First time condo buyer again..?

Question

The rate is fixed for 5 year arm at 6.75. Said it works like a 30 year mortgage...but in 5 year increments. Can refiance at any time. Does this sound right? I'm new at this and don't want to get screwed.

Answer 1

5 yrs fixed meaning it is amortized over 30 yrs so as if you're getting a 30 yrs mortgage. BUT, the interest rate will adjust after 5 yrs depending on the current market, which it will never go below 6.75% and will not go over ____ (rate + margin). All Arms has a max rate called "cap rate" depending on what is the margin. Yes, you can refinance at anytime - if you do not have a "prepayment penalty", besure to read what you're signing. A prepayment penalty is a penalty the bank charge you if you refinance before the given penalty period ranging from 1yrs - 3 yrs. If you do have a prepay penalty and still consider refinancing before the penalty period end - you will have to pay 6 mos of interest as penalty (6 is very common and standard). For example, 100K x 6.75% = 6,750 12 mos interest for the years then 6,750/2 = 3375 6 mos interest penalty.

Answer 2

This is some info I pulled from a different site about a 5 yr arm:
Overview:
This 30 year loan offers a fixed interest rate for the first five years and then turns into a 1 Year Adjustable Rate Mortgage for the remaining 25 years of the loan. This loan has a longer initial fixed period than the 3/1 Adjustable.

Is It For You?
This is the option for you if you know you will be transferred or will sell this home in the next 3 to 5 years but want a little more protection than the 3/1 ARM provides.

Caps
2% yearly / 5% life of loan

Margin
2.75%

Index
1 Year T-Bill
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And this is about a 3 yr arm if you have to have an arm:
Overview:
If you would like a little longer to get your budget together before your payments are subject to adjustment, then this is the program for you. This 30 year loan offers a fixed interest rate for the first three years and then turns into a 1 Year Adjustable Rate Mortgage for the remaining 27 years of the loan. This loan has become quite popular in the last two years and should be considered by all those seeking to minimize monthly payments while accepting a certain amount of risk.

Is It For You?
This loan is right for you if you wish to maximize the amount of loan you qualify for and expect to remain in this home for more than 3 years. This loan is generally the least expensive way to fix your monthly payment for the first three years of your loan. After that, the loan behaves like a 1 Year ARM with all of its risks and rewards. Do not take this loan if you are concerned that your income in three years may not cover your monthly payment after your first adjustment.

Caps
2% yearly / 5% life of loan

Margin
2.75%

Index
1 Year T-Bill
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This is some info about a 30 year fixed if you qualify for this one
Overview:
This is the undisputed champion of mortgages. Your monthly payment is calculated based on the initial interest rate, and never changes over the 30 year life of the loan. The 30 Year Fixed Rate Mortgage is considered the most conservative because there is no risk that changing market conditions will effect your monthly payment.

Is It For You?
This loan is probably right for you if you don't plan to move or refinance for at least 7 to10 years and you expect interest rates to increase over this period, or you just feel uncomfortable making an interest-rate bet at this time. This loan may also be right for you if you are on a fixed income or don't expect your income to increase significantly over the next several years. After 5 years you will have paid off approximately 6% of the principal balance.


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I would make sure that the rate is not going to go up, or if there is anything hidden with having a 5 year arm. Make sure that there is not a prepayment penalty. I would call around and also see if someone else can give something better, see if you can just get a 30 year fixed because some places try pushing the 5 year arm because not that many people get that product, and if you are new to this then they are trying to screw you over. I had worked for a mortgage company just as a data entry person but there was a few customer service reps that would tell the people that that is all that they qualify for and stick them with that. And in fact the people were eligible for better rates and a better product just call around and see what rates are because they change and see if you qualify for a different product. Good luck.

The website listed in my soures has more about all types of mortgage products that you may want to check out before signing anything for the mortgage company.Hop ethis can help you out

Answer 3

They are not the same.
5 year adjustable (ARM) - A loan with a fixed rate for the first 5 years that has a rate that changes once each year for the remaining life of the loan. Because the interest rate can change after the first 5 years, the monthly payment may also change.
30 year fixed - The 30 year fixed is one of the most popular loans. Many people like the fixed interest rate and lower monthly payments. But since the term of the loan is long, you will pay more interest over the life of the loan.

Condos are a buyer's risk. Here is a site for more information on buying one:
http://www.mortgagenewsdaily.com/12132004_Buying_A_Condo_Is_Not_Like_Buying_A_House.asp

Also this one:
http://www.tridel.com/first/index.php

Answer 4

Loan terms vary. Generally, the interest rate can be fixed or variable. If variable, there's a lot of possibilities for how often it can vary. I've seen 2 years fixed and variable every six months, and I've seen loans where the first change is after ten years, and even a new "Option Arm" that starts at 1% and varies after the first month. Variable rates START lower than fixed, but MIGHT go a LOT higher. It's a risk, you just have to be ready to handle the change when it comes.

You should already have a lawyer. If not, get one. If you do, remember he/she is the ONLY person involved in the transaction that works for you and only you.

If they can't or won't spend the time to explain this and more as part of the fee to represent you, get a different lawyer.

Answer 5

does what part sound right? The 5 year increment doesn't sound right. Everything I see (and i've been in this business for 11+ years) is in increments of 6 or 12 months after the initial 5 year period. 6.75% is very high for this program. Do you have qualifying issues like bad credit, stated income, no money down which are making it so?
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Answer 6

Just make sure the interest rate is not going to spring up at 5 years, if it might it's time to refi

Bottom line, just about any deal is better than renting

Answer 7

make sure you do or dont have a pre pay penalty for the 5 yr arm. try to get a 2 yr arm

Answer 8

Dont sound right to me, Something smells fishy