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Tuesday, September 20, 2005

Philadelphia Investment Update #3

My agent called a few days ago and told me that my house is ready for settlement at any date now. The seller has found a new house so I can do the closing at the end of this month. However, the interest rate has been creeping up lately. I was quoted a 30-year fixed mortgage loan for 6.0% yesterday, compared to 5.75% two weeks ago. The difference in interest payments over 30 years is $7,000 between 5.75% and 6.0% I can postpone my closing to the middle of October if I believe the rates will drop in the near future. It's a dilemma for me now. Should I take the risk and wait until next week or should I lock in now? There's an advantage of locking in now. My seller is going to rent my house for a month (He's moving to his new house in November). The perk is immediate cash flow. However, if the rates are going to drop back to 5.75% zone then I might give up that month's rent.

I'm hesitant to take the risk though. What if the interest rates continue to go up, to 6.25%? Then I will pay more interest plus losing a potential month's of rent. I'm leaning towards earning one month's of rent plus playing it safe on the interest rate.

2 Comments:

At 9/22/2005 05:09:00 AM, Anonymous Nathan said...

In Australia, most people have variable rate loans, or at least only fixed for 2-5 years. Having a loan at a fixed rate for 30 years seems kind of odd, but I guess it has its advantages in terms of knowing payments, etc.!

Anyway -- you make the most money when you buy, and cash *now* is much more important than cash over 30 years (especially with the small amounts you are talking about). Go for buying ASAP, IMHO.

 
At 9/25/2005 01:12:00 PM, Anonymous Jonathan@MyMoneyBlog said...

$7,000 over 30 years doesn't seem like that much, especially if you can get cashflow NOW. Heck, if you invest your rent money you'd probably grow it to $7k in 30 years.

Of course, I know very little about housing so who knows.

 

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