A zero cost refinance mortgage is actually a loan where the loan broker, or company organizing the loan will pay all of the closing costs on the borrowers behalf. This type of loan is brilliant for anybody that needs to refinance their home loan without having to pay lots of money upfront.
The zero mortgage cost loans can vary quite a lot depending upon the person that is offering the loan. Almost every home loan has physical fees that must be paid, who pays these fees is decided in the agreement under the particulars.
A few mortgage lenders aren’t prepared to pay for the closing costs, and expect you the borrower to pay for them. Even if this is the case, homeowners can still benefit from a no cost refinance. The fees for arranging the refinance can be incorporated in the loan. Although you will have to pay the fees eventually you will be required it does mean you don’t have to pay as much up front.
Including the refinancing fees within the mortgage means that you have to pay little, or nothing up front. You must realize that you will be paying interest for this, so it’s not free.
Benefits of using a zero closing cost refinance home mortgage loan. These types of loan are preferred by people that have little cash flow, these will help people to maintain the most cash flow.
The normal closing costs are around 3-5% of the loan amount, which can be very expensive. You really can save a fortune by looking for no cost refinance home loans. If the mortgage broker or lender is willing to pay the arrangement fees, the borrower still has to pay other fees that may be incurred. These include things like escrow fees, and fees to pay for the appraisal of your home.
Anybody looking to take out a refinance loan should work out these costs in advance, this makes it possible to put enough money aside to meet the expense. It’s only a problem if it’s an unexpected expense.
So far it looks as if a no cost refinance home loan is perfect, however it’s not. There are a number of things that could be seen as disadvantages of a no cost refinance home loan.
Loans
that have zero closing costs cost a lot more in the long run than conventional home refinance loans. This is because the lender has to make up the extra money that they are giving you somewhere. Nothing is free! You have to realize that the only reason someone would want such a loan is to improve their cash flow.
Borrowers using no closing cost loans will have a higher monthly payment as a result of higher interest rates.
You can also find more info on Purchase Points When You Refinance and Refinance a Manufactured Home. Mortgagerefinanceloanhelp.com is a comprehensive resource to get help in Mortgage refinance Loan.
http://ezinearticles.com/?Refinancing-My-Home-For-Free&id=591892
Tuesday, June 5, 2007
How to Use a Reverse Mortgage Calculator
A reverse mortgage calculator is a powerful and beneficial financial tool if you know how to use it correctly. Most of the calculators that you find are online are accessible and easy to use to get the data you need when you want it. But for many, using a reverse mortgage calculator may seem like more trouble than it is worth.
The American Association of Retired Persons (AARP) website features the most-accessed reverse mortgage calculator on the internet. Their calculator consists of only four easy to use questions that when answered can allow you to roughly determine what you should anticipate if you secured a reverse mortgage within the near future. By knowing your age, the appraised value of your home, your spouse’s age and your zip code, a mortgage calculator can have you well on your way to knowing how much you could get out of your home if you signed up for a reverse mortgage.
When you finally decide to use the reverse mortgage calculator on the AARP website, the first step for you is entering in all of the required information. If you do not know the value of your home, estimate based upon the appraisal value of your home for tax purchases, your purchase price or perhaps a rough estimated appraisal that you have find from online real estate services such as Zillow.com.
Once you have entered all of the required data, you will be taken to a page that offers itemized details of how much you stand to acquire as a homeowner from a reverse mortgage. In addition to these initial details, a reverse mortgage calculator will also tell you if you can get a single lump sum payment, a line of credit account or the traditional monthly loan advance payment on your home.
To find relevant details on something specific such as reverse mortgages ask your friends and co-workers for info they may have found out on it. You can also look up various groups on the web that discuss things such as newsgroups and forums. There is one on so many topics and you can post your own question. See below for more information on Reverse Mortgage Calculator.
http://ezinearticles.com/?How-to-Use-a-Reverse-Mortgage-Calculator&id=590143
The American Association of Retired Persons (AARP) website features the most-accessed reverse mortgage calculator on the internet. Their calculator consists of only four easy to use questions that when answered can allow you to roughly determine what you should anticipate if you secured a reverse mortgage within the near future. By knowing your age, the appraised value of your home, your spouse’s age and your zip code, a mortgage calculator can have you well on your way to knowing how much you could get out of your home if you signed up for a reverse mortgage.
