Which Mortgage would you need?

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Topic Author
Freddobbs
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Joined: Sun Mar 03, 2019 1:25 pm

Which Mortgage would you need?

Post by Freddobbs » Mon Sep 09, 2019 7:13 am

Here is our situation. We own a home outright. We are looking to buy a new home for about $350k more than the equity of our current home. We dont see that it will be too difficult to sell our current home as the market is strong here.

I want to take the proceeds of the sale of our home and then pay off the new mortgage. So I would assume the interest rate on a 15 year, or 30 year would be a secondary consideration to closing costs and points, since this will be paid off quickly?

Any suggestions on what type of loan I should take?

Silk McCue
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Re: Which Mortgage would you need?

Post by Silk McCue » Mon Sep 09, 2019 7:18 am

Please clarify. If you are going to buy a home for $350k more than your current home is worth how are you going to pay it off after the sale of your existing home.

Cheers

Topic Author
Freddobbs
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Re: Which Mortgage would you need?

Post by Freddobbs » Mon Sep 09, 2019 7:25 am

We would leave a deposit of about 50%, then pay the loan off when we sell our current house.

BarbBrooklyn
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Location: NYC

Re: Which Mortgage would you need?

Post by BarbBrooklyn » Mon Sep 09, 2019 7:28 am

Google "bridge loan".
That might make more sense.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

Silk McCue
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Re: Which Mortgage would you need?

Post by Silk McCue » Mon Sep 09, 2019 7:32 am

BarbBrooklyn wrote:
Mon Sep 09, 2019 7:28 am
Google "bridge loan".
That might make more sense.
+1 I was just typing that.

Also, get a low cost 3/1 adjustable rate mortgage or some such product. Third Federal has a number of good low cost options if they are available in your state.

Cheers

cherijoh
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Location: Charlotte NC

Re: Which Mortgage would you need?

Post by cherijoh » Mon Sep 09, 2019 8:07 am

Freddobbs wrote:
Mon Sep 09, 2019 7:25 am
We would leave a deposit of about 50%, then pay the loan off when we sell our current house.
That is quite a bump up in house! Do you have the downpayment in cash equivalents? Otherwise you need to consider the tax impact of liquidating investments.

Here is my cautionary tale: Well before the financial crisis, I had friends who bought a new more expensive house assuming their existing home would sell quickly because the market was "hot". It took them at least 6 - 9 months to sell during which period they were making 2 mortgage payments. I believe the issue was an overly optimisitic initial selling price, because it was a really nice house in a decent location. I think they ended up reducing the price several times in order to finally sell it and took a loss vs. what they had paid for it a few years before.

I believe bridge loans carry a significantly higher interest rate than mortgages so (if you go that route) you want to carry one for as short a time as possible. Therefore, make sure your current home is priced to sell - a good realtor will be able help with that. I'd get a market analysis from at least 3 realtors.

Knot2Old
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Re: Which Mortgage would you need?

Post by Knot2Old » Mon Sep 09, 2019 6:36 pm

We bought a home and instead of using a bridge loan we used a 30 year fix with that could recast. This allowed us to purchase a new home and while selling the old one. We bought the new home, did all the upgrades and staged it. The house was in contract 10 days later.

When I received the proceeds from the sale of my home, I dumped the equity into the new home without having to refinance and incur new fees. Our new loan rate is 4% which is competitive with the regular loans out there.

So far so good. Just one thing, be prepared for an assault of paper work that hit you. That was the most painful part of the process.

Topic Author
Freddobbs
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Joined: Sun Mar 03, 2019 1:25 pm

Re: Which Mortgage would you need?

Post by Freddobbs » Mon Sep 09, 2019 6:58 pm

cherijoh wrote:
Mon Sep 09, 2019 8:07 am
Freddobbs wrote:
Mon Sep 09, 2019 7:25 am
We would leave a deposit of about 50%, then pay the loan off when we sell our current house.
That is quite a bump up in house! Do you have the downpayment in cash equivalents? Otherwise you need to consider the tax impact of liquidating investments.

