Most investors find themselves in a cash crunch at one time or another. Vacancies, renovations, changes in mortgage terms and interest rates, municipal fees and taxes, it can all add up.
This leaves investors scrambling to balance their portfolios. Most refinance with an eye on mortgage products with lower monthly payments. The current product of choice is the interest only mortgage.
This mortgage lets property owners pay the interest part of a loan monthly, while making capital payments at a later date.
However, other factors need to be taken into account, such as closing fees, financing rates, and interest rates. What may seem like a short term solution can turn into a long term nightmare.
If the interest only mortgage will be obtained for more than two years, the investor will pay twice the interest rate for two years, which can add hundreds of dollars to at the mortgage. This type of mortgage flipping also makes it difficult to estimate how quickly the mortgages will be paid off.
The cost of switching mortgages between interest only and fixed rate mortgages can be high. The interest only mortgage does not decrease in value. If the investor...