Deals with adjustable mortgages

[steve55121]

Hello,

I was wondering how any of you are handling ARM/ justable rate mortgages. It seems everyone who has purchased in tha last few years has done so on a ARM. Sometime I'm a little hesitant on skinny deals knowing the mortgage only has 1 year left or less until it starts adjusting. Then who knows what it will be then. I'm looking to pick up and sell on a lease option or doing a wrap mortgage and doing contract for deed. Seems almost impossible with a ARM.


-Steve

[Pasquini]

Classic business problem. Your "costs" are not fixed, but you find yourself in need of entering into a fixed price contract. This is the basis of what is called 'hedging'. If you'd like to learn more here is a nice article on hedging (http://www.finpipe.com/hedge.htm).

In my estimation there are three things you can do:

Don't do these deals
Eliminate the uncertainty on the supply side
Transfer the uncertainty to the demand side


If you don't do these deals you eliminate the risk, but you also eliminate the profit. You could eliminate the uncertainty on the supply side by having your sellers refi to a fixed rate, or an ARM with longer window. Lastly, you could either rewrite your contracts to allow for changes in payment based on changes in the underlying financing...or use a vehicle that accounts for such changes automatically.

[loans2investors]

Well I would start out saying that there are some many different products for arm loans

There is the 6 month Libor arm that adjust every 6 mo.

Cofi, MTA negative amortorization arms

2 year fixed arms that have a fixed rate for 2 years and then adjusts after that every 6-12 mo depends on the program

3 year fixed arms that have a fixed rate for 3 years and then adjusts after that evert 6-12 mo depends on the program

There are also Interest only programs that you can get concurrently.

The real question that I ask my investors is WHAT IS YOUR EXIT STRATEGY

If you are wanting to buy and Hold, how long do you want to hold?(this is very important question because if you are wanting to just do a lease option maybe a 2-3 yr fixed arm will do and if you want to hold for a long time say you have a section 8 rental and the passive income is great maybe a 30yr fixed is the answer.)

If are wanting to do seller finance then I would suggest two ideas
Some note buyers require you to aquire the property so you would either get a conventional type loan or a quick HML and then create a wraparound sell the note and with the proceed it pays for the pervious loan(don't have to deal with the due on sale clause nor should you be worried about your adjustable rate this only takes days to weeks to accomplish)

There are also note buyers that will do simo closings which makes this even cheaper and faster to make this deal happen.

2. You can get a 5 to 7 year fixed or balloon if you want longer time periods to work around your seller financing/ Wrap idea

You just need to go to a broker like me that specializes in helping you structure the deal. :SM056:

Laura Richins 801-417-0077
richlaura@comcast.net