Here is my cautionary tale: Well before the financial crisis, I had friends who bought a new more expensive house assuming their existing home would sell quickly because the market was "hot". It took them at least 6 - 9 months to sell during which period they were making 2 mortgage payments. I believe the issue was an overly optimisitic initial selling price, because it was a really nice house in a decent location. I think they ended up reducing the price several times in order to finally sell it and took a loss vs. what they had paid for it a few years before.

I believe bridge loans carry a significantly higher interest rate than mortgages so (if you go that route) you want to carry one for as short a time as possible. Therefore, make sure your current home is priced to sell - a good realtor will be able help with that. I'd get a market analysis from at least 3 realtors.
40% down payment in a money market. Just stressed as a bridge loan has high rates. I’m leaning toward 30 or 15 year with low closing costs and hope the current home sells quickly

Admiral
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Re: Which Mortgage would you need?

Post by Admiral » Mon Sep 09, 2019 7:04 pm

Freddobbs wrote:
Mon Sep 09, 2019 6:58 pm
cherijoh wrote:
Mon Sep 09, 2019 8:07 am
Freddobbs wrote:
Mon Sep 09, 2019 7:25 am
We would leave a deposit of about 50%, then pay the loan off when we sell our current house.
That is quite a bump up in house! Do you have the downpayment in cash equivalents? Otherwise you need to consider the tax impact of liquidating investments.

Here is my cautionary tale: Well before the financial crisis, I had friends who bought a new more expensive house assuming their existing home would sell quickly because the market was "hot". It took them at least 6 - 9 months to sell during which period they were making 2 mortgage payments. I believe the issue was an overly optimisitic initial selling price, because it was a really nice house in a decent location. I think they ended up reducing the price several times in order to finally sell it and took a loss vs. what they had paid for it a few years before.

I believe bridge loans carry a significantly higher interest rate than mortgages so (if you go that route) you want to carry one for as short a time as possible. Therefore, make sure your current home is priced to sell - a good realtor will be able help with that. I'd get a market analysis from at least 3 realtors.
40% down payment in a money market. Just stressed as a bridge loan has high rates. I’m leaning toward 30 or 15 year with low closing costs and hope the current home sells quickly
If you have that kind of cash sitting around, I'm not sure why you're stressed about a few months (or even a year) of interest payments at sub-4% loan. Just get a mortgage for 60% of the price and pay it off when you sell your place, and enjoy being mortgage free. Or, don't pay it off and invest the proceeds...which is what I would do based on current mortgage rates.

Golf maniac
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Location: Florida

Re: Which Mortgage would you need?

Post by Golf maniac » Mon Sep 09, 2019 8:25 pm

I would go with a 30 year mortgage and buy up the rate. So you will be getting an above market rate but the negative points creates cash to reduce your closing costs. Since the loan will be short term until you sell your current home the extra interest paid will be minimal compared to the savings in closing cost. Go to aim loan, put in your information and pick the 30 year mortgage and it will provide other rates that have negative points (cash for closing costs) for taking the above market rate.

ARoseByAnyOtherName
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Joined: Wed Apr 26, 2017 12:03 am

Re: Which Mortgage would you need?

Post by ARoseByAnyOtherName » Tue Sep 10, 2019 6:37 am

Freddobbs wrote:
Mon Sep 09, 2019 7:13 am
Any suggestions on what type of loan I should take?
I bought a house earlier this year and there’s a clause in my mortgage saying it can’t be paid off for 6 months. I have no idea if this is standard or not but it’s something to watch out for in your scenario.

DVMResident
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Re: Which Mortgage would you need?

Post by DVMResident » Tue Sep 10, 2019 7:40 am

OP, when do you intend to pay the loan?
How long do you plan to live in this new house?

If either are shorter than 30 years, I would consider a 15 year fixed or ARM. If you plan to hold the note the 30 years and invest the difference or there is a cash-flow risk (doesn’t sound like it), 30 is an okay choice.

One other consideration is jumbo loans have better rates these days (e.g. WF’s today is advertising 7/1 ARM 3.125% vs Jumbo 7/1 ARM 2.75%). It maybe worth getting a jumbo loan followed by a lump pay down with the sale proceeds (with or without a recast).

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