Please advise if you are knowledgeable about this stuff.

[Anonymous]

MOst peopel pay off the 2nd loan early, so if you think you can pay off the 2nd loan in the next few years, go with option 2.

[Anonymous]

Option 1. Rates on HELOCs will probably increase in the next 5-7 years, which is the timeframe I'd wager you'd live in the house. And, if you treated the second HELOC as a fully-amortizing, there would be no meaningful difference at all.

[Anonymous]

OP here, thanks. And what if we won't pay it off in the next few years? Go with Option 1?

I just looked at a chart with the prime rate forecast and it is forecasted to be 5% by Feb. 2016, which would put me at 5.5% with the added margin. So then I'd be in the same position as Option 1, but I'd still only be paying interest in Option 2, whereas in Option 1, I'd be paying down the principle? If I was in Option 2 at that point, would I just refinance to something else if the prime + margin got too high? I'm kind of confused what happens after the 5 year interest only period too.

[Anonymous]

Anonymous wrote:OP here, thanks. And what if we won't pay it off in the next few years? Go with Option 1?

I just looked at a chart with the prime rate forecast and it is forecasted to be 5% by Feb. 2016, which would put me at 5.5% with the added margin. So then I'd be in the same position as Option 1, but I'd still only be paying interest in Option 2, whereas in Option 1, I'd be paying down the principle? If I was in Option 2 at that point, would I just refinance to something else if the prime + margin got too high? I'm kind of confused what happens after the 5 year interest only period too.

It'll cost you to refinance Option 2. Some might build the closing costs into the rate, but one way or another, you'll pay to take a new loan. And, honestly, if you don't build enough equity, you may have difficulty refinancing at all.

What's the purchase price on the home? How much is the 10%?

The other possibility is to find a loan that lets you just put 10 or 15% down and prepay the PMI. You'd have to run the numbers on that though. A lot depends on how long you expect to be in the house.

[Anonymous]

OP again. Thank you everyone for weighing in, I appreciate it. Purchase price is 775k.

[Anonymous]

Anonymous wrote:OP again. Thank you everyone for weighing in, I appreciate it. Purchase price is 775k.

So, a 90 percent mortgage would be $697k.

Have you considered a PenFed 5/5 mortgage? https://www.penfed.org/55-Adjustable-Rate-Mortgage/?WT.ac=1021 -- not sure if they require 20% down for that or not.

I also don't understand why you're not doing an 80/5/15 under your conditions. 80% would still be under conforming. And it would make a smaller second trust for you to attack and pay off.

[Anonymous]

Anonymous wrote:

Anonymous wrote:OP again. Thank you everyone for weighing in, I appreciate it. Purchase price is 775k.

So, a 90 percent mortgage would be $697k.

Have you considered a PenFed 5/5 mortgage? https://www.penfed.org/55-Adjustable-Rate-Mortgage/?WT.ac=1021 -- not sure if they require 20% down for that or not.

I also don't understand why you're not doing an 80/5/15 under your conditions. 80% would still be under conforming. And it would make a smaller second trust for you to attack and pay off.

But would the 80/5/15 involve PMI? The other 2 options don't, which is what both lenders were trying to avoid.

[Anonymous]

I'm sorry, I don't know the answer to your question, but we are also trying to avoid PMI and would appreciate it if you would share the names of the lenders you are working with. Thank you!