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I've been reading that for an older couple, or anyone actually, using an adjustable rate mortgage makes much more sense than a fixed rate one.
The facts are that rates have continually gone down for the past 30 years or so, and if you're older, what is the point to get a 30 year fixed? We're in our 60's now!
So, I'm deciding that, even if the rate is not that much lower (there used to be a formula that the rate should be about 2% lower to make it worth doing an adjustable) it just makes sense to save as much as we can on the monthly payment. We're in NJ ...and of course out RE Taxes are ridiculous- 8000K /yr. so that raises out monthly a lot!
What do you all think about this? I'm about to call the mortgage rep and tell him I want a 7 or 10 yr adjustable instead of the 30 yr fixed that is in our contract!
Obviously, the mtg folks make more money if the loan is larger, but too bad ! I need to have lower payments per month, and even when it goes up, there are caps as to how high it can go. Or we can refi perhaps.
I'm also expecting to either retire, or move before 7 or 10 years anyway! How many people really stay for 30 years !?!
The current spread between the 7 and 10 year ARM vs. the 30 year fixed is not very much. You should take a look at each option side-by-side to evaluate the monthly and long term savings before making that decision. It's also a good idea to plan for "what if." What if you are in the home beyond the fixed rate period of the ARM? Many ARM caps for the 7 & 10 year are 5% for the initial adjustment and then 2% each year after that. Of course, there is a lifetime cap, but that initial adjustment can be huge if the market has gone up. Make sure you compare the caps as well as the interest rates.
Both a 7 and a 10-year fixed ARM cost more to get the 30-year fixed rate. You will pay a point to get to 4%, whearas you may get to 4% with no buydown cost, depending on your credit and down payment.
ARMs get slightly prettier at the 5-year fixed mark, wherein you'd pay about a point to get to 3.625%.
BTW, this is conceptual, I'm not looking to nitpick the specifics of costs and rates. The Mortgage Interest Rate Zeitgiest has us with Fixed rates so low that ARMs can barely compete.
Both a 7 and a 10-year fixed ARM cost more to get the 30-year fixed rate. You will pay a point to get to 4%, whearas you may get to 4% with no buydown cost, depending on your credit and down payment.
ARMs get slightly prettier at the 5-year fixed mark, wherein you'd pay about a point to get to 3.625%.
BTW, this is conceptual, I'm not looking to nitpick the specifics of costs and rates. The Mortgage Interest Rate Zeitgiest has us with Fixed rates so low that ARMs can barely compete.
It all depends on their plans. But you've seen the scenarios, time after time. We are no longer in a world where one size fits all.
I have a couple purchasing a second home using a 7/1 ARM (2.75%). Their current residence is five states away, with considerable equity. The plan is to scale back the business they own, sell the current residence and keep a close eye on rates, with the idea of coming pretty darn close to being able to pay off the 7/1 ARM. The neat thing about ARMS, when they adjust, they take the current balance and adjust accordingly. If the payments are too painful, they will have the cash to do a significant curtailment of principal. But it works.
Another couple has one person in grad school, while the other works full time in software development, with a strong salary....but nowhere near the earnings once grad school is finished in about 12 months. When that 2nd income kicks in and they are paying on a 2.50% 5/1 with heavy prepayments, they won't have any issues with an ARM.
Not everyone is suitable for ARM financing. The first ones to avoid the programs should be those that cannot sleep at night worrying about what will happen to their ARM 70 months down the road, followed by those on a fixed income, with no way out of an ARM. Used correctly, there can be huge savings.
If your plan is to refinance in the further will you have enough income to qualify for a mortgage?
I was thinking of doing an arm also. Fixed for 7 or 10 years. But what stopped me was what you stated here. I am retiring in 5 years, could I even qualify to refinance.........probably not, as I will be on a fixed income.
I was thinking of doing an arm also. Fixed for 7 or 10 years. But what stopped me was what you stated here. I am retiring in 5 years, could I even qualify to refinance.........probably not, as I will be on a fixed income.
Not the reverse mortgage. My payment is going to be so low with a 30 year fixed.... 594.00 with taxes and insurance and even lower if I got the variable but fixed for 7 years and there was also a fixed one for 10 years
The rate spread between ARM and fixed is not that huge right now...with such low long-term rates. It doesn't take much to wipe out your "savings" if rates do go up. I would say go with a fixed unless you will sell the house or pay down >50% of the balance before the first adjustment. And if you do plan to sell, put at least 20% down in case the market falls a bit.
Thank you all so much for your input. This week it seems that you're right, rates are so low and not much difference between the 30yr fixed and the ARM.
What really makes a lot of sense, that I didn't consider, was "could we qualify for a loan, when we want to refi?" Whoa. So true... Who knows what will happen tomorrow let alone in 5 or 7 years?
So... I think we'll stick with the 30 Yr fixed. I don't want to worry about what we're gonna do when it comes due.
You guys are great! Thanks for being a support system for me. Ever since I lost my parents, it's hard to get answers to my questions I would've asked them. unbiased, or not, you all help me decide what to do...many times I have come here for help, and I know you're not all professionals in this field, but you are all extremely helpful.
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