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?
30 year fixed all day
It 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
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
0.5% seems like a pretty small discount for the shorter lock term. If you are certain you will stay there less than 7 years and want to sell, then sure. But otherwise, I’d take the 30year loan.
Arm. You never know. No point throwing money in interests which you won't deduct
Most 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.
This 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 the rates go up and fuck you on your original loan, they will have also gone up on the 30 year fixed. Rates are still near all time lows. If you can afford 15 year in worst case scenarios, go for 15 but I wouldn't touch an ARM.
7 ARM all the way and pay it aggressively in a first few years to bring the interest component to your current rent payment or below.
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.
Op, what did u choose?
7yr. Aim to be able to pay off your mortgage faster anyway. I paid off my mortgage in 12 years. By 7 yrs I had lots of equity.