Financing in 95129>Question Details

Mini, Home Buyer in San Jose, CA

is 5/1 ARM @3.62 or 30 year fixed @4.87% better for loan amt of 452K? Loan re-finance costs are same for both loans

Asked by Mini, San Jose, CA Wed Jul 7, 2010

0 votes Share Flag Financing in 95129

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in response to FSBOsuccess... For those who have had ARMs that have adjusted recently, it's highly likely that their rates have actually gone down substantially as a result of a super low 1yr LIBOR or 1yr Treasury index. Pls avoid spreading misinformation.
2 votes Thank Flag Link Thu Jul 8, 2010
And I stand by my post that you should close neither because if there are closing costs associated; it's too much. This is a refi, not a purchase. The idea of refinancing is to improve your position as much as possible and we are not talking pennies here. Take the 4.875% fixed and find pricing that will cover all of your closing costs, it won't be hard.
Web Reference: http://WeFixRates.Info
0 votes Thank Flag Link Thu Jul 15, 2010
I suggest you go with the 30 year fixed, unless you only plan on living there for about 5 years. We haven't seen rates this low. I think it's almost certain that your first adjustment in 5 years will be at least 2% = 5.62%. .... Happy funding, Rudi
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0 votes Thank Flag Link Thu Jul 15, 2010
everybody's home loan re-financing is different e.g. age group, size of family, lengh at job, prospect permanency at job, well there are a lot of questions that only a good experience loan officer will ask and answer for you. so the final word would be,,, be very careful who you deal with. a question for thought is who caused that individual to get into an arm when three or five years hence they will not be able to afford the loan and lose their home and their hard earned money. please deal with a reputable lender and you can call the national association of mortgage brokers for a good broker in good standing in your area.
0 votes Thank Flag Link Tue Jul 13, 2010
In response to Thuan's multiple posts suggesting rates remain artificially low due to gov't intervention, this is also untrue. The Fed's MBS purchase program was indeed designed to inject "demand" into the MBS mkt when things were looking grim. In other words, the Fed stepped up to buy MBS when there were no buyers. However, this program was completed and discontinued a few mos back. Since April or so, the MBS mkts have been running on their own without any major intervention or "demand" injections from the Fed. Thus far, the Fed's program seems to have been a runaway success.
0 votes Thank Flag Link Thu Jul 8, 2010
In my opinion what FSBOsuccess stated is not misguided information.

Rates are at an all time low. Also people are hurting now because of our economical down turn and their "surprisely" high arm reset rates a few years back.

But you what you are saying is also true. But how are the low rates even possible? It is because our government is helping out so we can make that turn around.

Moreover, many of the guidelines set today are aimed at consumer education. Many of whom took on NEG ARMs, hence their negative equity. Even HAMP is having a hard time pulling people out with rates as low as 2%.
0 votes Thank Flag Link Thu Jul 8, 2010
Exactly what Danny said. Thumbs up!
0 votes Thank Flag Link Thu Jul 8, 2010
I would also ask myself what is my current interest rate and how much are the closing cost, etc. Figure how long you need to hold each loan to recoup the cost of refinancing.

The other area to consider is that if you are refinancing a purchase loan you may be changing your loan from a non-recourse loan to a recourse loan.

Have your lender run some numbers for you based on the types of loan you are considering, prepayment penalties, or other terms within the loan. Then determine what your goal in refinancing is and does one of the refinance options accomplish that - outweighing any risk.
Web Reference:
0 votes Thank Flag Link Thu Jul 8, 2010
Why not lock in now to rates that are the lowest in 50 years? Much of the problems in the housing market are from buyers who took out ARM and are regretting it as their rates go up.
0 votes Thank Flag Link Thu Jul 8, 2010
It really depends on your needs Mini and the way the ARM is structured to adjust. If the ARM has only a 1% maximum adjustment for the 6th year then even if the interest rates are a great deal higher you will still only have a 4.62% interest rate. The next year could even be a higher rate than the fixed rate but based on your 5-6 years of paying less money it could still work to your advantage.
Most importantly you need to know how long you intend to stay in the house and work around that time period. I would be happy to help you.

