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Rookie Reply: ARM vs. Fixed-Rate Mortgages (Which Is Better For Cash Flow?)
Description
This week’s question comes from Channa through Ashley’s Instagram direct messages. Channa is asking: I have three rental properties and am looking to refinance them all. Should I do an adjustable-rate portfolio loan on all three or do separate fixed-rate loans on each property?
As real estate investors, we tend to have many different options when financing rental properties. Some, like adjustable-rate mortgages (ARMs), may come with lower closing costs and slightly lower interest rates, while fixed-rate mortgages have slightly higher interest rates but boast the added security of long-term financing for a property or properties. While both have definitive pros and cons, the implications of both types of loans must be understood before you reach the closing table.
Here are some suggestions when making the choice:
Understand your long-term strategy for the property and which loan works for which exit strategy
Run an amortization schedule on both loans to see the difference in your monthly payment
If you decide to go with an ARM, make sure you know what you’ll do once your low-interest rate ends
Calculate total closing costs to see if you have the reserves ready to go through with each loan
And more in the episode…
If you want Ashley and Tony to answer a real estate question, you can post in the Real Estate Rookie Facebook Group! Or, call us at the Rookie Request Line (1-888-5-ROOKIE).
Links from the Show
The BiggerPockets Money Podcast
Check the full show notes here: https://www.biggerpockets.com/blog/rookie-170
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