Best Loan Choice 10yr ARM - 7yr ARM - 5yr ARM ?

[Logik]

  5/1 ARM  -  3.0%
  7/1 ARM  -  3.5%
10/1 ARM  -  3.875%

No Cost Loan
75% LTV
Home Cost $1M (Loan amount $750K)

Which option would you pick if you knew you would stay in your home at least 5 years but not sure about 7-10 years given that interests rate are likely to rise.  Is one relatively a better deal than the others?

 

[homer_simpson]

  5/1 ARM  -  3.875%
  7/1 ARM  -  3.5%
10/1 ARM  -  3.0%

No Cost Loan
75% LTV
Home Cost $1M (Loan amount $750K)

Which option would you pick if you knew you would stay in your home at least 5 years but not sure about 7-10 years given that interests rate are likely to rise.  Is one relatively a better deal than the others?

I think you got the interest rates backwards.  I would just get the 5/1 since you know you'll be there atleast 5.  Maybe the rates will get even better and you'll want to refi again later if you plan to stay longer?

 

[Logik]

Thank you Homie!  I fixed it. 

 

[Meggie]

.

 

[25inirvine]

delete admin

 

[irvinehusky]

If the fourth choice was a 30 year fixed for about 4%, I would definitely pick the 30 year fixed just for my peace of mind, assuming that was doable.

 

[Meggie]

.

 

[irvinehusky]

I locked last week with Wells Fargo.  No lender credit for the 30Y. The 10/1 was offered w/ $1,000 credit.  Both offers were really good (IMO) so we had a really hard time deciding which one to take.  Not to mention the offer came at 10PM and we had to decide within 10 minutes.  PM me if you want the lender contact info.

 

[usctrojancpa]

A lot of people don't really understand how ARM loans work and what the basis for the adjustment is.  Basically, if you think that short term rates will stay low then shorter term ARM loans like a 3 or 5 year ARM are the way to go.  Most people sell their homes every 5-7 years on average so why pay for insurance that you'll never use.  But if you aren't good with your money (budgeting and planning) then an ARM may not be the best choice.  I like the ARM loans because the lower the rate, the quick I am playing down my loan.  I can always refi or pay down the loan if I see rates going up. 

 

[irvinehusky]

A lot of people don't really understand how ARM loans work and what the basis for the adjustment is.  Basically, if you think that short term rates will stay low then shorter term ARM loans like a 3 or 5 year ARM are the way to go.  Most people sell their homes every 5-7 years on average so why pay for insurance that you'll never use.  But if you aren't good with your money (budgeting and planning) then an ARM may not be the best choice.  I like the ARM loans because the lower the rate, the quick I am playing down my loan.  I can always refi or pay down the loan if I see rates going up.

 

[usctrojancpa]

For some reason, I can deal with super fluctuations with stocks but I can't deal with fluctuating interest rates. 

A lot of people don't really understand how ARM loans work and what the basis for the adjustment is.  Basically, if you think that short term rates will stay low then shorter term ARM loans like a 3 or 5 year ARM are the way to go.  Most people sell their homes every 5-7 years on average so why pay for insurance that you'll never use.  But if you aren't good with your money (budgeting and planning) then an ARM may not be the best choice.  I like the ARM loans because the lower the rate, the quick I am playing down my loan.  I can always refi or pay down the loan if I see rates going up.

Yeah, ARMs aren't for everyone.  When you get an ARM, you bare some of the interest rate risk. 

 

[Logik]

USC,

If interest rates go higher, i.e. 30yr fixed goes up to 5%, how would ARM rates track?  Do they tend to go up in lock step or do they take longer to rise even if fixed rates are rising?  I am debating between the 5yr and the 7yr ARM which in my example has a 0.5% difference.

