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| Yes, there is some risk. One would assume that risk is somewhat built in. I think one loan I did had a cap on maximum rate or a maximum rate of increase on the interest rate. I have attached a example spreadsheet that I started when I did a land purchase. At the time I think the fixed rate was 5% for a fixed 10 year, amortized for 20 years. The starting 5 year variable rate was 4%. The remaining 15 years could have risen to 5.75% to roughly equal the fixed 5 year. The actual loan reset at 3.334% during covid and could reset to 9.8% for the last 10 years to roughly equal 5% for the full 20 years. Of course if it resets to 9.8% the 10 year fixed would probably reset higher.
Attachments ---------------- Interest Comparison.ods (35KB - 93 downloads) Interest Comparison.xlsx (15KB - 85 downloads)
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