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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 2:17 pm to hawkeye007
quote:
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 If you have to refinance and you will have to repay closing cost If you refinance.
I agree. Just change when to if
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 2:26 pm to hawkeye007
quote:
just know that in rate will be higher
You don't know this.
Posted on 2/12/14 at 2:41 pm to C
after 10yrs as a mortgage banker i am 99.9% sure the rates will be hiher in 5-7 yrs then they are now. the only place to go from all time lows is up!
Posted on 2/12/14 at 3:03 pm to hawkeye007
quote:
the only place to go from all time lows is up!
quote:
after 10yrs
Let me ask you, what were they saying when you first joined the industry?
Posted on 2/12/14 at 3:14 pm to C
i joined in the heyday of subprime when i didnt know shite and sold loand of flash cards(true story). i am not saying % rates will be 8% in 5-7 years but i do see them in the 5.5-6% range. our crappy economy will keep them from sky rocketing
Posted on 2/12/14 at 4:31 pm to C
quote:
Let me ask you, what were they saying when you first joined the industry?
Interesting chart, I got a loan in 1997 when rates had dropped to around 6.5%, while mortgage shopping every broker told me I needed to lock in soon because rates would never be that low again in my lifetime!
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 5:27 pm to LSUtigerME
7/1 arm
You will never stay in a 30yr fix longer than 5-7yrs unless the home youvare buying is 100k or under
You will never stay in a 30yr fix longer than 5-7yrs unless the home youvare buying is 100k or under
Posted on 2/12/14 at 6:07 pm to Will Cover
quote:
I locked in at 2.875 % on a 15 year loan.
that is just truly amazing.
BTW, when I bought our first house, we got 6% and everyone was talking about how amazing 6% was and how it couldn't get any better, and when our 5/1 ARM expired, our rate dropped. We ended up selling around that time so we didn't refinanance buts its something.
I do think rates are going to go up though.
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 8:53 pm to LSUAlum2001
I refi'd to a 7/1 ARM in 2012. I'm locked in at 2.875% until 2019, and it can only adjust 2% per year, and 5% max over the life of the loan, so the most I'll ever pay is 7.875%. We plan on moving in the next 3-4 years, so we shouldn't have to worry about the rate adjusting.
If this is a starter home, you more than likely won't be there for 7 years- I'd go for it, and take the opportunity to build some extra equity for your next home.
If this is a starter home, you more than likely won't be there for 7 years- I'd go for it, and take the opportunity to build some extra equity for your next home.
Posted on 2/12/14 at 9:14 pm to LSUAlum2001
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
Posted on 2/13/14 at 8:16 am to LSUAlum2001
quote:
ARMs are for retards.
Mine adjusts monthly. I'm paying 1.75%.
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