QUOTE (ThomasBeyer @ Feb 24 2010, 12:52 PM) use a 3rd option:
no mortgage .. just an HELOC ..
for a new investment lender needs to see CASH IN BANK FOR THREE MONTH .. so if you are serious about using the extra 31K for investment have it in cash in a bank account or T-Bill or money market fund !
Thomas, I`ve seen you post this recommendation a few times, and I`m not sure I understand why. Do you feel the interest-only nature of a heloc makes up for the higher interest rate than a variable rate mortgage?
Consider a $100,000 loan:
Variable rate mortgage@ 2.05%, 35 year amortization
Payments: $340/month, $170 interest, $170 principal
Heloc@ 3.25%, interest only
Payments: $270/month, all interest
So on the Heloc your monthly payment is $70/month less, but you`re paying an extra $100 of interest.
Put another way, if you take the variable rate mortgage, you`re paying an extra $70/month, all of which is principal, plus converting $100 of your payment from interest to principal, which increases equity buildup.
Granted you can`t pull money out again if you do the mortgage instead of the heloc, but the original poster was talking about a <200,000 loan, where the principal paydown over the 5 years probably wouldn`t be enough for another downpayment anyway.
If there is something I`m not understanding, I`d love to be enlightened!
Michael
PS: I used rates from PCfinancial in my post. They may not be exactly what you`d get from a broker, but I bet they`re close.