2009 Cabin Financing Update
There are two primary financing options available to a perspective cabin buyer. Your choice depends upon your personal goals and preferences. The first is a standard 15 to 30 year mortgage with a down payment of 10% to 20% where each payment is applied proportionally to principle and interest. The second option an 80% to 90% interest only loan which you can obtain for 5 to 7 years at a fixed rate. With either option, if you choose 90% or more financing you will have to pay P.M.I. (Personal Mortgage Insurance) which adds approximately one half percent to the loan rate.
While both options still exist, with the tightening of mortgage requirements in late 2008, interest only mortgages have become problematical. On an interest only mortgage, you will now pay approximately a 1.5% higher rate than on a standard mortgage. On a typical seven to ten year cabin investment this premium significantly reduces the advantage of interest only mortgages making them no longer cost effective. The only circumstance I can envision where an interest only mortgage might still be viable would be on a much more speculative purchase for three years or less with the idea of “playing the market” counting on taking short term advantage of market recovery. While a case can be made for this strategy, it has a much higher risk factor than my typical client is willing to take.