Interest-only ARM vs. fixed-rate HELOC: Which actually wins long term?

I was reading a post from a lender who said interest-only ARMs are only good for flippers, but then a borrower commented they saved $8k over 3 years on a rental property that way. Has anyone here tested both on a single property and seen which one really comes out ahead when rates shift?

2 comments

2 Comments

emery196d ago

Did you factor in the tax implications of the interest-only payments on the ARM? The interest on a HELOC might be deductible differently depending on how you use the money, and that could flip the math even with a higher rate. I've seen people get burned on ARMs when they don't plan for the reset hitting right as variable rates spike, especially on a rental. But the savings from the lower initial payments can be real if you're disciplined about paying down principal elsewhere. What kind of timeline are you looking at for keeping this property?

hall.nina6d ago

Funny you mention tax stuff, my buddy was all over that when he did an ARM on his place. He was so sure about the deductions but then the county reassessed and his tax bill jumped like crazy. Plus his accountant told him the interest deduction cap changed and he didn't qualify for the full thing. Messed up his whole cash flow projection for year two. He ended up selling faster than he planned because the numbers stopped working. So yeah, even if you crunch the numbers right, sometimes external stuff just throws it all off. Hope your timeline is flexible enough to handle that.