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View Poll Results: Would you consider an ARM or FIXED rate mortgage?
7 ARM 2 10.00%
30-fixed rate mortgage 18 90.00%
Voters: 20. You may not vote on this poll

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Old 10-15-2010, 02:10 PM
 
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Would you consider an ARM or FIXED rate mortgage in todays economy?
I am thinking that even if you do not plan on living in the house for over 7 years, you are still better off taking a fixed rate loan.
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Old 10-15-2010, 02:20 PM
 
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Personally, I think you're always better off with a fixed rate mortgage. Many people are having trouble paying off their homes, because they got ARM where the rates skyrocketed and they could no long pay.
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Old 10-15-2010, 02:32 PM
 
Location: NJ
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i'm pretty risk averse so I'm all about the fixed, especially with rates as low as they are right now. that being said, we did have a 10/1 ARM about 6 yrs ago - rates were a bit high and I (correctly) took the chance that's we'd refinance before the 10 yrs were up. 6 years ago was a whole different era though.
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Old 10-15-2010, 02:50 PM
 
Location: NJ
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The savings would have to be extreme to even consider an arm over fixed given how low rates are right now.
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Old 10-15-2010, 02:59 PM
 
Location: The Milky Way Galaxy
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The whole housing crash should teach the average person that they shouldn't choose an ARM. An ARM should be more or less for investors wanting to make a quick profit on the property. Everyone went crying when their ADJUSTABLE interest rates went up.
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Old 10-15-2010, 03:46 PM
 
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Need more info to answer. I've had ARMs, fixed rate and interest only loans. Each situation is different and every loan has its place. The only time ARMs are really bad is when a person is using it to get into a house they can't afford once the ARM adjusts.
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Old 10-15-2010, 04:14 PM
 
Location: NJ
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Fixed rates are very low and the preferable method of mortage financing because you know how much your mortgage payment is today or 20 years from now. Even if they dropped to 3.25% from the current 4.25%, based on $300k borrowed, monthly payments decrease by $170.00 which is not a huge amount. Imagine that just six years ago, the 30yr fixed was around 6.50%. If rates increase to 6.50% six years from now, monthly payments would be roughly $400 more than a 4.25% fixed rate today. (these are ballpark figures so for those actuarials ready to pounce on me, hold your horses )

It is normal for consumer spending to be within expenses parameters, which includes housing, auto, insurance, food, clothing, etc. With that in mind and carrying a 6yr ARM, the life style readjustment would be substantial. You have to make sure how comfortable you will be able to sleep at night.

However, if your intentions for purchasing a property is for investment purposes, ie: fixer upper, and flip to sell after living in the house for a few years, then a 6yr ARM can be considered.
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Old 10-15-2010, 04:23 PM
 
Location: New Jersey/Florida
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With 30 year rates at an all time low it's a no brainer and I wouldn't even think of an ARM.
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Old 10-15-2010, 06:06 PM
 
Location: Cranford NJ
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ARM, can't beat the rate.
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Old 10-15-2010, 10:21 PM
 
Location: Montgomery County, PA
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Quote:
Originally Posted by carriecarrio View Post
Would you consider an ARM or FIXED rate mortgage in todays economy?
I am thinking that even if you do not plan on living in the house for over 7 years, you are still better off taking a fixed rate loan.
The outlook for rates is low in the short term, but higher and less certain long term.

So I wouldn't write off an ARM; it really depends on how long you're holding the loan for.

ez2do4now's comments are right on the money -- long term, the fixed loan is much more attractive -- rates tend to be mean-reverting, and the mean that they will eventually revert to is higher than today's rates. So in the long term, the ARM looks like it has too little down side. But if there is no long term -- that is, you're not staying in the place very long, that may not matter.

I also suspect but can't really prove that most people overestimate how long they will stay in a given place. If you're not planning on staying longer than 7 years, then a 7/1 seems like a better deal than a 30 year fixed. You have some downside risk in the event that you end up staying longer than 7 years, but I think it's more likely that you move out sooner than expected.
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