When you finally decide to use the reverse mortgage calculator on the AARP website, the first step for you is entering in all of the required information. If you do not know the value of your home, estimate based upon the appraisal value of your home for tax purchases, your purchase price or perhaps a rough estimated appraisal that you have find from online real estate services such as Zillow.com.
Once you have entered all of the required data, you will be taken to a page that offers itemized details of how much you stand to acquire as a homeowner from a reverse mortgage. In addition to these initial details, a reverse mortgage calculator will also tell you if you can get a single lump sum payment, a line of credit account or the traditional monthly loan advance payment on your home.
To find relevant details on something specific such as reverse mortgages ask your friends and co-workers for info they may have found out on it. You can also look up various groups on the web that discuss things such as newsgroups and forums. There is one on so many topics and you can post your own question. See below for more information on Reverse Mortgage Calculator.
http://ezinearticles.com/?How-to-Use-a-Reverse-Mortgage-Calculator&id=590143
Indiana Follows The Lien Theory Of Mortgages
An interesting dispute in the United States Bankruptcy Court for the Northern District of Indiana resulted in a March 27, 2007 opinion by Judge Harry C. Dees, Jr. about a borrower’s attempt to transfer ordinance citations, fines and other property-related liabilities to a lender. The issue was whether a mortgagor’s/borrower’s unilateral execution and recordation of a quit-claim deed effectively transferred the real estate to the mortgagee/lender. Although the case involved residential property, the rules and holding are equally applicable to commercial real estate and business borrowers. The lesson of Phillips v. City of South Bend, 2007 Bankr. LEXIS 1503 (N.D. Ind. 2007) is: a borrower simply can’t unload its real estate-based problems onto a secured lender without some kind of agreement or consent.
The facts. The City of South Bend pursued a residential property owner for nuisance violations related to property, which was in disrepair and had documented unsanitary conditions in the yard. Potential fines and penalties were around $5,000. Citifinancial held a mortgage on the property. The borrower/mortgagor, in an apparent effort to avoid municipal liability, executed and recorded a quit-claim deed purporting to abandon the property and transfer title to Citifinancial. Citifinancial, however, never “acknowledged transfer of the property” or took “responsibility for maintaining the property.” Id. at 3. Citifinancial “did not accept the transfer” (although it is not entirely clear how Citifinancial manifested that non-acceptance). The borrower did not enter into any kind of written agreement with Citifinancial, and Citifinancial “took no action at all” with regard to the property. Id. at 14. There was no written consent by Citifinancial or any activity demonstrating consent, such as the physical possession of the property. Evidently, Citifinancial simply ignored the quit-claim deed.
Indiana mortgages, generally. Indiana follows the “lien theory” of mortgages. This means that a mortgage creates a lien on property but not title to it. Mortgagees do not have an ownership interest in the real estate. Id. at 15. Title to property cannot be transferred to the mortgagee unless there is a foreclosure and sale (or a deed-in-lieu of foreclosure). Indiana defines “foreclosure” as a legal proceeding that terminates a mortgagor’s interest in property. Id. “The right to possession, use and enjoyment of the mortgaged property, as well as title, remains in the mortgagor, unless otherwise specifically provided, and the mortgage is a mere security for the debt. Id. So, secured lenders holding Indiana mortgages merely have liens as security for their loans.
Transfer is a two-way street. In Phillips, the borrower executed and recorded a quit-claim deed in order to surrender the property, but no foreclosure took place. The Court held that the borrower could not compel the mortgage holder to accept the surrendered, quit-claimed property and that the borrower continued to be the owner of the property, with all the rights and obligations. The City properly enforced its property maintenance codes against the borrower, not the lender, as owner of the property. Id. at 15. The unilateral execution of a quit-claim deed in an effort to surrender the property to mortgage holder, while clever, ultimately accomplished nothing from the standpoint of avoiding liability.
