Interest Rates gamble - 30 yr. fixed vs. 5-year ARM's

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Sure there is a gamble. If he moves in 5 years, he will have paid a premium for the fixed rate but gained no advantage.


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I also went through this a year ago. I took the 5 year ARM. But, I also bought a new house, the builder bought down my rate. Talk to builders, housing is looking too/has slowed some and deals are being made. Just a suggestion, but I ended up with 2x the house for the same mortgage at half the payment.

[Pinlifter]

Don't get your loan through Mortgage Lending Direct. Those guys are theives.

Pinlifter.

[dcasper70]

I took a 5/1 arm last July at 4.somethingorother%, don't remember exactly. My whole thought process was a little different.

We budgeted 2k/month before we started looking (southwest CT). I planned on paying that amount every month regardless of what the actual payment was, and just put the remainder towards principle. My goal is to pay it off in 20 yrs or less.

I don't recall the precise numbers, but a 30yr mtg would have put my payment around $1700, while the 5/1 is around $1450. That extra $250/month that I put to principle will end up knocking off an additional $15k over 5 yrs.
When the 5 years is up, this difference may make it very possible for us to fit into a 15 yr fixed mtg, which usually beat the 30 year rate and the payments aren't drastically different. House paid in full in 20 or less!


Another way to think about this:
How much would you'd save over 5 yrs with the 5/1 arm?
How much would the 30 yr rates have to rise in that 5 year period in order to eat through this savings when you refinance?


Good luck

[jackdaniels]

In Canada here.

I just bought two homes which I plan to keep for the next 5-7 years. As such I locked in to a 5 year mortgage (@ 4.39%) - betting that rates will go up (I could have chosen a variable rate of Prime + half). One thing my accountant told me was to try and have your mortgage opening time coincide with the presidential election in the US, as historically rates have been kept low during this period.

Good luck with the purchase of your new home.

[stoxtrader]

sit down and run the numbers on both deals, take a 5 year, 10 year, and 15 year occupancy scenario and see which is best for what.

I think you will find that the 5 or 7 year ARM is best.

[4_2_it]

My 5.25% 30-year looks pretty good now. The Fed will raise rates at least 3 more times times before next summer, so your ARM is gonna go up. If there is a remote chance you will be in that house in 5 years, go with the fixed rate. Rates will not stay low forever and they are not going down anytime soon.

This really boils down to your risk tolerance. Will you be kicking yourself if your arm goes up to 7.5% and you re-fi to a 7.25% 30 year when you could have had a much lower rate a year earlier?