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Old 05-08-2010, 12:14 AM
 
62 posts, read 263,327 times
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I'm trying to buy a house within a year.
One question I have while looking at various financing options is
the advantage of ARM.
Since it is very likely for us to sell the house maybe in 10 years, it looks
to me that it is much better to use ARM (10/1).

I'm just curious if this reasoning is sound.
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Old 05-08-2010, 04:28 AM
 
995 posts, read 3,924,975 times
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Your logic is sound. What is the spread between fixed and 10/1 arm?
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Old 05-08-2010, 10:32 AM
 
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
6,957 posts, read 22,266,300 times
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With fixed rate mortgages at an all time low, I think that there is absolutely NO upside to a mortgage rate that has almost chance of resetting lower than the original rate.
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Old 05-08-2010, 03:15 PM
 
Location: NJ
17,574 posts, read 46,060,080 times
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Quote:
Originally Posted by DMenscha View Post
With fixed rate mortgages at an all time low, I think that there is absolutely NO upside to a mortgage rate that has almost chance of resetting lower than the original rate.
The obvious upside would be selling before it resets to gain a lower rate now. The obvious downside would be not selling before that.
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Old 05-08-2010, 04:51 PM
 
11,642 posts, read 23,857,289 times
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I think that you have to consider the general interest rates at the time you are buying. Right now mortgage rates are so low that you can almost be guaranteed that interest rates will be higher in 10 years that they are now. They certainly will not be lower.

You also have to consider how much lower the 10/1 is than a fixed rate mortgage.

With rates so low there is little upside to a ARM (IMO).
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Old 05-08-2010, 04:58 PM
 
Location: NJ
17,574 posts, read 46,060,080 times
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I can't even find a listing for what a 10/1 is going for. Would be intersted to know what it is. I can't imagine it is that much lower than a 30 year.
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Old 05-10-2010, 11:07 AM
 
Location: Pomona
1,955 posts, read 10,964,593 times
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When I bought my house, the fixed 30 was actually LOWER than the 10/1 ARM. It was .05% difference to the 5/1 ARM.

There was zero reason for me to consider an ARM.
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Old 05-10-2010, 11:10 AM
 
Location: NJ
17,574 posts, read 46,060,080 times
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Someone explain this to me on ARMS.

1 year ARM 3.23%
3 year ARM 4.22%
5 year ARM 3.69%

Why is the 3 year arm higher than the 5 year arm?
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Old 05-10-2010, 11:49 AM
 
Location: Wake Forest, NC
835 posts, read 3,973,214 times
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From a well known national lender for a 30 day rate lock:

5/1 ARM- 3.375 with 1% broker fee--- 3.625% with no broker fee----3.875% with a $2k closing cost credit which covers generic 3rd party fees here in NC.
7/1 ARM- 3.75% with 1% broker fee--- 4.0% with no broker fee---4.25% with a $2k closing cost credit which covers generic 3rd party fees here in NC.
10/1 ARM- 4.25% with 1% broker fee---- 4.5% with no broker fee--- 4.75% with a $2k closing cost credit which covers generic 3rd party fees here in NC.

30 year fixed- 4.75% with 1% broker fee--- 5.0 % with no broker fee---5.125% with a $2k closing cost credit which covers generic 3rd party fees here in NC.

3/1 ARM's are considered more risky than other ARM's so they are priced accordingly(higher).

These are all interest rates and not APR which may change depending on the closing cost structure you choose.

Last edited by dad2jules; 05-10-2010 at 12:07 PM..
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Old 05-10-2010, 11:58 AM
 
Location: NJ
17,574 posts, read 46,060,080 times
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I guess I don't understand why a 3 year ARM is considered so much riskier than a 5 year ARM.
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