Main Office:
Two River Mortgage
157 Broad Street
Suite 312
Red Bank, NJ 07701 Tel: 732.345.5000
Fax: 732.345.5049

One of the most common questions we hear is, "Should I wait to save more money for a down-payment so I will have a lower mortgage payment?"

The quick answer is "don't wait". Even if you have to pay Mortgage Insurance acquiring a property in the current mortgage environment should be a paramount goal. Although some might debate this recommendation consider looking at these factors; a) Are your local property values rising at a rate greater than 10%, b). For the property you are interested could you save the additional down-payment plus the rate of the appreciation in a one year period, c). Would I be able to carry the proposed mortgage at current market interest rates?, d). What is the likely hood of mortgage rates rising over the next 12 months?, e). If mortgage rates rise 1% would the payment of a smaller mortgage amount be significantly lower than a mortgage payment if I purchased today. f). What are my tax implications? (consult your tax advisor).

Each of these factors/questions will vary for every individual. There is no one answer for every person. There is no one answer for ever area of the country. Appreciation rates vary from area to area. What works in one area might be a failure in another local.

It has become more apparent to many people that the appreciation and tax benefits posed through real estate ownership is the root to financial wealth. Real Estate has continued to appreciate at a staggering rate over the past decade, with only some blips. It has become harder for families to realize the dream of owning a home regardless of the continued efforts of the state & federal government. In late 2004 the percentage of home ownership had risen to almost 69%, but many cannot afford the home or town of their dreams. There are loans not only designed to help you qualify for more home, they will allow you options that fully amortizing loans may not.

On the national average most people stay in a house for 5-7 years. If these are your plans why waist your money on a fully amortizing 30 Year fixed rate loan payment vs. a Adjustable Rate Mortgage or an Interest Only Mortgage. Some people believe because their neighbor or their parents had a fixed rate mortgage they must have one, but you need to look at your goals and needs.

Monthly cash flow is a critical reality in every ones life. There are no real hidden lottery tickets. Real Estate investing is like a math equation. What happens to one side of an equation has an effect on the other side of the equation. If you take a Five Year Interest / Only mortgage for $650,000, in five years you will still owe $650,000, (if you do not make any additions to the payments). If a fully amortizing mortgage and an interest-only mortgage had the same rate, you could conceivably lower the monthly payment by approximately 19% by utilizing the interest-only program. In most cases the fully amortizing mortgage is a fixed rate while the interest only mortgage is an adjustable. The starting rate on an adjustable rate mortgage is generally ½% to 1% less in the interest rate vs. a fixed rate mortgage. The lower interest rate lowers the payment savings even further than the 19% savings. If you plan to be in the property for 5-7 years look at maximizing your cash flow with an interest only mortgage. Be aware of any pre-payment penalties. Know if they are Hard Pre-Pays (no way to avoid) or Soft Pre-Pays (they do not apply if the property is sold).

There are many different variations of the pre-payment penalty. Some ban all pre-payments, others set dollar limits, while others will limit you to a percentage of the original loan per year or you just cannot pay the loan off in total within the specified period.

This is a typical scenario. These are NOT quoted interest rates, this is NOT an offer to extend credit, only an example:

Which mortgage program will offer the most benefit to a borrower. The 30 Year Fixed would pay off $44,219.96 in principal. The reduced payments of the Interest Only mortgage would lower the payments of the borrower by $66,343.20 over the specified 5 Year mortgage period. This example would result in an increase the monthly cash flow by $1,105.72 The addition savings come from the interest only option and the lower interest rate of the ARM and the interest only option.

In the end only the borrower can answer which program is more beneficial. Even then, plans change over time.