The advantage of ARM mortgage (fixed rate, interest, credit, 30 year)
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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).
Location: Mokelumne Hill, CA & El Pescadero, BCS MX.
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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.
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.
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).
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..
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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