Home Buying in Grand Rapids>Question Details

Mitch, Home Owner in Grand Rapids, MN

What is better, a 5/1 arm or a 7/1 arm. We do not qualify for a fixed rate 15 year loan, and we plan to stay in the property for at least 10 moe yrs.

Asked by Mitch, Grand Rapids, MN Mon Jun 13, 2011

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6
There is not much a difference between the 2 except that the one is LOCKED for a slightly longer period of time. You would be better served getting the 30 year fixed terms (since rates are so low) and NOT paying extra towards the loan.

Any extra money you have, please apply first to your Non-tax preferred debt. Credit cards, high interest rate loans etc. After this debt is eliminated, deposit any extra money into your Emergency Fund, until you have at least 6 months reserves.

Let me know if you have any additional questions.
Ron Jensrud
Home Buyer's Advocate
Buyers Real Estate Group, Inc
612-272-1520
Web Reference: http://www.NeedaNewHome.com
1 vote Thank Flag Link Mon Jun 13, 2011
I am not a loan officer but I would think interest rates will be higher in 5 or 7 years? Does not seem like a good choice if you plan on still living in the home after the rate adjustment.

Most people don't consider inflation when borrowing and looking at interest rates, but investors sure do. I would think the 30 year is the best route and then if you want just do extra payments if that makes you comfortable.

Just a thought....
0 votes Thank Flag Link Wed Jun 15, 2011
I'm confused. Why because you don't qualify for a 15 year do you want a 5/1 or 7/1? Neither is better than the other, they are the same with the exception of a longer fixed period on the 7 year in trade-off for a slightly higher rate than the 5 year. If you cannot qualify for a 15 year because of your debt ratio, then take a 30 year and "self-amortize" it over whatever period of time you want. Just make extra payments or add extra to your monthly payment. most mortgages these days don't have pre-payment penalties so you are free to pay it off as quickly as you like.

Now please, don't misread my comments, there is nothing wrong with a 5/1 or 7/1, but the fact that you state you are staying in the property 10 years is a good indication that an ARM is the last thing you need. If you want the 5/1 or the 7/1 because you believe you need the lower rate to qualify, well that won't work either because debt ratios are not calculated at that lower rate and even if they were, that would be a terrible move on your part and an indication that you are buying too much house or overextending yourself on your current house.
Web Reference: http://WeFixRates.Com
0 votes Thank Flag Link Mon Jun 13, 2011
ARMs are great products when used for the right purpose. If you'd qualify for a 30-year fixed loan, then you probably should go with that instead.
0 votes Thank Flag Link Mon Jun 13, 2011
man stay away from the arms, just apply for the 30 year fixed and pay what ever extra you want each month to make it disappear early, what ever is left at the time of sale, will be quite a bit less anyway!
0 votes Thank Flag Link Mon Jun 13, 2011
Sounds like what you want is a 30 year fixed. If you plan to stay in the property for at least 10 years an adjustable rate mortgage is a risky thing to do. No one can predict what the rates will be in 5 to 10 years. You can always pay extra and turn a 30 year loan into a 15 if you wish.
Web Reference: http://www.lennyfrolov.com
0 votes Thank Flag Link Mon Jun 13, 2011
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