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Old 05-23-2014, 12:49 PM
 
462 posts, read 322,995 times
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Okay so sorry I'm bombarding with questions. I'm clearly preoccupied with this.

Would it be a decent idea to go with a 7/1 ARM with 3% interest with plans to refinance to a 15 year fixed at the end of the term or stick with our 30 year fixed at 4 %? We would put the difference in savings from the 30 year towards the principal. Let's say in theory that in 7 years the balance of our 300k loan would be down to 200k. This really is a home we plan to stay in long term >20 years, most likely until we downsize when our kids are grown. Is there a good chance interest rates would go past 5% on a 15 year in the next seven years. Ugh!! Decisions...
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Old 05-23-2014, 01:16 PM
 
Location: Phoenix, AZ > Raleigh, NC
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Okay, who has their crystal ball fired up and ready to go? Nobody? Well, then, here's my prediction.

If you are preoccupied with this decision NOW, what will the next 7 years be like if you take that 7/1 ARM? You'll be giving yourself an early stroke worrying about what interest rates will be when the 7/1 is up.

Not worth it. No way. No how. Especially when you are pretty sure you are going to stay in the house. Do a 15 fixed or a 30 year fixed. Make extra payments if you want (or stash that money away in your Roth IRA for a better return).
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Old 05-23-2014, 04:18 PM
 
3,806 posts, read 8,257,485 times
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Quote:
Originally Posted by Jkgourmet View Post
Okay, who has their crystal ball fired up and ready to go? Nobody? Well, then, here's my prediction.

If you are preoccupied with this decision NOW, what will the next 7 years be like if you take that 7/1 ARM? You'll be giving yourself an early stroke worrying about what interest rates will be when the 7/1 is up.

Not worth it. No way. No how. Especially when you are pretty sure you are going to stay in the house. Do a 15 fixed or a 30 year fixed. Make extra payments if you want (or stash that money away in your Roth IRA for a better return).
I concur.
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Old 05-23-2014, 04:55 PM
 
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Good point. Thanks.
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Old 05-24-2014, 10:49 AM
 
Location: Phoenix, AZ > Raleigh, NC
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Originally Posted by ringler24 View Post
Good point. Thanks.
Hey - Good luck and Congratulations on the house!
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Old 05-24-2014, 05:16 PM
 
769 posts, read 641,383 times
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Quote:
Originally Posted by ringler24 View Post
Okay so sorry I'm bombarding with questions. I'm clearly preoccupied with this.

Would it be a decent idea to go with a 7/1 ARM with 3% interest with plans to refinance to a 15 year fixed at the end of the term or stick with our 30 year fixed at 4 %? We would put the difference in savings from the 30 year towards the principal. Let's say in theory that in 7 years the balance of our 300k loan would be down to 200k. This really is a home we plan to stay in long term >20 years, most likely until we downsize when our kids are grown. Is there a good chance interest rates would go past 5% on a 15 year in the next seven years. Ugh!! Decisions...
In 7 years interest rates could be in the mid teens. What if you get to the end of the term and can't refinance? That 4% doesn't look so bad. Chances are you aren't gaining anything but a headache. Get a fixed rate and don't worry yourself over waiting over a quarter percentage drop. Rates are already on the rise.
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Old 05-25-2014, 06:37 AM
 
Location: Southern California
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3% verus 4%, you save 1% per year, in 7 years you'll save 7%. In 7 years if the variable goes up to 6%, it is now costing 2% more than the 30 year fixed @ 4%. In a few years your 7% savings is washed away and you still have 20 years left on your mortgage and you want to live there for the next 20 years.
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Old 05-25-2014, 08:24 AM
 
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Two things: We wouldn't be refinancing to a 30 year fixed after 7 years. We would refinance into a 15 year fixed. Also we would put the savings between the 7/1 ARM and the 30 year fixed against the principal each month. We also have extra money to throw at the house. So in 7 years our principal will be at 200k instead of the 300k we're starting with now. Does that change anything? I'm likely going to stick with the 30 year fixed, but I'm still pondering it.
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Old 05-25-2014, 09:49 AM
 
Location: Phoenix, AZ > Raleigh, NC
16,442 posts, read 21,234,564 times
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Quote:
Originally Posted by ringler24 View Post
Two things: We wouldn't be refinancing to a 30 year fixed after 7 years. We would refinance into a 15 year fixed. Also we would put the savings between the 7/1 ARM and the 30 year fixed against the principal each month. We also have extra money to throw at the house. So in 7 years our principal will be at 200k instead of the 300k we're starting with now. Does that change anything? I'm likely going to stick with the 30 year fixed, but I'm still pondering it.
No, I don't think it does. I'd still stick with my original opinion (including considering putting money elsewhere than just in the house).

But please recognize - when it comes to opinions, the only one that really counts is what makes sense for you and your family.
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Old 05-28-2014, 05:59 AM
 
Location: Southern California
4,453 posts, read 5,753,262 times
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Quote:
Originally Posted by ringler24 View Post
Two things: We wouldn't be refinancing to a 30 year fixed after 7 years. We would refinance into a 15 year fixed. Also we would put the savings between the 7/1 ARM and the 30 year fixed against the principal each month. We also have extra money to throw at the house. So in 7 years our principal will be at 200k instead of the 300k we're starting with now. Does that change anything? I'm likely going to stick with the 30 year fixed, but I'm still pondering it.
In 7 years, will the interest rate of a fixed 15 be higher than 4% which the 30 year now ( in your example)
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