Impact on commercial cases. Phillips impacts the handling of commercial foreclosure cases as well. A corporate borrower in possession of commercial real estate collateral could decide, in an effort to avoid certain liabilities related to the ownership of the land (such as public nuisance fines, utility charges or maybe even real estate taxes), to dump these problems back on a commercial lender simply by quit-claiming the property and surrendering possession. A secured lender may, for a variety of reasons, not want the property, particularly by quit-claim deed, until the property is run through a foreclosure. In that case, according to Phillips, the secured lender should take every possible action to show that it has not acknowledged or accepted transfer of the property or otherwise consented to ownership. Don’t sign any paperwork indicating you are the owner. Avoid physical presence on the premises. Make sure there are no communications with the mortgagor/borrower other than with statements that unequivocally demonstrate you do not want title to the property at that time (unless through a deed-in-lieu of foreclosure with a supporting agreement). That way, if and when you want to liquidate the collateral or become the owner of the property, you can do it on your own terms and avoid the potential liability found in Phillips.
http://ezinearticles.com/?Indiana-Follows-The-Lien-Theory-Of-Mortgages&id=592015
The facts. The City of South Bend pursued a residential property owner for nuisance violations related to property, which was in disrepair and had documented unsanitary conditions in the yard. Potential fines and penalties were around $5,000. Citifinancial held a mortgage on the property. The borrower/mortgagor, in an apparent effort to avoid municipal liability, executed and recorded a quit-claim deed purporting to abandon the property and transfer title to Citifinancial. Citifinancial, however, never “acknowledged transfer of the property” or took “responsibility for maintaining the property.” Id. at 3. Citifinancial “did not accept the transfer” (although it is not entirely clear how Citifinancial manifested that non-acceptance). The borrower did not enter into any kind of written agreement with Citifinancial, and Citifinancial “took no action at all” with regard to the property. Id. at 14. There was no written consent by Citifinancial or any activity demonstrating consent, such as the physical possession of the property. Evidently, Citifinancial simply ignored the quit-claim deed.
Indiana mortgages, generally. Indiana follows the “lien theory” of mortgages. This means that a mortgage creates a lien on property but not title to it. Mortgagees do not have an ownership interest in the real estate. Id. at 15. Title to property cannot be transferred to the mortgagee unless there is a foreclosure and sale (or a deed-in-lieu of foreclosure). Indiana defines “foreclosure” as a legal proceeding that terminates a mortgagor’s interest in property. Id. “The right to possession, use and enjoyment of the mortgaged property, as well as title, remains in the mortgagor, unless otherwise specifically provided, and the mortgage is a mere security for the debt. Id. So, secured lenders holding Indiana mortgages merely have liens as security for their loans.
Transfer is a two-way street. In Phillips, the borrower executed and recorded a quit-claim deed in order to surrender the property, but no foreclosure took place. The Court held that the borrower could not compel the mortgage holder to accept the surrendered, quit-claimed property and that the borrower continued to be the owner of the property, with all the rights and obligations. The City properly enforced its property maintenance codes against the borrower, not the lender, as owner of the property. Id. at 15. The unilateral execution of a quit-claim deed in an effort to surrender the property to mortgage holder, while clever, ultimately accomplished nothing from the standpoint of avoiding liability.
Impact on commercial cases. Phillips impacts the handling of commercial foreclosure cases as well. A corporate borrower in possession of commercial real estate collateral could decide, in an effort to avoid certain liabilities related to the ownership of the land (such as public nuisance fines, utility charges or maybe even real estate taxes), to dump these problems back on a commercial lender simply by quit-claiming the property and surrendering possession. A secured lender may, for a variety of reasons, not want the property, particularly by quit-claim deed, until the property is run through a foreclosure. In that case, according to Phillips, the secured lender should take every possible action to show that it has not acknowledged or accepted transfer of the property or otherwise consented to ownership. Don’t sign any paperwork indicating you are the owner. Avoid physical presence on the premises. Make sure there are no communications with the mortgagor/borrower other than with statements that unequivocally demonstrate you do not want title to the property at that time (unless through a deed-in-lieu of foreclosure with a supporting agreement). That way, if and when you want to liquidate the collateral or become the owner of the property, you can do it on your own terms and avoid the potential liability found in Phillips.
http://ezinearticles.com/?Indiana-Follows-The-Lien-Theory-Of-Mortgages&id=592015
Is An Interest Only Mortgage Really That Risky? In Short, No
What if I told you that hands down, an Interest-Only mortgage is a much more prudent use of your real estate funds compared to a conventional loan over a 10-year time period, all other things being equal? This comparison takes into account the present value of money, the equity that you're not building by going the interest only route and in the event the housing market crashes, the difference in risk is negligible, contrary to media accounts. The Net Present Value (NPV) of an Interest Only mortgage is an improvement of 5% (more on that later) compared to a conventional 30 year mortgage.
