Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
I am planning to buy a SFH. My lender has provided me these 2 options :
1. 1 yr ARM for 5%
2. 15yr fixed mortgage for 5.5%
Loan officer says option 1 is better since rates will come down in a few months and I can fix a rate that time.
I don't know a lot about the option 1 and how ARM works.
Which option do you think is better?
Unless you fully educate yourself about an ARM, do not get one. Lack of knowledge is a bad - and very avoidable - risk.
You've asked for an opinion, so I'll offer mine. Skip the ARM and take the fixed. The rate difference is minimal and unless your loan officer has a crystal ball, he/she doesn't KNOW what's gonna happen. And if rates drop that much that it makes financial sense, you can refinance the fixed rate mortgage.
I'd also be looking for a new loan officer.
(And consider a 30 year instead of a 15 yr. You can always make extra payments while you keep the ability to pay the mortgage if somebody loses their job or some other life changing event occurs. Not everyone will agree with that opinion.)
The stated rate on the ARM is lower (for the first year) than that for the fixed.
WHY, do you think, the mortgage company offers the ARM? Do you think they are a charitable organization that prefers to minimize their income? Do you think they have a mandate to lose money?
Or, just maybe, is it that their actuaries and financial analysts conclude that on average they'll actually make MORE money on the 1 year 5% ARM? Do you think your loan officer and you have better ability to predict how much money will be spent on interest, than the staff of the mortgage company? (You do realize that a loan officer is a SALESMAN, not an economist?)
If you can convince yourself, based on actual data and knowledge of economics, that YOU are an unusual case, and that therefore you'll spend less in interest with the ARM, go ahead. But if you don't know whether you're this unusual case, then the probability is that you will spend MORE in interest on the ARM. Otherwise that product wouldn't be offered with a first-year stated rate lower than the rate of the fixed rate product.
Unless you fully educate yourself about an ARM, do not get one. Lack of knowledge is a bad - and very avoidable - risk.
You've asked for an opinion, so I'll offer mine. Skip the ARM and take the fixed. The rate difference is minimal and unless your loan officer has a crystal ball, he/she doesn't KNOW what's gonna happen. And if rates drop that much that it makes financial sense, you can refinance the fixed rate mortgage.
I'd also be looking for a new loan officer.
(And consider a 30 year instead of a 15 yr. You can always make extra payments while you keep the ability to pay the mortgage if somebody loses their job or some other life changing event occurs. Not everyone will agree with that opinion.)
Also my immediate reaction.
I'd also be looking for a new loan officer. I'd also be looking for a new loan officer. I'd also be looking for a new loan officer. I'd also be looking for a new loan officer.
The loan officer is seeding the soil for another loan asap.
The fixed rate loan is safer. Most mortgages allow you to refinance, so if rates go down you're not stuck with 5.5%. Be sure to read the loan documents to see if there are any restrictions on refinancing.
ARMs are for people who are both willing to, and capable of, accepting the risk of higher rates. With that said, short-term rates are pretty high today which makes the 1-year ARM not terribly attractive even for risk takers, in my opinion anyway.
Agree with all of the above. The reason it's called and ARM is because it could cost you an arm.
If you can afford the payments (with taxes and insurance included) on the 15 year fixed, get a 30 year fixed and make the payments based on the 15 year amortization. Gives you some payment flexibility as mentioned above.
I'd also be looking for another loan officer. Yours must have been a car dealer in a past life. LOL.
It’s been a while since I had an ARM, but I recall some of them had artificially low “teaser” rates for the first year and the rate would go up for year 2 even if interest rates in general stay the same.
Agree with advice to not sign up for any ARM unless you thoroughly understand what you’re getting into, and if you go fixed, get a 30 year and pay extra if you want.
I agreed to an ARM on my first house partially because I was 97% certain I would take a different job, relocate and sell it before mortgage rates were likely to change much. That's exactly what happened. If I didn't have a firm idea about how long I'd reside there responsible for paying that mortgage I wouldn't do it.
I am planning to buy a SFH. My lender has provided me these 2 options :
1. 1 yr ARM for 5%
2. 15yr fixed mortgage for 5.5%
Loan officer says option 1 is better since rates will come down in a few months and I can fix a rate that time.
I don't know a lot about the option 1 and how ARM works.
Which option do you think is better?
Can you please share your Lender/mortgage broker name?
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
