Mortgage Banking

Making sense of commercial real estate finance.

Fixed versus Variable?

Posted by Jordan Crouch on April 3, 2008

This is from an email blast from one of Fannie Mae’s Designated Underwriter Servicers.

For anyone financing an apartment deal today the real question is Fixed versus Variable?  

Variable Rate deals today provide potentially cheaper prepayment options and possible interest rate cost savings.  We can structure interest rate caps that will provide a ceiling interest rate if rates go up. If rates go down then you ride the rate down with the index and save on interest costs.

Fixed Rate deals today are also good but we suggest that you look at 5 or 7 year deals to save on the interest costs as the yield curve is very steep as you get beyond 7 years and therefore pay an incrementally higher interest cost.

Very true. I met with a bank yesterday that has no prepayment penalty for its variable loans. We are seeing many borrowers park their loan in a short term variable loan expecting to refinance into a permanent loan when the market turns around.  Someone who does this usually has a loan coming due. If the maturity is a year or two out, its better to wait.

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4 Responses to “Fixed versus Variable?”

  1. Jordan – what the public need to know is that a ‘regular’ variable mortgage is not quite the time bomb of the teaser rate interest only ARM that caused much of the subprime collapse. If one can afford a fully adjusted rate, i.e. the payment after two years of maximum increases, they can then make their decision. Those 1% tearer ARMs were bad news.
    Joe

  2. Joe,
    I agree with your comments. The teaser rates on home mortgages continue to get many homeowners in trouble. The person I was quoting was speaking to commercial mortgages, where a teaser rate isn’t as prevalent.

  3. If you ever want to read a reader’s feedback 🙂 , I rate this article for 4/5. Decent info, but I just have to go to that damn yahoo to find the missed bits. Thanks, anyway!

  4. neolengob said

    Hey very nice blog!!Beautiful .. Amazing .. I will bookmark your blog and take the feeds also…

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