One of my bankers dropped by my house today and said he has one million dollars to get rid of ; 6.5 percent locked in for 10 yrs ,up to 20 year amorization , no closing points . Has to be a business loan. Im supposed to call him tomorrow . Im at 7.35 and up to 8.5 just depending on which loan.
I wanted to know what you have done since the rates are down ?
I was approached also a couple of months ago about a rental organization for our county . Then I got a call from another guy that has a lot of rentals saying the same thing . Have you got any insight ?
Tim Mooney
Replies
If you can refinance, I'd go for it. Consolidation @ 6.5 would sound good, but you have a different system down there.
Here, rates are going up.
I have a 1 year open loan @ 4.0 on my house, and looking for a rental. That one will go for a lot more, but I'll lock in for 5 years.
Can you aquire anything in the next little while? Put it into bonds until you can find something?
Good luck.
At my age, my fingers & knees arrive at work an hour after I do.
Aaron the Handyman
Vancouver, Canada
High Tim: It sounds like a good idea to refi, but many questions arise in my mind
1. Can you do individual loans per property, or must you lump them all together.
2. Would he laugh real hard if you asked him to hold it until you could find a new project worth considering? To save a percent is good, but think of all the new fun you could have with that much capital.
3. Prepayment penalties? what happens if you decide to liquidate some of them.
4. Assumable, or assignable? Some of the potential buyers later on may want to take over such a good rate.
5. Just too much I don't know about business loans, to be able to compare to mortgages, but low interest rates are always good. Usually strings attache though, remember the old saying about to good to be true.
Lets figure out how to spend all that money, no need for a bank to store it.
Dan
2. Would he laugh real hard if you asked him to hold it until you could find a new project worth considering? To save a percent is good, but think of all the new fun you could have with that much capital
Yes he would laugh. He said he had 3 million Monday of this week and hes got 1 million left. I asked if I could build three duplexes on it and he said it wasnt a construction loan . If I use it I will be making payment on the full amount in 30 days after closing . Im searching for a repo today for purchase.
Tim Mooney
Aaron , actually him stopping by woke me up to do some research. I plan on working on it today. I did the same thing with insurance for the past two years and helped my bottom line. Thats the reason Im asking here about loans because I know part of us build and sell , have business loans , and some have rentals. I thought I would test the water here , but I will be in the office all day to day working on this . I went to look at a property to buy last night that I will place an offer on this morning .
Tim Mooney
Ha!! I bet he's got a million to move! At 6.5%?
Tell him to come back when he can do the same deal but at 5.50%.
Remember, he's coming to you. There's a big commission in there for him if he can get someone to pay that much. This rate is negotiable. Twist his arm.
I'd be tempted to package all of your properties to be refinanced by one lender, then go out and shop that package amongst the different lenders. Do as much homework as you can and I bet you'll be surprised what is offered.
My thoughts were about the same as yours for the time being .
Tim Mooney
It's not for a business loan, but local lenders here are offering fixed rate 15 yr. amortization, 1% origination fee, at 4.85%!
It doesn't matter how fast you get there, it just matters that you go in the right direction.
Thats the ame as 5.85 with no fee and probably its a personal house loan. Here, rental or business loans are higher.
But Im checking and I will know more tonight.
Tim Mooney
My house that I rent out is on a 7.75% 30 year loan. I have thought about refinance, but it isn't worth it on just one house. The interest rate for a rental just isn't low enough to go through the hassle. If you have multiple homes that you can get down in the 6% range then it sounds to me like it is worth it. Let us know how it goes.
Tamara
Tamara , you better figgure again . I dont know what your note amount is but 1 percent is around 50.00 per month here . You dont want me to multiply that by 30 years. Ill figgure it for you if you want to give me an amount .
Tim Mooney
Tim I only owe 53,000.00 on the house. The loan officer said that it really didn't pay to refinance on the house unless you owe around 100,000.00. What do you think?Tamara
The reason he would say that is that you are paying him the money.
Now lets take a look; I was quoted 5.75 this morning locked for 5 yrs up to 30 yr am.
53,000 at 5.75, 30 yrs, =303.46 per month.
53,000 @ 7.5, 30 yrs =370.58 per month.
A difference of 67.12 per month. x 12 mos. = 805.44 x30 yrs =24,163.20
There might have to be an update to the appraisel , but thats about it.
What do you think?