With the sub-prime market undergoing a meltdown and the real-estate market still declining or languishing, there are legitimate concerns related to all facets of home buying. Of the common mortgage options (conventional 30 or 15 year, adjustable rate mortgage [ARM], Interest Only ARM, and Option ARM/Negative Amortization), the conventional is the most conservative and oft cited as the only way to go for people with their heads screwed on right. The news accounts of "risky" interest only mortgages and the certain disaster they bring would make anyone think twice. In most cases, these fears are overblown and misunderstood. I've seen some accounts where the media is actually mistaking a an Interest Only ARM for a negative amortization loan (which combined with nothing down is extremely risky and I would never recommend it under any circumstances). In this post, I will prove to you that aside from the added benefit of getting more house for your money (don't compare this to leasing a car...different post), all things being equal, an Interest Only ARM can actually be a better use of your funds with roughly equal risk.
First, some brief points on different mortgage types:
Conventional - Typically a 30 or 15 year, the payments start off as primarily interest with some principle and gradually transition over to increasing principal payments after several years. In this respect, early on in the mortgage, a conventional is not much different than an interest only. On a hypothetical $100,000 loan, during the first year, of the total $600 monthly payment, only $100 is going toward your principal and the other $500 toward interest.
ARM - You can have a conventional loan that starts with the first several years with a lower set interest rate, which can increase later, based on a widely utilized rate index. The reason buyers opt for the ARM is that the initial lock-in rate is normally lower than the going 30-year rate (excluding rather bizarre economic conditions). Typical terms are 1,3,5 and 7 years. After that, a standard contract allows for the rate to increase each of 2 years for up to 2%, for a maximum of 4% over your initial rate, if rates were to increase that much. Although the rate is initially locked, you ARE still paying both interest and principal.
Interest Only ARM - Just as it sounds, during the initial lock-in term of say, 1,3,5,7 or 10 years, you pay only interest with no principal AND the rate is locked. After that term, all bets are off; the rate can increase AND once the lock-in period is over, the payments increase substantially because the principal is now to be paid over the remaining term (i.e. all 30 years of principle paid over 20 years, plus the interest). When you sell your home, or refinance, you have no equity built up from principal paid to the bank since you were only paying interest. The naysayers cite this as a risk in that if the real estate market tanks and your house declines by 10%, if you try and sell it, you won't have built up any equity and you can actually lose money on the house. To cite this is an unacceptable risk over a conventional is just silly. Over a period of a few years, the exact same would be true of a conventional since so little is paid in principal up front anyway. What is often confused in the media is the amount you put down or if it's a Negative Amortization loan that can result in this loss upon sale.
Negative Amortization/Option ARM - Although the lenders will rarely call it a negative amortization, that's what it is. When you see an ad for a 1% loan rate, exercise your "option" to run. Although there are various payback options, what typically occurs is someone buys much more house than they can afford by starting with the low teaser rate. During this time period, if their house doesn't appreciate rapidly enough (and these days are over, so don't count on 10% annual appreciation again during our lifetime), they actually start to accrue a negative amortization. You can buy a house for for $300,000 and when you sell it for $300,000, although you'd break even on a conventional or ARM (excluding all closing/transfer costs), you could actually OWE tens of thousands after a couple years. This type is like rolling the dice and I've never come across a scenario where this is a prudent decision (unless perhaps you had a crystal ball in the late 90s and foresaw the unprecedented irrational exuberance in the real estate market and then got out in 2005).
Full Disclosure: I am a daredevil with an Interest Only ARM. I just love living on the edge (sarcasm). I decided I had to write on this after seeing enough press accounts of the delinquencies and bankruptcies related to adjustable rate mortgages. I also like to maximize my cash flow (proof via financial model below). Here's why this made sense for me:
I'm not sure if I'm going to stay in my current house for life. Obviously, if you want to own your house someday, you eventually have to pay principal and can't go on engaging in interest only mortgages forever. In my case, I'm young enough that if I decided to stay, I could simply refinance into a 15-year conventional; since I went with a 10-year Interest Only ARM, I have plenty of time to decide and will certainly either sell refinance during that time.
Since mortgage interest is tax deductible, there is a significant tax advantage to doing an Interest Only. This is factored into my model.
The principal that you pay to the bank as part of a conventional mortgage is free money you're giving the bank to invest and accrue earnings for the years until you either own the house outright or sell it. If you do an Interest Only and invest the same amount of principal you'd be paying the bank, there are obvious benefits. Why would you invest money at zero percent when inflation is 2-3%, savings accounts exceed 5% and the long run average of major market indices are 8-10%? With these principles in mind, I developed a model to compare the Interest Only ARM to a 30 year conventional over a 10-year period with the following assumptions:
Any loan amount will return the same result; I arbitrarily chose $300,000.
