Does this ARM sound like a good loan?

Question

I am a member of a State Employee Credit Union. They offer a first time home buyer loan that is a 2 year ARM. It's a 100% loan with no origination fee and no PMI. It can reset up to 1% every 2 years. I am looking at a townhouse that is about $130K. I plan to stay in it between 4-8 years. Does this sound like a good loan? How hard would it be to refinance after 4 years?

I forgot to include the interest rate. It's 6.25%. The closing costs will be between $1500-$1800.

Answer 1

You did not mention the rate of interest that you would be paying. Generally, if you plan on staying only 4 years, you would better off renting, especially if you are putting 0% down.

Answer 2

Well first of all I want to say that buying a house no matter how long you stay in it is a lot better than renting, especially if you plan to stay more than 4 years. You get the tax write off on the interest in buying a house. You don't get that with renting.

Now about your loan, to be very honest with you, your financial situation should dictate if this is a good loan for you or not. Did they offer you other options or was this the only one you were offered. Ask if there are other options available to you?

Let me tell you what is good about the loan, the fact that it is a 100% loan with no PMI and no origination fee. Though with no origination fee I am sure the interest rate was increased to accomundate that factor.

Is your loan amortized over 30 years and what is the starting interest rate? This will determine what your initial monthly payments will be,since we know that the town house cost approximately $130,000.

We know one other thing about this loan, at the end of 2 years you can expect an increase in the interest rate, thus an increase in your monthly payments. You should be able to figure that next payment out, now can you afford that increase in your 2nd year of your mortgage?

There are only a few reasons that you will not be able to refinance in 4 years.

#1 the property does not increase in value( Appreciation)
#2 you do not make your mortgage payments on time.

Now even though your mortgage is for 100%,please don't forget closing cost. Those are the cost of insurance, title work, escrow service and taxes.

In some cases you can get the seller to pay some of these cost. Also your lender might have a clause that you must pay at least 3% of closing, so check with the credit union.

Now the credit union is a closed shop, they have certain mortgage products they push during certain times of the year and for other reasons also.

You might check with a mortgage broker to see if he/she can beat this deal. Make sure you get the deal in writting. Anyone can tell you, I can beat any deal, but when it boils down to it and when it come time to place the money on the table they start to dance and get the hic ups.

I hope this has been of some use to you, good luck.

"FIGHT ON"

Answer 3

It may SOUND good to you right now, but you've only heard the half of it...... it should be called the ARM and a LEG loan.