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Old 12-11-2013, 05:52 PM
 
1 posts, read 2,137 times
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'm first time home buyer taking home loan of $600,000 for purchasing home. I want to stay in home 12-15 years. I would like your suggestion which one is better option- 7 ARM @ 3.125%, 10 ARM @ 3.5% or 30 year fixed @ 4.125%. Seeking experts kind advice.
I calculated if in 7 ARM I pay payment same as 30 year I'm paying principal 46k more while in 10 ARM 29k more in 7 years.
I'm in dilemma which option to take. I plan to pay same payment as 30 year fixed if I take ARM so can reduce principal much faster. If take ARM will try for best option to refinance from 5th year onwards. But, I'm keep hearing that 4.125% is all time lowest rate if we exclude 2012 rates and may not happen again.

I'm buying home at almost market peak so not sure if home price will drop or same in next 7 - 10 years to refinance. Though I'm planning to reduce principal as much possible till my ARM rates are fixed, by any chance if interest rates go up till 8% cap of ARM, will my reduce principal help me. I understand risk and gain go together but looking for expert foresight, will this 30 year fixed rate of 4.125% is run away rate that make it right choice to go with it and ignore perks of ARM. Or, ARM approach with reducing principal faster sounds good plan, in that case which one of 7/1 ARM @ 3.125 or 10/1 ARM @ 3.5% seems wiser. With ARM my goal would be to refinance at any opportunity I see to refinance with in fixed rate period.


Fees are equal on all the loans. After Adjustable period its +/- 2% every year till max cap of 8%. I buying bigger home more than I need right now in good school district, good neighborhood. However I have long time before my child even go to elementary school. So considering all factors what mortgage option seems wiser to you?

Thanks
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Old 12-11-2013, 09:34 PM
 
3,317 posts, read 7,251,326 times
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Think about the 10/1 - if it gets ugly after that you can refi into a very short term ARM to buy you the time to get out in the manner that you choose. Or maybe like a 7/1, then ride the adjustable period and refi into a 5/1 or lesser ARM.
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Old 12-11-2013, 11:23 PM
 
Location: Southern California
4,350 posts, read 4,929,984 times
Reputation: 2129
Quote:
Originally Posted by sonu200333 View Post
$600,000 12-15 years.
7 ARM @ 3.125%,
10 ARM @ 3.5%
30 year 4.125%.
I calculated if in 7 ARM I pay payment same as 30 year I'm paying principal 46k more while in 10 ARM 29k more in 7 years.

rates and may not happen again.

I'm buying home at almost market peak so not sure if home price will drop or same in next 7 - 10 years to refinance.

Though I'm planning to reduce principal as much possible till my ARM rates are fixed, by any chance if interest rates go up till 8% cap of ARM, will my reduce principal help me.

understand risk and gain go together but looking for expert foresight, will this 30 year fixed rate of 4.125% is run away rate that make it right choice to go with it and ignore perks of ARM. Or, ARM approach with reducing principal faster sounds good plan, in that case which one of 7/1 ARM @ 3.125 or 10/1 ARM @ 3.5% seems wiser.

With ARM my goal would be to refinance at any opportunity I see to refinance with in fixed rate period.

Fees are equal on all the loans. After Adjustable period its +/- 2% every year till max cap of 8%.
I buying bigger home more than I need right now in good school district, good neighborhood. However I have long time before my child even go to elementary school. So considering all factors what mortgage option seems wiser to you?

Thanks
Your finance period should match how long you might keep the property, you are buying bigger than what you need now, then you are buying for the future. What is your goal in 10-15 years, buy up or buy down when you move.

In year 8, if you spent $15,000 in fees/discount points do you think you can get a 3 year ARM at 3.5?

In year 11 do you think you can spend $40,000 to get a rate lower than 4.125% for the next 20 year?

You figured out your savings, so you know the amortization, do you think in 10 years, your home will be worth at least $537K?

With ARM my goal would be to refinance at any opportunity I see to refinance with in fixed rate period - How low will the rate have to get for you to do this?

The 4.125 is a very low rate, you should not expect it to be lower for a 30 year product Rates for a 20,15, or 10 might be lower than 4.125 down the road, but who knows.

I think the 10 year is the best bet because in year 11, you would be closer to refinancing into a non jumbo loan.
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Old 12-12-2013, 06:04 AM
 
Location: MID ATLANTIC
7,598 posts, read 17,614,249 times
Reputation: 8078
There's some missing information here, including down payment and if there is MI - which will impact any recommendation. Are we truly comparing apples to apples in these scenarios? I've gone back and read and re-read the original post and do not see this information........but in the interest of full disclosure, I am not even through my first cup of coffee.
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