 

[qwerty]

For some reason, I can deal with super fluctuations with stocks but I can't deal with fluctuating interest rates. 

yeah same here, shorted a stock this morning, by the afternoon i was down 6K on the trade, by closing it was down to 3.5K. but with rates went with the 30 year fixed

 

[usctrojancpa]

USC,

If interest rates go higher, i.e. 30yr fixed goes up to 5%, how would ARM rates track?  Do they tend to go up in lock step or do they take longer to rise even if fixed rates are rising?  I am debating between the 5yr and the 7yr ARM which in my example has a 0.5% difference.

Once the ARM loan resets, it is based up 1-year LIBOR plus 2.25% (rounded to the nearest 1/8% up) and adjusts annuals so it's a short term rate not where the 10 or 30 year bond or mortgage rates are.  For example, if the ARM loan reset your rate today would be 2.875% for the next year.  You can track what the 1-year LIBOR rate has done historically here ----> http://www.erate.com/Libor.htm

ARM rates tend to rise slower than fixed rates.  It comes down to what your short term rate expectations are (think of the 1-year LIBOR as the Fed Funds Rate + .25-.50%).

 

[usctrojancpa]

For some reason, I can deal with super fluctuations with stocks but I can't deal with fluctuating interest rates. 

yeah same here, shorted a stock this morning, by the afternoon i was down 6K on the trade, by closing it was down to 3.5K. but with rates went with the 30 year fixed

You need to start trading options my friend. 

 

[qwerty]

For some reason, I can deal with super fluctuations with stocks but I can't deal with fluctuating interest rates. 

yeah same here, shorted a stock this morning, by the afternoon i was down 6K on the trade, by closing it was down to 3.5K. but with rates went with the 30 year fixed

You need to start trading options my friend. 

yeah i think im starting to see the light.

 

[ps99472]

  5/1 ARM  -  3.0%
  7/1 ARM  -  3.5%
10/1 ARM  -  3.875%

No Cost Loan
75% LTV
Home Cost $1M (Loan amount $750K)

Which option would you pick if you knew you would stay in your home at least 5 years but not sure about 7-10 years given that interests rate are likely to rise.  Is one relatively a better deal than the others?

5/1 ARM all the way, why pay all that interest to the bank?  So what you can sleep at night?  That's one expensive sleeping habit.  Life is change, deal with it, be flexible.  ARM's get a bad rap due to all the toxic and IO loans back in the good old days, but if you're responsible, good job, and live in Irvine, stick with a 5/1 ARM.  Always keep you on your toes in the market, and an incentive for you to "move up".  Remember in a 5/1 ARM, approx half of your payment goes towards your principal form the get go.  In a 30 year, it's more 1/4 of your payment goes to principal.  Made that mistake with my first mortgage, and will not repeat it again, especially in this interest rate environment.  If rates shoot up end of the world scenario, buy a shotgun or two, a generator, supplies and hope for the best. 

 

[irvinehusky]

5/1 ARM all the way, why pay all that interest to the bank?  So what you can sleep at night?  That's one expensive sleeping habit.  Life is change, deal with it, be flexible.  ARM's get a bad rap due to all the toxic and IO loans back in the good old days, but if you're responsible, good job, and live in Irvine, stick with a 5/1 ARM.  Always keep you on your toes in the market, and an incentive for you to "move up".  Remember in a 5/1 ARM, approx half of your payment goes towards your principal form the get go.  In a 30 year, it's more 1/4 of your payment goes to principal.  Made that mistake with my first mortgage, and will not repeat it again, especially in this interest rate environment.  If rates shoot up end of the world scenario, buy a shotgun or two, a generator, supplies and hope for the best.

 

[OpenSky]

8)

 

[lnc]

If rates shoot up end of the world scenario, buy a shotgun or two, a generator, supplies and hope for the best. 

I think in the end of the world scenario, paying your mortgage is the last thing on people's mind and you probably don't have to pay you mortgage to the zombie bank anymore.

+1 on the ARM, people should do a little more research, evaluate their situation and take a good look at ARM.