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Looking at mortgages and pretty much decided on the 30 year fixed but also looking casually at other stuff.
The 7/1 arm where I 've been look is pretty much always .5-.75 lower than the 30 year fixed. At the level of house I'm looking at, that relates to 50-70 a month. Now in my mind that does not justify the risk of a rate increase.
In the case I'm looking at there is a cap of 5%. With the extreme likelyhood that rates will be much higher and that I"d be refinancing into a higher rate does an ARM makes sense. Do I believe I'll be in the house much longer than 7 years, no...but who knows what the future holds.
How much discount do you need to consider an ARM over a 30 year fixed? Now if rates were at 6 or 7% and rates could go either way I could see how this a different question.
It's not worth the gamble with fixed rates being so low. You are saving only $50 to $70 a month which is minimal per week and you can just pack a lunch twice a week to save the same amount.
It's not worth the gamble with fixed rates being so low. You are saving only $50 to $70 a month which is minimal per week and you can just pack a lunch twice a week to save the same amount.
It really depends on your individual situation, no two are alike. I have some young State Department borrowers that opted to pay 2.875% on a 7/1 vs 3.75% fixed (5% down, moderate score, 60 day lock). They will be here for 36 to 48 months. Their back ratio is 34%. If they pay at the 3.75% payment, prepaying each month, they will be better off on their principal balance in 3 years.
So, while I would generally agree on fixed, there are many cases where an ARM fits in nicely. Ask yourself how long your will be in the home, will your info change ( additional or less income, increase/decrease in dependents)?
I had an interest only arm on my last house and it worked out well. I did have the discipline to set the savings aside every month and if needed at the end of 5 years I could pay down princ if I needed. There was about 1.5% difference between 30 year fixed and the arm at the time
I struggled with the same question as you. The difference between a fixed and an ARM payment was $80. If I was going to stress over $80 then I had no business buying a new house. But even that aside I'd sleep better at night knowing I had a fixed rate. I can always refinance that, too, in the future. Whether it be 5 years, 7 years or never from now.
Watching the movie The Big Short also kicked me over the fence to choose a fixed rate option. LOL Although, we've come a long way since 2008. But with the rates they are today, why wouldn't we want to lock that sucker in?
I struggled with the same question as you. The difference between a fixed and an ARM payment was $80. If I was going to stress over $80 then I had no business buying a new house. But even that aside I'd sleep better at night knowing I had a fixed rate. I can always refinance that, too, in the future. Whether it be 5 years, 7 years or never from now.
Watching the movie The Big Short also kicked me over the fence to choose a fixed rate option. LOL Although, we've come a long way since 2008. But with the rates they are today, why wouldn't we want to lock that sucker in?
Why would you not want the fixed rate? Well because people often opt for the fixed rate for security but essentially overpay for something they didn't actually need. Most people sell or refi by 7-9 years. When I went with my arm I knew I would be out of the house within 5 years but if not I had contengency plans in place. It worked out well for me a saved me a fair amount of money
If this is your first home mortgage I would use a 30 year fixed, it is easy and safe, if in the future you continue to move, and build home buying experience, then look at other products. For every success or money-saved story out there with ARMs, there are people who got gut punched when it did not work out the way they expected it too.
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