I chose a standard 6% interest rate for the loan. I'm reporting the results using a discount rate (what the value of money is to you; i.e. what you could earn investing it elsewhere) of 9% (conservative long-term market average), invested just once per year for simplicity and real life practicality.
All equity accrued through principal payments for the conventional are recouped upon sale or refi at year 10. However, this amount is discounted back to present value since the NPV calculation requires that all values be just that, present value. The ARM accrues no equity obviously, only earnings on money invested.
I accounted for the difference in tax benefits for the Interest Only by using a 25% tax bracket, which for married couples in 2006 was $61,300-$123,700 (Link to full tax brackets below), a common bracket in the U.S.
Any future appreciation in the house would affect each model equally, so there was no need to include in the model.
All closing costs, transfer taxes, etc. are assumed to be equal for each loan. Here are the results. If you'd like to request a copy of the excel version to review, use for yourself or refine, feel free to contact me at the email address listed above. Regarding NPV, that's for another post, but trust me, it's the most comprehensive best way to calculate the current value of an investment - beats payback period, % return, etc. Utilized excel financial functions to ensure accuracy.
For the model, the results are as follows:
Total NPV is $90,741 for conventional vs. $86,638 for Int Only ARM. This means a conventional costs you over $4,100 more over 10 years (including the equity you built!). This is a factor of 5% more expensive to do a conventional. Under either scenario where you either get a lower monthly payment and more house for your money, or pay the same monthly payment for the ARM as you would have for conventional, but invest the money at 9%.
FYI - As your discount rate approaches that of your loan rate (say you're earning 6% in a money market and paying a 6% loan rate), the NPV becomes equivalent. However, you still get more house for your money. Don't give it away for free unless you are 100% sure you're retiring in that house.
http://ezinearticles.com/?Is-An-Interest-Only-Mortgage-Really-That-Risky?-In-Short,-No&id=588712
With the sub-prime market undergoing a meltdown and the real-estate market still declining or languishing, there are legitimate concerns related to all facets of home buying. Of the common mortgage options (conventional 30 or 15 year, adjustable rate mortgage [ARM], Interest Only ARM, and Option ARM/Negative Amortization), the conventional is the most conservative and oft cited as the only way to go for people with their heads screwed on right. The news accounts of "risky" interest only mortgages and the certain disaster they bring would make anyone think twice. In most cases, these fears are overblown and misunderstood. I've seen some accounts where the media is actually mistaking a an Interest Only ARM for a negative amortization loan (which combined with nothing down is extremely risky and I would never recommend it under any circumstances). In this post, I will prove to you that aside from the added benefit of getting more house for your money (don't compare this to leasing a car...different post), all things being equal, an Interest Only ARM can actually be a better use of your funds with roughly equal risk.
First, some brief points on different mortgage types:
Conventional - Typically a 30 or 15 year, the payments start off as primarily interest with some principle and gradually transition over to increasing principal payments after several years. In this respect, early on in the mortgage, a conventional is not much different than an interest only. On a hypothetical $100,000 loan, during the first year, of the total $600 monthly payment, only $100 is going toward your principal and the other $500 toward interest.
ARM - You can have a conventional loan that starts with the first several years with a lower set interest rate, which can increase later, based on a widely utilized rate index. The reason buyers opt for the ARM is that the initial lock-in rate is normally lower than the going 30-year rate (excluding rather bizarre economic conditions). Typical terms are 1,3,5 and 7 years. After that, a standard contract allows for the rate to increase each of 2 years for up to 2%, for a maximum of 4% over your initial rate, if rates were to increase that much. Although the rate is initially locked, you ARE still paying both interest and principal.
Interest Only ARM - Just as it sounds, during the initial lock-in term of say, 1,3,5,7 or 10 years, you pay only interest with no principal AND the rate is locked. After that term, all bets are off; the rate can increase AND once the lock-in period is over, the payments increase substantially because the principal is now to be paid over the remaining term (i.e. all 30 years of principle paid over 20 years, plus the interest). When you sell your home, or refinance, you have no equity built up from principal paid to the bank since you were only paying interest. The naysayers cite this as a risk in that if the real estate market tanks and your house declines by 10%, if you try and sell it, you won't have built up any equity and you can actually lose money on the house. To cite this is an unacceptable risk over a conventional is just silly. Over a period of a few years, the exact same would be true of a conventional since so little is paid in principal up front anyway. What is often confused in the media is the amount you put down or if it's a Negative Amortization loan that can result in this loss upon sale.
