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Started By
Message
Talk me out of a variable libor based interest only loan - 1.875% right now
Posted on 5/2/12 at 8:55 pm
Posted on 5/2/12 at 8:55 pm
Morgan Stanley banker offered me libor + 1.6%
Interest only, no points or origination. I don't plan on being in the house for more than 5 years. Currently in a 5 year arm at 3.25%. I have about 40% equity in the home.
Interest only, no points or origination. I don't plan on being in the house for more than 5 years. Currently in a 5 year arm at 3.25%. I have about 40% equity in the home.
7
Posted on 5/2/12 at 9:10 pm to C
Let's see - your loan costs 1.875% before the tax deduction. Assuming you are in a 25% bracket that becomes about 1.4% after tax.
That's below the rate of inflation. It's free money, basically. There's nothing wrong with this at all, in fact not having to pay principal is a plus. I'd stretch that baby out for as long as possible if the rate remains that low.
Honestly, a 30 year fixed is very good too but you have to plan to be in the property for a long time, either living there or renting later.
But back to the LIBOR loan, the only risk here I can see is that it is after all a floating rate.
That's below the rate of inflation. It's free money, basically. There's nothing wrong with this at all, in fact not having to pay principal is a plus. I'd stretch that baby out for as long as possible if the rate remains that low.
Honestly, a 30 year fixed is very good too but you have to plan to be in the property for a long time, either living there or renting later.
But back to the LIBOR loan, the only risk here I can see is that it is after all a floating rate.
Posted on 5/2/12 at 9:45 pm to C
How often does the rate reset? do they evaluate it on a quarterly basis?
I got a quote on a private school loan libor +2.2%, but being it'll take me years to pay it back, im not willing to take the gamble. I asked the lady about the max possible interest rate worst case scenario...nice 25%
But if you can pay it off soon, and old Bernake keeps his promise of low rates until late 2014 you should be good
I got a quote on a private school loan libor +2.2%, but being it'll take me years to pay it back, im not willing to take the gamble. I asked the lady about the max possible interest rate worst case scenario...nice 25%
But if you can pay it off soon, and old Bernake keeps his promise of low rates until late 2014 you should be good
Posted on 5/3/12 at 12:47 pm to C
As long as your equity position is strong I'd jump on it. Speculating in real estate with a tight initial equity position and going interest only is a recipe for disappointment. The second wave of owners at River Ranch in Lafayette regret this move.
Posted on 5/3/12 at 1:00 pm to C
Tell him you'll do it if he sells you a LIBOR swap too. 
Posted on 5/3/12 at 1:05 pm to kfizzle85
quote:
Tell him you'll do it if he sells you a LIBOR swap too.
Posted on 5/3/12 at 1:34 pm to kfizzle85
quote:
Tell him you'll do it if he sells you a LIBOR swap too
No clue what this means but does this basically turn it into a fixed mortgage?
Posted on 5/3/12 at 1:35 pm to C
So just got off the phone with them. Another positive is that they do not hold the escrow! 
Money in the bank!!!
Money in the bank!!!
Posted on 5/3/12 at 2:04 pm to C
Yes. Its not a retail product though, just some financial tomfoolery on my part.
Its not a retail product though, just some financial tomfoolery on my part.
Posted on 5/3/12 at 9:27 pm to C
RUN WITH IT FOR CHRISTS SAKE.
Only risk I see is that your tied to 30 day libor. You are probably good for the next 24 months but there are risks in the 24-60 month timeframe. However, setting it up on interest only mitigates the risks in my opinion as you have flexibility anchored by equity. Do not think and sign.
Only risk I see is that your tied to 30 day libor. You are probably good for the next 24 months but there are risks in the 24-60 month timeframe. However, setting it up on interest only mitigates the risks in my opinion as you have flexibility anchored by equity. Do not think and sign.
Posted on 5/3/12 at 10:15 pm to C
quote:
Message Posted by C Morgan Stanley banker offered me libor + 1.6% Interest only, no points or origination. I don't plan on being in the house for more than 5 years. Currently in a 5 year arm at 3.25%. I have about 40% equity in the home.
Libor on a house loan? Do it and post his contact info .....that is a good deal. And if he can swap it, make sure the make whole provision is a two way make whole....
.....you win if rates rise....
This post was edited on 5/3/12 at 10:19 pm
Posted on 5/3/12 at 10:37 pm to C
Are you talking about a home equity line? Or a refi on your mortgage?
Posted on 5/4/12 at 12:43 am to JMTIGER85
For someone who has no intention of staying in the property for more than five years, this is likely a pretty sweet deal.
If you plan to own the property (staying in yourself or renting later) for a longer time then you should go for a longer loan period.
If you plan to own the property (staying in yourself or renting later) for a longer time then you should go for a longer loan period.
Posted on 5/4/12 at 6:51 am to JMTIGER85
quote:
Or a refi on your mortgage?
Refi yes.
Posted on 5/4/12 at 7:02 am to nelatf
quote:
Do it and post his contact info
Contact your local Morgan Stanley Smith Barney office.
Posted on 5/4/12 at 8:08 am to C
Is this loan secured by cash or securities? Because if not, this is one of the most absurd loan structures I have ever seen. Great for you.
I work in the commercial banking industry and our senior credit office would laugh in my face if we tried this with our best customer, unless cash/security secured.
I work in the commercial banking industry and our senior credit office would laugh in my face if we tried this with our best customer, unless cash/security secured.
This post was edited on 5/4/12 at 8:09 am
Posted on 5/4/12 at 8:25 am to JMTIGER85
quote:
Is this loan secured by cash or securities?
home secured. Must have at least 20% equity with better rates once you hit 30%. Or can be 100% if you have other high value securities with them.
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