We are going to refinance our mortgage due to a variable rate issue in August. However, we are un-sure wether to go with a fixed rate or a 5 year ARM at a little over a .5 % less. We do not plan on starying in the house more then 3-5 years so we are considering the ARM. Is that a safe bet? We are in desperate need to reduce our monthly bills and a lower APR would help a lot. We just don't want to get into a bad situation with an ARM. Pros Vs. Cons? We currently Owe $133,000 and the house appraised right around $200,000.
2007-06-12 03:40:54 · 10 answers · asked by spkmyer 3 in Business & Finance ➔ Renting & Real Estate
Knowing that you will not be in the house for more than 3-5 more years would indicate that the 5 year ARM is the best option for you. However, there is a lot of uncertainty right now with what mortgage rates are going to do over the next few years and where they will be at in 5 years. You do have to concern yourself with the fact of what if you are still in the home in 5 years, your financial situation could get worse, something could happen to your credit, someone could lose a job, etc... The rate difference of roughly 1/2% is not that much, and will make a difference in your payment of roughly $40 or so, over the course of 5 years $2,400. In my eyes that is not that big of a difference for the added risk. Unless, I knew 100% that I was moving within 3-4 years, I would personally opt for the fixed rate with the current market we are in.
2007-06-12 03:57:02 · answer #1 · answered by dzwreck 4 · 0⤊ 0⤋
The pro: If you are getting .5% lower by going with the 5 year, you are saving 40-50 dollars per month on a 133,000.00 mortgage. Over a 3-5 year period, this will save you between 1440.00 and 3000.00 if you carry the mortgage to the full 5 year term.
The con: If you take the 5 year and decide to keep the home for longer, you'll need to refinance it and incur another set of closing costs at that time which negates any savings you gained.
The pro for the 30 year fixed is that it will give you peace of mind knowing that your rate will never change.
The con for the 30 year fixed is that, if you do sell the home in 3-5 years, you will have definately lost any savings you would have incurred from the 5 year adjustable by taking that route.
It really depends on whether you are going to be moving in the 3-5 year period. If you are sure that you will be moving within that window of time, I would take the 5 year. If you are not sure you will be selling the property within that span of time, take the 30 year fixed.
The saving that you would receive by taking the 5 year over the 30 is nothing to sneeze at but the peace of mind you get with having a guaranteed fixed rate is worth even more to many idividuals.
2007-06-12 08:13:20 · answer #2 · answered by Anonymous · 0⤊ 1⤋
I think a 5-yr ARM would be safe enough for you given the amount of equity you have in the house.
The reasons I say this is are:
Should your plans change drastically and you need to stay, you won't have to worry about coming up with closing costs to refi to a fixed rate since you have a nice amount of equity to work with.
No one expects rates to go shooting up in the next few years, so, again, should you have to refi and stay, you still will have a decent rate at 7% or whatever it gets to (and, yes, you people that have been spoiled by recent years of 5% rates, 7% IS a decent rate!!).
It sounds to me like you are in the perfect position to take advantage of an ARM.
2007-06-12 03:53:31 · answer #3 · answered by bex 3 · 0⤊ 0⤋
You would have to compare the ARM payment vs the fixed and see what the payments are and the savings of one over the other. Right now the ARM rates are pretty close to the fixed rates which may make more sense to go with a Fixed just incase your plans change and rates go up. I will be more than happy to give you some figures if you e-mail me.
2007-06-12 07:56:00 · answer #4 · answered by Anonymous · 0⤊ 1⤋
If you know that you will leave the premises (sell) prior to the expiry of the guaranteed ARM percentage rate, go with the ARM. It is senseless to pay for the privilege of a guaranteed thirty year interest rate when you will not be taking advantage of what you paid for.
Your situation is precisely where an ARM makes good sense.
2007-06-12 03:51:14 · answer #5 · answered by acermill 7 · 2⤊ 0⤋
I have a 7 over 30 and I'm happy with it. I have 5 more years before it adjusts. Before you sign, check the max it can go up when it adjusts and the lifetime max it can adjust to. Make sure you are comfortable with those rates. I understand you don't plan on staying there for over 5 years, but it is essential to plan for any contingency.
-MM
2007-06-12 03:46:45 · answer #6 · answered by Anonymous · 0⤊ 0⤋
I am recommending that all my clients lock in fixed rate loans.
Why take a chance with adjustable rates, and lose sleep at night?
I think the economy right now is in stag-flation just like the late 70's, heading to hyper inflation.
Bad news for interest rates and they most likely will be going UP not Down!
http://www.Welcome2Arizona.com
2007-06-12 11:04:38 · answer #7 · answered by Terry S 5 · 0⤊ 0⤋
Take a look at the sub-prime lending issues that are happening across the nation. They work for a few, but I would warn against them. You would spend a lot more in a few years just to save a little now. Go for a fixed no pre-pay penalty loan.
2007-06-12 10:42:18 · answer #8 · answered by B . 2 · 0⤊ 0⤋
I would go with the fixed rate because I think it would save you money in the long run, but I just read there isn't a long run, so maybe the arm is the way to go.
2007-06-12 03:44:57 · answer #9 · answered by Anonymous · 0⤊ 1⤋
If you are certain you won't be there for more than five years, go with a five year arm.
2007-06-12 03:47:45 · answer #10 · answered by Michael R 2 · 0⤊ 0⤋