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Would you do 7/1 ARM or a 30-year fixed mortgage for a starter home?
Posted on 2/12/14 at 1:51 pm
Posted on 2/12/14 at 1:51 pm
If you are buying your first home and don't plan on living there beyond 5-7 years, would you go with 7/1 ARM or a 30 year fixed loan?
I am thinking if we don't plan to live there long term, why pay the extra interest (~3.4% vs ~4.2%)? At any time we still have the option to refinance to a 30-year fixed, so under extenuating circumstances, we just switch. What is the MB's take on this?
I am thinking if we don't plan to live there long term, why pay the extra interest (~3.4% vs ~4.2%)? At any time we still have the option to refinance to a 30-year fixed, so under extenuating circumstances, we just switch. What is the MB's take on this?
7
Posted on 2/12/14 at 2:07 pm to saintforlife1
do the math on how much you are saving a month. if the risk is worth it to you then take the 7/1 arm. just know that in rate will be higher when you have to refinance and you will have to repay closing cost when you refinance.
Posted on 2/12/14 at 2:19 pm to saintforlife1
I think it works for certain situations. One problem is your options are limited.
Posted on 2/12/14 at 4:34 pm to saintforlife1
quote:
Would you do 7/1 ARM or a 30-year fixed mortgage for a starter home?
Rates are at historic lows. Only one way to go from here.
I locked in at 2.875 % on a 15 year loan.
Do what's best for you.
Posted on 2/12/14 at 4:51 pm to saintforlife1
I regret not doing an ARM. It would have worked great for me. Similar to you, I'm not planning to be here long term.
You should also review the loan terms. Most of the time there's a max yearly increase, and a maximum overall increase. At 3.4%, it should not creep up much over 5-6%. Take advantage of the lower interest rates for the first few years, and not pay much different than a refi at the point it starts climbing.
You should also review the loan terms. Most of the time there's a max yearly increase, and a maximum overall increase. At 3.4%, it should not creep up much over 5-6%. Take advantage of the lower interest rates for the first few years, and not pay much different than a refi at the point it starts climbing.
Posted on 2/12/14 at 7:45 pm to saintforlife1
You can't predict the future.
ARMs are for retards.
ARMs are for retards.
Posted on 2/12/14 at 10:17 pm to saintforlife1
quote:
ARM
quote:
starter home
These words should never be used together.
Posted on 2/13/14 at 7:17 am to saintforlife1
I believe people have an irrational fear of ARMs because so many people got into them without understanding their max exposure to rate increases.
I'm about 5 weeks away from closing on a new construction and I'm getting a 5/5 ARM at 3.5%. My situation is a little different though because this is literally the only mortgage I can get (short sale less than two years ago).
It has a max adjustment of 2% and a lifetime cap at 6.9%. So the worst case scenario is I pay 3.5 for the first five years, 5.5 for the next and 6.9 for the rest of the life of the loan. I can live with that, but most likely I will refi into a 15 year when my wife goes back to work within the next few years.
If you understand the very worst that can happen (you can't refi/sell for some reason and the rate goes as high as it can possibly go) and you're OK with this, I say definitely go for it.
I'm about 5 weeks away from closing on a new construction and I'm getting a 5/5 ARM at 3.5%. My situation is a little different though because this is literally the only mortgage I can get (short sale less than two years ago).
It has a max adjustment of 2% and a lifetime cap at 6.9%. So the worst case scenario is I pay 3.5 for the first five years, 5.5 for the next and 6.9 for the rest of the life of the loan. I can live with that, but most likely I will refi into a 15 year when my wife goes back to work within the next few years.
If you understand the very worst that can happen (you can't refi/sell for some reason and the rate goes as high as it can possibly go) and you're OK with this, I say definitely go for it.
This post was edited on 2/13/14 at 8:23 am
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