We are buying as house in San Jose. The rate for 7 year ARM is 6.125% and for 30 year fixed is 6.825%. We are planning to go with 7 year ARM and refinance down the road. Does this make sense or are we missing something obvious here? Blind tax: TC 550k #mortgage #housing #sanjose
Which lender? 7 or 10 year arm is reasonable to go with (in the market as well)
Make sure you understand in detail how a refi works and the risks... Home value, credit, DTI , and employment are to some extent all beyond your control and have huge impact on the refi. Also understand how/when they can increase rates in the off chance rates didn't go down or you were unable to refi.
This. OP, you are working under the assumption that the rates have to go down in 7 years and that your income will be kept stable. While not a completely unreasonable assumption, it is still only an assumption based on a perception of the market. Do you know that there was a 10+ year period not that long ago, when mortgage rates didn't go below 8%?
Thanks for highlighting those risks and assumptions. The bank says after the 7 year period, interest rate will not increase by more than 5% over the life of the loan. And in each adjustment at 6 month period not increase/decrease by more than 1%
That's a great TC! I am interviewing with Apple can you tell me your level and TC breakdown please?
the obvious thing is the refi risk. you might not be able to or the rates could be even higher. I would take the 30 yr. unless you have a solid reason to think you will be selling in less than 7 years.
I understand the risk of rates being higher. But can you elaborate on why would I not be about to refinance? Is it because the market could crash or something and the value of the house goes down?
well, if you lose your job or arent working, it could be a problem. i wasnt thinking about house value. that seems less likely to be impactful unless your downpayment is super low. the bigger risk is probably that rates will be even higher or just wont have dropped enough to make it worthwhile given the additional costs.
Apple employees get some 0.5 or so discount on mortgage. Check that out.
Oh! Is this only with Bank of America or other lenders too?
30 year fixed, always.
Too much of hassle and risk for .7%. Take 30/15 year fixed and have peace of mind. No need to constantly worried about global market conditions, inflation, politics, etc.
You can always refi fixed anyways. If rates drop for arm, they'll drop for fixed.
Definitely ARM.
Take whatever term gives you the lowest rate, you are definitely going to refinance in a couple of years (if not sooner).
If there is an option for 5 year ARM. Take that, that will come out even cheaper.