Negative Amortization/Option ARM - Although the lenders will rarely call it a negative amortization, that's what it is. When you see an ad for a 1% loan rate, exercise your "option" to run. Although there are various payback options, what typically occurs is someone buys much more house than they can afford by starting with the low teaser rate. During this time period, if their house doesn't appreciate rapidly enough (and these days are over, so don't count on 10% annual appreciation again during our lifetime), they actually start to accrue a negative amortization. You can buy a house for for $300,000 and when you sell it for $300,000, although you'd break even on a conventional or ARM (excluding all closing/transfer costs), you could actually OWE tens of thousands after a couple years. This type is like rolling the dice and I've never come across a scenario where this is a prudent decision (unless perhaps you had a crystal ball in the late 90s and foresaw the unprecedented irrational exuberance in the real estate market and then got out in 2005).
Full Disclosure: I am a daredevil with an Interest Only ARM. I just love living on the edge (sarcasm). I decided I had to write on this after seeing enough press accounts of the delinquencies and bankruptcies related to adjustable rate mortgages. I also like to maximize my cash flow (proof via financial model below). Here's why this made sense for me:
I'm not sure if I'm going to stay in my current house for life. Obviously, if you want to own your house someday, you eventually have to pay principal and can't go on engaging in interest only mortgages forever. In my case, I'm young enough that if I decided to stay, I could simply refinance into a 15-year conventional; since I went with a 10-year Interest Only ARM, I have plenty of time to decide and will certainly either sell refinance during that time.
Since mortgage interest is tax deductible, there is a significant tax advantage to doing an Interest Only. This is factored into my model.
The principal that you pay to the bank as part of a conventional mortgage is free money you're giving the bank to invest and accrue earnings for the years until you either own the house outright or sell it. If you do an Interest Only and invest the same amount of principal you'd be paying the bank, there are obvious benefits. Why would you invest money at zero percent when inflation is 2-3%, savings accounts exceed 5% and the long run average of major market indices are 8-10%? With these principles in mind, I developed a model to compare the Interest Only ARM to a 30 year conventional over a 10-year period with the following assumptions:
Any loan amount will return the same result; I arbitrarily chose $300,000.
I chose a standard 6% interest rate for the loan. I'm reporting the results using a discount rate (what the value of money is to you; i.e. what you could earn investing it elsewhere) of 9% (conservative long-term market average), invested just once per year for simplicity and real life practicality.
All equity accrued through principal payments for the conventional are recouped upon sale or refi at year 10. However, this amount is discounted back to present value since the NPV calculation requires that all values be just that, present value. The ARM accrues no equity obviously, only earnings on money invested.
I accounted for the difference in tax benefits for the Interest Only by using a 25% tax bracket, which for married couples in 2006 was $61,300-$123,700 (Link to full tax brackets below), a common bracket in the U.S.
Any future appreciation in the house would affect each model equally, so there was no need to include in the model.
All closing costs, transfer taxes, etc. are assumed to be equal for each loan. Here are the results. If you'd like to request a copy of the excel version to review, use for yourself or refine, feel free to contact me at the email address listed above. Regarding NPV, that's for another post, but trust me, it's the most comprehensive best way to calculate the current value of an investment - beats payback period, % return, etc. Utilized excel financial functions to ensure accuracy.
For the model, the results are as follows:
Total NPV is $90,741 for conventional vs. $86,638 for Int Only ARM. This means a conventional costs you over $4,100 more over 10 years (including the equity you built!). This is a factor of 5% more expensive to do a conventional. Under either scenario where you either get a lower monthly payment and more house for your money, or pay the same monthly payment for the ARM as you would have for conventional, but invest the money at 9%.
FYI - As your discount rate approaches that of your loan rate (say you're earning 6% in a money market and paying a 6% loan rate), the NPV becomes equivalent. However, you still get more house for your money. Don't give it away for free unless you are 100% sure you're retiring in that house.
http://ezinearticles.com/?Is-An-Interest-Only-Mortgage-Really-That-Risky?-In-Short,-No&id=588712
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