Analysis on a 7-year ARM mortgage versus 30-year fixed mortgage

Soylent Green Is People said:
Another curious thought on these low rates, a question answerable by USCTrojanCPA: At some point in time the tax deductible interest will be so low that the highly promoted benefit of "housing as a tax shelter" could negate itself. Are we there yet with 2.5% or so interest rates?
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you didn't ask me but i'll jump in on that... i was going to say it still makes sense.. but wow.. in the first year on a 417k loan @2.5% you would have paid $10,317 in int.. the standard deduction for 2011 will be...

$5,800 for unmarried taxpayers or married taxpayers filing separately,
$11,600 for married taxpayers filing jointly, and
$8,500 for taxpayers filing as head of household.

so unless you have other things to deduct... @2.5% you wouldn't even count that when calculating rent parity... good point.
 
daedalus said:
villagepeople said:
so unless you have other things to deduct...
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Like state income taxes and property taxes?  At least for those not impacted by AMT...
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you are right... you would definitely have prop tax and state income... so that raises (or is it lowers) the bar... in any case, still very close to "not counting"... so maybe at 2%?
 
villagepeople said:
daedalus said:
villagepeople said:
so unless you have other things to deduct...
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Like state income taxes and property taxes?  At least for those not impacted by AMT...
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you are right... you would definitely have prop tax and state income... so that raises (or is it lowers) the bar... in any case, still very close to "not counting"... so maybe at 2%?
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Plus car registeration, charitable contributions, medical expenses, investment interest expense, and/or misc expenses.
 
If you are already are itemizing, then you will get the full benefit of mortgage interest deduction. 
 
How does this sound?

5/1 ARM.  2.875%, no impounds, just cover $200 for half of appraisal cost.  This is as of today. 
 
If you are planning to sell within 5 years... maybe.

The question is, will you be able to sell within 5 years?

What's their rate on a 7/1 or fixed?
 
I'm fixed at a 5% rate now.  Wife and I plan on moving within 5 years to something a little larger. 

Not sure if I'll be able to sell within 5 years but the properties in my area rent out pretty quickly.
 
irvinehomeowner said:
If you are planning to sell within 5 years... maybe.

The question is, will you be able to sell within 5 years?

What's their rate on a 7/1 or fixed?
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Breakeven on a 5/1 ARM will be around 7-8 years while breakeven on a 7/1 ARM will be 10-11 years.  7/1 ARM rate should be around 3.25% +/-.
 
homer_simpson said:
Not sure if I'll be able to sell within 5 years but the properties in my area rent out pretty quickly.
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That's the reason we refi'ed with a fixed (< 5%) instead of an ARM. Since we do plan to rent our current home out when (IF) we ever find another home, we don't want to worry about moving interest rates to figure out landlord costs.

I really want Irvine to drop more... but I'm not too sure that's going to happen.
 
USCTrojanCPA said:
irvinehomeowner said:
If you are planning to sell within 5 years... maybe.

The question is, will you be able to sell within 5 years?

What's their rate on a 7/1 or fixed?
Click to expand...
Breakeven on a 5/1 ARM will be around 7-8 years while breakeven on a 7/1 ARM will be 10-11 years.  7/1 ARM rate should be around 3.25% +/-.
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Thanks Martin.  I was using your wonderful spreadsheet to show my wife the breakdown.  She's still lost LOL.

I think I'm going to pull the trigger on the 5/1 ARM.  Seems like a good choice fo right now and it cuts my payments by a good amount. 
 
irvinehomeowner said:
homer_simpson said:
Not sure if I'll be able to sell within 5 years but the properties in my area rent out pretty quickly.
Click to expand...
That's the reason we refi'ed with a fixed (< 5%) instead of an ARM. Since we do plan to rent our current home out when (IF) we ever find another home, we don't want to worry about moving interest rates to figure out landlord costs.

I really want Irvine to drop more... but I'm not too sure that's going to happen.
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That's a good point IHO. 
 
@Homer

Who's the lender?  I get daily emails from my provident lender... I think the last was a 3.00% 5/1 ARM with no fees...  I was able to get 2.625% with no fees (he actually paid me, but that's a long story) a few months ago on my refi... of course rates have gone up... if your interested sent me a PM.. I bet we can compare apples to apples neighbor..
 
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