Tim Mooney
Tamara, in my experience you already have a very good rate on your rental property. Maybe the thing to do is wait! The rates may go lower yet and reach a point where it is worthwhile to re-fi. If you head that way, make sure you know the costs of appraisal, loan origination, etc. Be sure to ask whether the amount you want to re-fi will change anything about the terms or costs involved.
It doesn't matter how fast you get there, it just matters that you go in the right direction.
One of the most important factors involved in the equation is how long you keep the loan. The longer you have to make the monthly payments the longer you get the benifits of the lower rate. Three times so far, I have bought houses that I was going to be in for a long time, three times I was wrong. The point being that you have to make the best decision at the time, and then hope that it works out properly for you. Nobody that I know of can accurately predict the future, you place your bets and take your chances. A little time spent with a calculator that has an ammortization program can be very helpful to anybody considering loans. Good luck in your search for a new property Tim, maybe now is the time to consider moving up in scale to apartments?
Dan
Hey Tim it has been a couple of weeks, what if anything happened. I am having trouble sleeping a full night, and have finally figured out it is the suspense of wondering about all the un-answered questions here at Breaktime. So what happened, huh? I can think of lots of problems that a large loan could cause for me, wondering if you are a smarter man, probly so the way that I see it.
Dan
I dont know about smarter .
I am at my desk trying to pull the trigger as I type . This is what I have found ;
2 yrs fixed at 5.25 bank loan no points no finders fee LOL.
5 yrs fixed 5.75 same deal
10 yrs fixed 6.5 same deal
5.65 up to 30 yrs fixed with one percent origination.
My houses are in a different array of morgage to loan ratios. I have two that I bought that I payed a little more for than I normally do because of one reason each on both.
Control the neiborhood as I have other houses next door.
A super location on a lake that was too high for a rental , but has exellent resale value. I also figgure when the baby boomers retire it will be "the property". I rented it to hold it but Im not making money on it .
What Im looking at is it depends on whether I want to just draw money on a property with out paying it off or lower the principal. I need to lower the pricipal on these two so I have opted to for 5.75 fixed for 5 years on the least amor I can stand. By the time 5 yrs has passed both should be where they need to be. On the others I hesitate to pay them off quickly as Im enjoying income that is partically protected. I havent finished making up my mind on the others. DW just called from Dallas and told me the rate had been lowered to 4.9, but I would guess thats on prime residence with at least an origination fee. Ive heard about that rate that could be FHA , and it is a pentalty to pay off early on a "helping hand loan". That particualar loan is for homeowners . I think Ive done all I can do if I can just make my decisions to apply which loans to which properties. Thanks for posting back.
Tim Mooney
What I have found is that the lower years the cheaper the interrest now . Before it was reversed . The reports Ive gotten is that money market only is paying 1 percent on CDs . As far as Im concerned the stock market HAS crashed . Stock market across the board has lost 40 percent , of course thats an average. Many more in the economy have lost a good portion of retirement benifits . The bottom line is that people with money are reinvesting in realestate loans and realestate it self. Theres a lot of investors in this market that werent here before and the banks have BOO KOO money to loan . The banks are not making as much money and they have to roll more volume . That is the reason for all the competition . One bank offered a bounty for any loan taken from another bank of 1/4 percent discount. The market looks the same in out look until Bush is out of office . They figgure the economy wont be worked on till then. It will take some time to rebuild even then and its thought to be a sluggish cycle with not appreciatable rebounds for a while. There will be a small spurt from defese contractor spending but it will hardly be noticeable in this market. We were the last to see the slow down and we will be the last to see the turn around. What I typed above is a condensed peice of information that I have gathered . There are no facts about looking into a crystal ball of the future. This is however what the investor market is thinking right now .
Tim Mooney
Banking advice from a Handyman is probably not worth the time it takes to read, so go fast and don't waste to much time. The reason for longer tterms to cost more is that the lenders are betting on a upward swing to the rates and they don't want to get stuck for a long term at below the current rate of return. That makes for low profits, and loans that are hard to sell if they need cash. If they expect things to go down then they would love to have you for 30 years of high interest. My father in law used to tell me that almost anything was a good buy at some price, you just have to find out who wants it. Just remember to figure in what will happen if you have to payoff some of the loans when rates have gone up. When I used to sell real estate, I told people that if they could afford the current rate, take it. trying to guess what will happen in the future will drive a sane person over the edge. Lower is better of course, but as long as the payments are covered by the rent, it can't be all bad!! Good Luck, sounds like you have done great so far!!!
