Unless the home that is bought is the same price that a person was considering with a fixed rate, there will not be any savings realized. An ARM may change the qualifying ratios and someone would normally get more house for the money instead of any savings and then might not be able to qualify for the refinance at the higher rate.

If you want to save money buy less house, yes different loan products can help but paying less for a house is a better option.

Fist off, rates on ARM loans are not "just as good" as fixed rates. I have been able to get people rates of 3.75% on a 3 year FHA ARM recently, and the comparative 30 year was 5.5%.

On a 200k loan+ that HUNDREDS of dollars a month. Thats a big deal when everyone is pinching pennies these days, that could be money used to tuck away every month and give peace of mind.

Also, with an FHA loan, the adjustments are capped at 1% per year, so based on that, starting in the 4th year if the rate went up the MAXIMUM amount, it would take another 6 years to actually be losing money on the deal....so 9 years total! Most people refi or move in less than 7-10 years, so that is why an ARM loan can be such a great option for people these days.

FHA arms are much safer than the former ARMS from subprime...there are no prepayment penalties and you can always streamline them into a fixed rate mortgage with re qualifying, no appraisal or income documentation even needed,

Kyle@novahomeloans.com

There are 2 main types of loans: Conventional and FHA/VA. Your husband may qualify for a VA loan. That said, there are two main types of programs: Fixed and ARMS. So, within Conventional loans, you have a fixed rate and an Adjustable Rate. Within the VA loan, the same. The rates today are just as good on a fixed versus adjustable. The fixed however is safer. Don't trust the government when it comes to shipping out. They'll give your husband orders and then cancel them. Because you're in a military family, I would recommend a fixed rate. You can always rent the property out and earn rental income.

Hi Megan,
You've already received a bunch of good answers, but I just wanted to stress two points. The rate for an ARM will be lower to start than a mortgage fixed for 30 year, but as has already been stated, you never know what the future will bring. The difference in the rates isn't that much, but if you don't sell your home before the rate adjust, you may end up in a lot of trouble. You will not be able to fix the rate if you stay in the home longer than plan today. The country's recent economic problems have taught us that we really can't plan on what will happen in the future. Good luck.

Also, why are you considering conventional and ARM loans when your husband is in the military?

You both should consider VA loans ... http://www.homeloans.va.gov/index.htm

1. Most forclosued properties, their loan were not 30 years fixed. You will no know what rate will be in 5 years later. In fact, the rate will go up in shortly due to inflation is high. It might be up to 7% to 10% . In 70s and 80s, rate was as high as over 14%. For safe, and while the 30 years rate is still low, get into a good program.
1/5 ARM 4.5%, 30 years fixed 5.125%.
Realty World-Blue Property
Jerry Zang
408-930-4684
jerryzangrealtor@gmail.com
DRE#01702597

ARM pros: lower rate, affordable monthly payment

ARM cons: loan rate adjust after the initial period 3, 5, 7,or 10 years, loan rate increase in an interest rate rising environment, prepayment penalty which locks you in an interest rising environment (this means higher payments) and/or you pay hefty fees to refinance.

Conventional and ARM are apples and oranges. Conventional means "prime" loan programs. Prime means credit score of at least 720 or higher. Prime loan programs includes fixed and adjustable rates.

ARM means the mortgage has an interest rate that is adjustable after the initial period of 3, 5, 7, or 10 years. ARM include subprime loans - credit scores below 720.

The cost to obtain a "new" purchase loan is lower than the cost to refinance. Also, in certain states, when you refinance, you loose certain homestead protection. So although you can refinance the ARM loan to a FIXED rate loan, it is not recommended because the interest rates for refinance is always "higher" than a new purchase loan.

So regardless of your "in a few years", the best mortgage loan is a "FIXED" rate loan. Only obtain an ARM loan if you know your "exact" goals, you will follow through your goals and you monitor the interest rate activity...economists are projecting the Federal Reserves will start to increase the interest rate beginning late 2010 or early 2011. This means any one who has an ARM loan now, they better refinance to lock in with a fixed rate.

You only need to turn on the news to know that people who are in pre-foreclosure or who are in foreclosures are mainly because they have "ARM" loans, where the interest rates have adjusted to an "unaffordable" monthly payment.

I hope my suggestions above are clear, but if it is not ... please DO NOT get an ARM loan if you are a first time home buyer.

ARM loans work well for investors because they have a "specific" goal and timeline for the property.

Email: Contact@ActusPropertySolutions.com
Phone: (888) 525-0125

I will answer this part of you question: If in a few years I decide I want to keep the home can I change the loan to conventional to get the locked rate?

A lot of people today are finding out that they are stuck with their arm because property values have declined or credit has tightened. You might not be able to refinance due to a number of factors out of your control.

You also might not be able to sell for more than the mortgage if property values keep declining, I am not trying to scare you but I do want to help you understand some pitfalls so you can make an informed decision.

A home is not a short term investment, the first calculator I would use is a rent vs buy calculator and then do arm vs fixed, as a start.

These are all important decisions, please consult some professionals for help.