07-21-2009 05:32 PM
Been approved for a 30 yr fixed FHA mortgage, but while filling out my loan app today I asked about the possibility of an FHA 5/1 ARM. The loan officer did not take kindly to this question, and proceeded to lecture about what a bad idea this was and how rates are historically low and if I couldn't afford the 30 yr fixed rate, I shouldn't be getting a home loan. He flat out refused to do an FHA ARM of any sort. I know that given the recent housing meltdown, ARM's got a bad name... but are they completely taboo now?
For my situation, I think it's a very good idea. It's not that I can't afford the 30 year fixed rate, I just think the ARM would be better for my situation. I plan to be in the home 10 years tops before moving. My income should increase gradually over the next 5 years while the initial rate remains locked. I have a few other small payments that will be paid off in 3 years, freeing up more of my income if rates were to rise. I know rates have nowhere to go but up, but I seriously doubt we'll be seeing more than 2-3% increases over the next 10 year period. The economy just seems to fragile to sustain interest rates from the late 70's, early 80's era even with 5 or 10 years to recover. Even if rates rise, the balance will be lower by then and the rate increase wouldn't hit as hard. And lastly, with about a 1% lower rate for the next 5 years I could absorb some increase without being any worse off than paying the additional cost of the fixed rate for the first 5 years.
This was a local bank who had this bad reaction to the thought of an ARM, and 3 other local banks said basically the same when I called to see if they would do an FHA ARM. Chase is the only bank that seemed to react positively to the idea, but overall their fees, rates are not competitive with the local banks.
On the subject of rates, about 2 weeks ago my LO quoted an FHA 30 year fixed at 5.375. Last Friday it was up to 5.5. Now today, that I was approved and can lock in he gave me 5.625. I'm going to give it a few days and see how rates behave I think. I know rates have risen slightly over the past week, but from what I've read 5.625 seems a little high currently. Purchase price is $129k. Any thoughts on any of the above are appreciated.
07-21-2009 06:43 PM
your thinking is sound..... but the math isnt
cant really save enough money with the lower rate to cover the closing costs on your more than likely refi.
maybe at $200 - 250K the math would make more sense.
5.625% is a bit on the high side. but the lower loan amount may be driving that some too.
you could do 3/8ths better and the lender would STILL be making plenty. Unless this is a 0 origination fee loan. then that rate is right
07-21-2009 10:20 PM