Dan
No, a 1% origination fee is not the same as adding a percent to the loan interest rate. You pay the fee one time at the beginning. You pay the interest every year of the loan. There's a formula to figure it out, but I can't remember it off top of my head.
It doesn't matter how fast you get there, it just matters that you go in the right direction.
Edited 3/14/2003 8:19:22 PM ET by Hasbeen
I do understand what you are saying though. Every year you are charged interrest on the remaining principle , so no its not the same , but you are paying up front to get it knocked off.
Tim Mooney
Edited 3/14/2003 3:01:13 PM ET by Tim Mooney
Money in that size of a lump is very tempting if you can put it in places of good return. I also finance a few guys doing rehabs here and there. I simply use my line of credit, lend them what they need at a few points over what I am paying and charge a fee at the end when they refinance and pay me off. Something to consider. Obviously it has to be the right guys and worth enough money.
We have a rental association here. I was the secratary treasure for 3 years. Good organization but not real big. Some larger cities have really big organizations. I went to a monthly meeting at the Columbus Ohio deal and it was like going to a real estate seminar. Lots of information and people. In my town its like a small group trading information.
I think 6.5 isn't bad for a commercial loan. Last house I financed was last year about this time, 6.75. I am doing another now but won't need financing for awhile. I will let you know. Good luck and let us know what you do. DanT
That's correct, Tim, that you often pay up front for a lower rate. The most common reason that you may pay an origination fee is that the fee is the main part of what the loan company makes on the loan. Think of it as a processing fee for all the paper work and phone calls involved.
Just to come clean here, I used to be in the construction biz, but now own a real estate company. I'm not a loan expert, but I'll share a bit of what I've learned about this topic.
Most loans, and often the best rates, come from loan underwriters on loans that are made through mortgage brokers. If you are getting a loan through a bank or S&L it still may be a brokered loan. Ask the loan officer if the loan you are getting is an "in house" loan (that's what it's called here if the loan is not brokered). It's also called a primary loan and, thus, brokered loans and the loan brokerage business is referred to as the "secondary loan market".
The usual rule of thumb on whether or not it's a good idea to re-fi is that the new loan must be 1 1/4%, or more, lower than the existing rate and you must be planning to keep the property for at least two more years. Reasons: At least in the US, a re-fi requires a new appraisal and new credit check. Sometimes an Improvement Location Certificate is also required. When you add the time involved (yes, hopefully you are counting your own time as an expense of the re-fi) and any origination fees or other loan fees (which most commonly are higher when going through a mortgage broker) any savings on the interest rate are used up before the new loan even starts, unless the previously stated conditions have been met.
Be careful when borrowing from a mortgage broker! I can't tell you how many times I've seen people enticed into working with a mortgage broker by some advertised low interest rate that is available to only those with the very best credit and who are borrowing over $100,000 or so. They enter into a real estate purchase contract, get emotionally involved in buying the property in question, and then find out that the rate they can get is much higher than the one that was advertised. I've also seen the up front costs of the loan run into several thousand dollars which is tacked onto the loan principle. In my opinion, less than half of the mortgage brokers are worth talking to, but it is very hard for a novice to know the difference.
Like everywhere else, if it sounds to good to be true...........
It doesn't matter how fast you get there, it just matters that you go in the right direction.
I found out that some mortgage brokers are paid on a commission that is based on the interest rate and/or the amount of fees on the loan.
So they won't offer you there best deal upfront hoping that you will take a loan that pays them a higher commission.
I just got the loan package back for the new loan on the duplex I built this past year. It is a conventional mortgage 5.5% for 15years. I've got two others yhat I refinanced last year at 5.75%. Also the one house that has a commercial note is at 5.25%.
The new loan on the duplex hurts a little since I built it with a home equity line at 4.25% ! It cost me $70,000 to build plus labor from myself and my guys during our slack times last year. It's 2000 sqft divided into 2 apartments - 9' ceilings, hardwood floors and nice trim. I probably spent way too much for a rental but who knows?
The rate he quoted seems a little high to me based on what I am seeing from my bank. I am supposed to meet with my banker next week on my Line of credit for the business.
Did you pay points or an origination fee to get that deal?
Tim Mooney
Doug , thats exellent information . That information is telling me there may be something better out there.
Thanks.
Tim Mooney