Tenancy-in-common (TIC) loans are no longer limited to adjustable-rate terms. It’s official: You can now get a 30-year fixed loan.
Part of the reason fractional loans haven’t moved beyond adjustable-rate mortgage (ARM) products is because the idea behind TICs was to condo convert in a few years. So you’d end up refinancing out of the TIC loan, anyway. Plus, the handful of TIC lenders out there wanted to limit their exposure in the riskier fractional financing market.
But condo conversion has long been suspended for buildings with three or more units, so that aspect isn’t really relevant anymore. And fractional loans have turned out to be successful for lenders, as there haven’t been many loan defaults among the well-qualified buyers who meet the lender guidelines for income, credit and assets.
Lenders are obviously now comfortable offering a longer fixed-rate term, and TIC owners, in turn, seem to be staying in their properties as long as condo owners do—-in many cases, beyond three or five years.
So for those who are wary about being exposed to a higher interest rate after an ARM adjusts in the future, a 30-year fixed TIC loan could be a good fit.
TIC loan expert Gordon Friedman has a variety of options available with 20%-35% down. Although the minimum down payment is twenty percent, rates and points improve vastly with down payments of 25% or more.
Yes, I did mention points. A point equals one percent of the total amount borrowed, so you do have to deal with some up front costs in order to secure this type of loan. And interest rates are a bit higher than that of condos or single-family homes.
For example, a buyer can currently expect a rate in the neighborhood of 4.25% for a 30-year fixed TIC loan. And that would require 1.5%-1.75% in points.
However, this is at least an option for those who don’t want to get a more risky adjustable-rate loan.