Planning to lock the rate for our home soon.
Ally is offering 4.25% for 30 year fixed vs 7 Year ARM is 3.75%
Folks who have recently bought homes, what did you choose and why?
Planning to lock the rate for our home soon.
- Microsoft lzmz70It depends if you are going to stay in same home for more than 7 to 10 years. If you have plans to move out and get upgraded soon 7ARM will be better
- Every mortgage company ive ever dealt with allows you to move over mortgage from place a to b (rather than paying off ur current mortgage and getting a new one on the new place) helping u save the ur existing % if lower. Of course, this can be coupled with a 2nd mortgage of your current balance dos not cover the full $ of the new place.
- I haven't heard of a portable mortgage in the US since the financial crisis and they weren't exactly common back then. They were common in my parents' day but that's a long time ago (my folks bought in the first half of the 1970s).
Basically entirely incompatible with the modern way of securitizing mortgages. Never hurts to ask, but if you don't have portability in writing when you open the loan, you don't have a portable loan.
- Arxan cIUk51Most of the people who lost houses in the recession had ARMs that increased so much they couldn’t make the payment. (I just Googled an example in a news story where a payment went from $2900
To $4200.) I have a 30-year fixed with no penalty for early repayment.
- Amazon roderThis is why you put down 25% or more and then max your payments to pay it down as fast as you can.
If things go to hell you have the ability to refinance in that case without needing to get desperate.
If you are putting down less then 20% then 30yr fixed is the price you have to pay for buying a home your can't really afford.
- If we assume you aren't gonna ever refinance for some reason, with ARM your rate won't exceed +5% in the worst case, which would be about 9% if you get a 4% mortgage today. Thus, if you get a 600k mortgage now and pay down at least 300k over the next 7 years (extra 45k a year to pay down shouldn't be an issue for most folks who can afford such mortgage), you'll pay 27k of interest starting year 8 at 9% in the worst case. Which is the same as if you started paying your 4.5% 30 years fixed on 600k initially. But you've been saving 0.5% of interest for 7 years. And if the rates really went so high then the economy must be strong: you're likely making much more than 7 years ago and the house has appreciated significantly. And even more likely, you're already looking to move or upgrade.May 28, 2018 3
- If you plan on paying it off then lock it in30 years. If you plan on selling in the next 5 - 7 years then go arm. Prices could go down by then but you should be ok if you put down a large down payment
- Easy answer. 30 year fixed. Half a point isn’t enough savings to offset the certainty of 4.25 for 30 years. 7 years from now the ARM will be much more than 4.25.
Unless of course you have a crystal ball telling you that you will sell the home and leave in 7 years.
- What if I plan to cash my RSU every year to make extra payments and carry the regular payment off my base?
Then I'm paying down an extra 100k+ a year and in 7yrs will have made 700k+ in extra payments. At that point even if rates rise dramatically my mortgage has become much less so my payment is not likely to go up.
- What if....what if...what if. The reality is you likely won’t. Throwing so much money into a single asset is not a good strategy. The amortization schedule for 7/1 and 30 year fixed is really not drastically different for the first 7 years. But sure as fuck is on year 8.
Make one extra payment per year. Invest your RSUs and extra money in the market.
- If that’s how you view it then why buy a house at all? Stocks outperform housing every time. You’d do much better keeping your money in the market and renting cheap rather than dumping everything into your house (the asset I was referring to). What happens when an EQ or fire comes along and destroys your house. Oops. All that money is gone. I know people who were not able to retire because of the north ridge quake.
Diversity diversity diversity.
- So if a fire destroys your house you still owe the mortgage. That's my point that it's a liability, not an asset.
Paying down a mortgage IS NOT investing in the house. Doing renovations is investing in the house.
Paying down the mortgage is eliminating a liability that is costing you significantly more than the rush adjusted rate of return on any possible investment.
- And remind me again what this has to do with a 30 year fixed vs 7/1? 700k mortgage Amortization over 7 year puts the 30 year fixed at 195k in interest payments vs 171k with the ARM. If you took you 100k extra per year and invested it in the market at 7% ROI, your have 925k conservatively at the end of the 7 years. You could just pay your house off with cash after paying the tax on the withdrawal and have more money than if you dumped it all in the mortgage.
Either way the 30 year fixed gives you more options across the board. Because let’s face it. You won’t be so mathematically diligent with your money. You will spend a lot of it. You will buy a new car. Renovate parts of the house. Go on vacations. Save up for your kids college, get married, buy some other investment, etc...
Better to trade some nickels and dimes for more flexibility.
Friday. Beer time. Cheers. 🍻
- Citi offer 3/8th off your rate if you can deposit $200k with them. You can withdraw the money after closing. Let me know if you need an intro.