Have a short term fixed loan and adjustable after say 5 or 7 years. You’ll pay less and when you sell it, the money you make will pay the rest off and whatever you make above that is taxed, unless you defer it in a 1031 exchange, but that is stupid too. Put it in a CRT and sell it tax free. TAX FREE. I am a real estate manager and run 2 offices with 90 agents.
A lot depends on what you plan to do after the 10 years. The fastest way to liquidate a loan is to make extra principal payments. On a 30 year loan, for example, just one extra principal and interest payment per year will reduce the loan term to less than 24 years.
You will also want to consider your cash flow. A 30 year loan will offer you the option of having the lower payment when you need or want it with the ability to pay more when you want it. A 15 year loan will also give you some flexibility of the same kind but the required payment will be higher because the term is shorter even though the rate will be about .25% lower.
If you plan to sell the home in about 10 years you will want to study the property value appreciation history in your area and remember to plan for capital gains tax unless you will be reinvesting in another home or plan on taking your one time exemption.
A financial planner could help you examine all of your options so that you can plan accordingly.
both of the above answers address paying Capital Gains tax when you sell if you don’t purchase a “like” property…….
May 7, 1997 changed that law….If you live in your primary residence for a period of 24 months w/in 5 years of selling….or until you sell it….you pay no capital gains tax whatsoever up to a certain point:
Paul M’s answer is correct and great, do get an adjustable rate mortgage, the rates are relatively lower than the fixed, and keep your fingers crossed. I do not think the Fed’s will do anything dramatic in the next 5 years.
Rates are inverted right now so you are actually better off to do the longer term loan of 30 to 40 years. It makes more fiscal sense, you can always pay more, but if you do not have an exact amount of time before you plan to move on then do not go into a 3, or 5 year loan, the refi cost is unneccesary if you stay on the 30 year. Things change, jobs, marital staus, etc, 30 year provides the most stability.
The issue is how to pay the least amount of interest, as you will recover your principal payments on sale. Mortgage companies have something called a yield spread premium. i.e. if you get a 7.0% interest loan at no points, you can “buy down” the rate by paying 1 point at closing for a 6.75% rate. You can also “buy up” the rate and pay 7.25% and get a point back. On a $60k house that would be $600.00. Mortgage brokers use this yield spread premium to generate their commission without it coming directly out of your pocket, but that could be your money just as well. The break even point for buying up or down your rate is about 8-10 years. So if you KNOW you will be selling in less than 10, it pays to “buy up” your rate. If you know you will be there more than 10, then “buy down” your rate. The trick is to find someone who will let you buy up your rate.
If you can find a knowledgeable mortgage broker who will be honest with you, they can show you their rate sheets, and explains this.
December 26th, 2008 | 
Author: 
Posted in 
Tags:
Have a short term fixed loan and adjustable after say 5 or 7 years. You’ll pay less and when you sell it, the money you make will pay the rest off and whatever you make above that is taxed, unless you defer it in a 1031 exchange, but that is stupid too. Put it in a CRT and sell it tax free. TAX FREE. I am a real estate manager and run 2 offices with 90 agents.
A lot depends on what you plan to do after the 10 years. The fastest way to liquidate a loan is to make extra principal payments. On a 30 year loan, for example, just one extra principal and interest payment per year will reduce the loan term to less than 24 years.
You will also want to consider your cash flow. A 30 year loan will offer you the option of having the lower payment when you need or want it with the ability to pay more when you want it. A 15 year loan will also give you some flexibility of the same kind but the required payment will be higher because the term is shorter even though the rate will be about .25% lower.
If you plan to sell the home in about 10 years you will want to study the property value appreciation history in your area and remember to plan for capital gains tax unless you will be reinvesting in another home or plan on taking your one time exemption.
A financial planner could help you examine all of your options so that you can plan accordingly.
both of the above answers address paying Capital Gains tax when you sell if you don’t purchase a “like” property…….
May 7, 1997 changed that law….If you live in your primary residence for a period of 24 months w/in 5 years of selling….or until you sell it….you pay no capital gains tax whatsoever up to a certain point:
single person $250K married: $500K….
Buy it, live in it, and sell it tax free
Paul M’s answer is correct and great, do get an adjustable rate mortgage, the rates are relatively lower than the fixed, and keep your fingers crossed. I do not think the Fed’s will do anything dramatic in the next 5 years.
Rates are inverted right now so you are actually better off to do the longer term loan of 30 to 40 years. It makes more fiscal sense, you can always pay more, but if you do not have an exact amount of time before you plan to move on then do not go into a 3, or 5 year loan, the refi cost is unneccesary if you stay on the 30 year. Things change, jobs, marital staus, etc, 30 year provides the most stability.
The issue is how to pay the least amount of interest, as you will recover your principal payments on sale. Mortgage companies have something called a yield spread premium. i.e. if you get a 7.0% interest loan at no points, you can “buy down” the rate by paying 1 point at closing for a 6.75% rate. You can also “buy up” the rate and pay 7.25% and get a point back. On a $60k house that would be $600.00. Mortgage brokers use this yield spread premium to generate their commission without it coming directly out of your pocket, but that could be your money just as well. The break even point for buying up or down your rate is about 8-10 years. So if you KNOW you will be selling in less than 10, it pays to “buy up” your rate. If you know you will be there more than 10, then “buy down” your rate. The trick is to find someone who will let you buy up your rate.
If you can find a knowledgeable mortgage broker who will be honest with you, they can show you their rate sheets, and explains this.
sell, sell, sell!