This being said, the mortgage is one of your greatest tax ride offs.
Basically, home equity has a 0% rate of return. The value of a home is dictated by the market, not by your paymentâ€”making extra payments on a house does not increase the value of that house. Having a large down-payment on a house does not reduce the cost of a house (thereâ€™s still a â€œLost Opportunity Costâ€ on the down-paymentâ€”that is, whatever is stuck there in the house, is by definition *not* earning interest somewhere else. Over 30 years, thatâ€™s a lot of money. And over the life of a 30-year amortized loan (or a 15 yr, or 10, etc.) that is likewise a lot money lost, unearned.
Now even for the person who pays off their house, that same person will also have paid too much in taxes (they eliminated their only major tax deduction!). Further, paying higher taxes along the way means by definition they *didnâ€™t* save as much other money elsewhereâ€”they couldnâ€™t, because they had to pay the government. And if they *did* save, it was very likely in their company 401kâ€”for the tax deduction, of course.
b) The 5/1 ARM is a fixed mortgage for 5 years that will subsequently adjust every year after that. I can almost guarantee within the next decade, we can expect rates to increase. I believe today's rates may be artificially low but that is a completely different story.
c) Paying closing cost via the YSP can be more exppensive in the long term but if you don't have a chocie, it may not be such a bad idea. Depending on your loan amount, a greater interest rate may not be such a big difference in payment. If you are purchasing with a high loan amount, I beleive it may not be such a good idea, but if it is a low loan amount, it may be worth considering.
d) In my opinion, the fixed rate loan is much safer than the ARM loan in todays market....IF you plan on staying in the property for a long period of time. If you plan on staying in the property for less than 5 years, the ARM loan may be a good alternative...but just consider the fact that if housing conditions slump, it may be difficult to refinance out of that loan or to even sell the house.
I hope this helps!! Feel free to call me anytime or email me with any questions. I'd love to help.
Only thing to add is if you know for sure you will live there less than 5 years, go 5/1 A maximum conventional loan over 30 years makes more sense on a monthly cash flow basis. Your lender can run these scenarios best for you, they have all your numbers
There is a break even point on worst case scenario for the 5 year arm that is longer than 5 years. There are sevral non-numerical factors to take into consideration along with the mathematics of the situation. Your cash-flow expectations now, 5 years from now, and further out, your propensity to handle risk both emotionally and financially, etc. I would never advise on this type of issue without thoroughly analyzing all these factors.
Please make sure that you deal woth a lender representative that will lay out your options specifically with all these considerations factored in. If your lender is not willing to do this, find another one. It is too large of a transaction with long term consequences to risk an uneducated decision.
Robert L. Hanson
Gladewater National Bank
First Time Homebuyer Specialist
Rate quote or live chat with me at the link below:
Best of Luck with your decision!
It sounds like you are taking everything on your shoulders and you don't belive or trust your Loan Officer, Either that, or you haven't gotten a GFE from the Lenders. Possible?
The GFE's allow you to compare the details and see exactly where each money goes.
I wouldn't venture a guess without looking at them. There are so many fees where your money could disappear; some up front, some at Closing, and some over many years.
Good luck and may God bless