I used to think a 30-year fixed was the only way to go for a rental property

For years, I just got a standard 30-year fixed mortgage on every rental I bought. It was simple and the payment never changed. Then I bought a duplex in Cleveland last year, and my lender showed me a 5/1 ARM with a much lower starting rate. The math was clear: I'd save about $280 a month for the first five years, which I could use for repairs or to pay down the loan faster. I was nervous about the rate changing later, but he explained how I could refinance before the adjustment if rates were still good. I went for it, and that extra cash flow has been a real help with some unexpected roof work. It made me realize I was just sticking with what I knew without looking at other options. Has anyone else used an ARM on an investment property and how did you plan for the rate change?

3 comments

3 Comments

fox.derek1mo ago

My buddy got burned on an ARM when rates spiked and he couldn't refinance.

diana2024d ago

Yeah that "gamble to get in the house" line is SO real, my cousin lost his house the exact same way.

emery_murray1mo ago

But what if your buddy's ARM was the better deal for years before that spike, @fox.derek? He probably saved a ton with that lower starting rate compared to a fixed loan. Sometimes you gamble to get in the house and it just doesn't work out later.