When you sit down at your favorite bank to secure financing for your next income property, chances are good the topic of adjustable rate mortgage (ARM) will come up. Do we at Empowered Investor think this is a good idea? To answer plainly, we think it’s about as good of an idea as chasing a basketball across the interstate through Friday evening rush hour traffic without looking both ways. In a word – NO!
When you invest in real estate the right way, you’re angling for the longest term mortgage possible. At least 30 years. Of course, you’ll be refinancing along the way but, for interest rate purposes, let’s talk about 30 years as the end of the loan. If you agree to an ARM, yes, you will get a lower initial interest rate that won’t change for a set length of time, perhaps the first year of the loan. After that, they can raise it at regular intervals, defined in the terms of the mortgage, until you pass out from stress. It could be as often as every year.
What’s the ceiling? There’s not one. Why on earth would anyone ever agree to such a ludicrous scheme? One reason is, as we mentioned, you might get an initially lower interest rate for the first year. If you plan to flip the house in a relatively short length of time, it might save you some money.
But remember what Jason says. “Flippers have spending money. Investors have real wealth.” Or something like that. You get the idea. We don’t think flipping is the way to create the kind of wealth that makes a difference.
