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

nolanfan34 · #1 11-01-2005, 05:56 PM

Mrs. Nolanfan and I are in the process of looking to buy a house. I'm having a hard time right now deciding on what kind of financing we should go with. Any economists in the house who want to make a prediction?

One one hand, a 5-year ARM allows us to get a better rate for the short term, and a lower monthly mortgage payment. The question is, what are rates going to look like in 5 years, when it would adjust? We could refinance in that timeframe, but what are the odds we could see rates jump a point or two in the next few years, before we're able to do that?

The 30-year fixed would allow us to lock in a rate, but one that's 5/8 to 3/4 of a point higher than an ARM for the short term. So, a higher monthly payment, etc.

Which is the better gamble at this point? Having a lower monthly payment to start with is somewhat important to us, so we can try to save some money for improvements on the house we buy. But I'm wary of being socked with a higher rate later, if they go way up.

nyc999 · #2 11-01-2005, 06:00 PM

I am closing on a house this month, and know exactly what you mean.

I ended up going with a 7-year ARM, which has slightly higher interest rates but with more time to refinance.

Secondly, how long do you intend to stay in the house? The national average is 7 years so if you get a 7-year ARM you will most likely be able to sell before worrying about it.

BoogerFace · #3 11-01-2005, 06:01 PM

Interest rates are near historical lows. It would be prudent to expect interest rates to rise within the next 5 years.

I vote for 30 year fixed.

Reqtech · #4 11-01-2005, 06:05 PM

If you expect to move (growing family, perhaps?) in the next 5 years, ARM.

If not, fixed. It's hard to imagine rates being lower (or the same) in five years.

PanchoVilla · #5 11-01-2005, 06:05 PM

5/8 to 3/4 seems high, the gap between a 5/1 ARM and a 30 fixed is so large. Adjustable rates have gotten hammerred in the last few weeks. I just locked a rate on a refi for a friend of mine two days ago and the difference between a 30 fixed and a 5/1 Arm was only a quarter point. I would be happy to sanity check your rate quotes if you wanted to email me at the address below.

Pancho
e-mail is
presto(dot)good(at)gmail(dot)com

astroglide · #6 11-01-2005, 06:12 PM

i think the obvious answer to this lies in how long you think you'll actually live there

swede123 · #7 11-01-2005, 06:16 PM

If you are planning to stay at this house for the long haul go fixed. Interest rates right now are very low, and even if they were to get lower five years down the line you could always refinance at that time.

If you are planning to move to a bigger house or another city in the next several years (like the next seven or eight years) go for the ARM.

Swede

hicherbie · #8 11-01-2005, 06:16 PM

[ QUOTE ]

Interest rates are near historical lows. It would be prudent to expect interest rates to rise within the next 5 years.

I vote for 30 year fixed.

[/ QUOTE ]

id agree...rates over the avg of the next 30 years wont be this low. id go with a frm.

tonypaladino · #9 11-01-2005, 06:18 PM

So this thread not about how many 5 year mortgages you can take on [img]/images/graemlins/confused.gif[/img]

nolanfan34 · #10 11-01-2005, 06:34 PM

Thanks for the thoughts so far, and some more background:

Most likely, I'd anticipate we live in this place between 5-7 years. That's not set in stone though, if it turned out that we blink and it's 10 years later, that wouldn't surprise me.

We don't have kids yet, but plan to in the future. We are trying to buy something big enough to anticipate that.