New home....fixed rate or adjustable?

mjr2444 · ‎08-17-2015

Met with a lender today.....they came very highly recommended. I was told give the option of a 1,3,5, 7, or 10/1 ARM.....or a fixed rate. I believe the 10/1 rate was 2.37%......the fixed rate around 4%. What are your thoughts on this? I love the idea of a 2.37% rate for 10 years.....but not the possibility of a significantly higher rate in 11 years. Obviously, fixed price rates are VERY low right now.....and you have to think in 10 years they will much higher.

StartingOver10 · ‎08-17-2015

Will you still be in this house in ten years? Or will you trade up or scale down?

The type of mortgage you select depends upon how long you plan to be in the property and your tolerence for risk.

mjr2444 · ‎08-17-2015

It's new construction....so yes, I plan on being in it for at least 15 years. Thoughts?

Revelate · ‎08-17-2015

@mjr2444 wrote:
It's new construction....so yes, I plan on being in it for at least 15 years. Thoughts?

Fixed rate IMO, or something interesting like Penfed's 15/15 ARM maybe. Rates almost have to go up during the adjustment period as they can't really get much in the way of lower.

IF you were looking at <10 years as S10 suggests, then the cost difference on a 7/1 ARM or similar can be favorable with even a maximum rate jump, but ARM's you really have to look what the max individual increase and max total increase is and that varys a lot.

Anonymous · ‎08-18-2015

It does depend on your goals. If you're looking to stay 15 yrs, it's a tough one. PenFed's 15/15 would be an option, but where are you seeing a 10/1 at that 2.4% rate? If that rate is real, I would go for that option because the $ you can save over the first 120 mo. will be significant. If the first adjustment cap is 3%, you'll still be at a good rate. Check what the adjustment and lifetime caps are. I still think that rate doesn't sound right on a 10/1, so investigate further.

Otherwise, at 3.875%, I'd just go with a 30 fixed product and never worry about it again.

StartingOver10 · ‎08-18-2015

@Anonymous wrote:
It does depend on your goals. If you're looking to stay 15 yrs, it's a tough one. PenFed's 15/15 would be an option, but where are you seeing a 10/1 at that 2.4% rate? If that rate is real, I would go for that option because the $ you can save over the first 120 mo. will be significant. If the first adjustment cap is 3%, you'll still be at a good rate. Check what the adjustment and lifetime caps are. I still think that rate doesn't sound right on a 10/1, so investigate further.

Otherwise, at 3.875%, I'd just go with a 30 fixed product and never worry about it again.

Agree with shiftconvention above.

But I am a little bit older now and I don't want to have to worry about the rate or terms again. In fact, my new goal is to actually pay off my mortgage. But everyone is different and it really does depend where you are in your life cycles.

I know others that have no intention of staying in their home longer than 10 years so an adjustable works just fine.

The answer to your question is in your goals and the terms of the adjustable rate. You will want to know the following info to make a decision:

Index (there are different indicies that move at different rates)
Margin (this is the amount that is added to the base rate to get to the actual note rate. There are stunning differences between programs.
Adjustment period minimums and maximums

Anonymous · ‎08-18-2015

Fixed rate.

ezdriver · ‎08-18-2015

My recommendation is to have your lender repare a side-by-side comparison of two products for a fixed time period. Fixed rate for 10 years vs fixed rate for 30 years is not a complete and accurate comparison. Use the same time period for both and let the numbers guide you to making a choice.