Matt Puzz
Citizens Choice Mortgage
0 votes Thank Flag Link Thu Jul 8, 2010

Not knowing your situation it is hard to give you a firm answer.

I have been in this industry for 23+ years & right now in this new mortgage environment I would suggest going with a fixed rate. Nobody knows for sure what their particular situation is going to be 5 years from now & with rates being as low as what they are you can't go wrong! One thing I would suggest is to shop a little further because the 30 yr rate that you have indicated seems a little high. I would also find out what your APR will be, mortgage brokers, bankers or lenders when quoting an interest rate cannot quote without giving you an APR, it is against regulation & subject to fines. Good luck!
0 votes Thank Flag Link Thu Jul 8, 2010
Hi Mini,

If you plan to live in the house for only 5 years then the cheaper rate is better.

Without knowing the specifics of the case I cannot comment about your rates.

Jacob Varghese
Web Reference:
0 votes Thank Flag Link Thu Jul 8, 2010
It depends on when you are looking to sell.
0 votes Thank Flag Link Thu Jul 8, 2010
Both of those scenarios should have absolutely zero closing costs unless your credit is terrible. Assuming you have a 740 credit score, 4.875% on a high balance conforming should rebate back to you at least 2.25% ($10,170) for closing costs. (And $10,170 is more than enough in closing costs) You could easily get a no cost refi for 4.75% (4.75% APR) A 5/1 ARM at 3.625% should rebate 1.5% (($6780) which would cover all refi costs so your APR would be 3.625%. You should reject both of those if you have not locked and get another quote unless your credit score is around 640.

Gregorio Denny
Tripoint Mortgage Group, Inc.
Rate sheet below
Web Reference:
0 votes Thank Flag Link Wed Jul 7, 2010
Hi Mini,

If the property in question is your primary residence, then I say go for the 4.87 30 fixed. This way you will have no surprises in the future. Keep in mind that even though this is a 1.25 (4.87-3.62) difference, it is only temporary. And that 4.87 is pretty low already, artificially low thanks to our government.

If this is a rental and the mortgage is going to be much lower than the rent, it might be wise for you to go with the 3.62. But you really have to know what you are doing. Know that the 3.62 is simply a teaser rate and that it will change. Know that when the rate changes it'll be higher than the going national rate. ETC. Read the fine print.

Being that you are here asking this question than I say don't go for the ARM. ARMs are dangerous and culpable for many us who are currently going through short sales/foreclosures.

Also, this might help:

Good Luck,
0 votes Thank Flag Link Wed Jul 7, 2010
Clearly the rate on the 5/1 is better. However, the rate is better for a reason. The reason being that you are taking on more interest rate risk in year 6 since it goes variable at that point. You are the only one that should determine which rate/terms are best for you given your specific circumstances. For instance, if you intend to only live in your home for 5 yrs or less, it might make sense to go w/ the 5/1. However, if you have no intentions to ever move, the 30yr FRM might make the most sense since rates are at all time lows. Ask your lender questions and make a decision based on your circumstances.
0 votes Thank Flag Link Wed Jul 7, 2010
Hi Mini, Nobody on this site will know your particular financial situation nor should they obviously.

A good question to ask yourself is how long do you plan on living in the home that you wish to purchase?
If more than 5 years, say 10 years then maybe the 30 year fixed would be best suited, and same applies if you are looking to move again within 5 years to the 5/1 ARM
Get yourself a good lender and they can help, but the final choice will depend on your particular preferences.
Be prepared for lots of opinions. Everyone has an opinion, Its your choice and only yours.

Hope this candid information helps

Kind Regards
Michael Barron
First Team Real Estate
0 votes Thank Flag Link Wed Jul 7, 2010
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