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Old 10-23-2013, 03:01 PM
 
Location: Southern California
4,350 posts, read 4,958,716 times
Reputation: 2129

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Quote:
Originally Posted by EngGirl View Post
This is what I am trying to figure out - what numbers OP used to come up with this calculations and savings towards principle ($25K within 5 years).
I played with some numbers and don't see any significant difference in savings between 5/1 arm and 30 year fixed for example. If OP has extra $$ to pay towards principle each month on top of regular payment for lets say 30 year fix, it makes more sense.
I didn't try to figure out their math, but I just took their word for it. I don't know what numbers you are using either . These numbers work.
This is not a quote : 500k loan 3.0%for 5/1 ARM a 4.25 for a fixed 30. Match the payments will yield over $6000 a year in principal difference.

Balance left after 60 months 454k versus 421k?
Right?
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Old 10-23-2013, 03:37 PM
 
3,313 posts, read 4,111,041 times
Reputation: 1829
That's why I asked for mortgage amount in the first place.
There are 2 important things to consider for future refinancing - 1) $$ needed for refinancing and 2) interest rate at that time. it might increase (or not) and you will be paying way more compare to fix rate payments in today's conditions.
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Old 10-23-2013, 04:32 PM
 
Location: Southern California
4,350 posts, read 4,958,716 times
Reputation: 2129
Quote:
Originally Posted by CristenS View Post
The scenario: I get an 5/1 ARM with a low rate and therefore a lower payment. Since the payment is lower, I am able to put extra money towards the principal of the home each month, and after 5 years I will have been able to put maybe around $25,000 extra into the principal. At that point I can see how much my payment jumps up (if it doesn't jump by much I can continue this process), or if the payment increases too much I refinance into a fixed rate.

What am I missing about this scenario, would this work? It seems like this would be an easy way to get more money into the principal, but also leave me with a cushion just in case something happens to me financially that I technically do have a lower payment for 5 years.
Let's say you saved $30,000 over the next 5 years, but then the adjustable rates become higher than the fixed rate loans. Let's say that your fixed rate is at 6%, how long would it be before your new loan balance matchs the balance if you would have just taken the fixed 4.5 rate today if you match payments with the higher rate loan with the number I used earlier, there'd be payment now of around $2700. In about another 5 years the original loan then become a better option. Your loan balance would be about the same but now you'd have a $250 lower payment.

It become a crazy speculations numbers game.
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Old 10-23-2013, 07:11 PM
 
Location: Mount Laurel
4,146 posts, read 8,436,901 times
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If you want to look at ARM, look for lender that offer something 5/5 ARM. Rate could be very competitive. I am aware of a credit union now that offer 5/5 at 2.75%. That is the same rate as their current 5/1 offering. Worse case scenario would be 4.75 at year 6 and 5.75 at year 11.

The disadvantage of this over 5/1 is that interests rate at year 6 is crucial as it sets the rate for the next 5 years.
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Old 10-25-2013, 11:40 AM
 
Location: Plano, TX
75 posts, read 218,753 times
Reputation: 24
the rate will increase in 5yrs.... rates are artificially low right now.
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