Home Buying in San Jose>Question Details

Sonu, Home Buyer in San Jose, CA

Need advice which loan option is the best for $600,000 mortgage loan?

Asked by Sonu, San Jose, CA Mon Dec 9, 2013

I'm first time home buyer taking home loan of $600,000 for purchasing home. I would like your suggestion which one is better option- 7 ARM @ 3.125%, 10 ARM @ 3.5% or 30 year fixed @ 4.125%. Please advice.
I calculated if in 7 ARM I pay payment same as 30 year I'm paying principal 46k more while in 10 ARM 29k more in 7 years.

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Hi Sonu,

If you are looking to make 30 yr. fixed payment, I would suggest looking at 10/1 or 7/1 as you will build equity quicker. Based off of your child still having time before entering school, I would lock in the longer of the two terms. 10/1 would be my recommendation. 10 years in a long time. 5/1 and 7/1 mortgage were created because historically, borrowers will buy/sell/refinance every 5-7 years. So, you will be locking in a very competitive rate, that will get you to 2023.

Best,

Bryan Mecsey
Amerifirst Financial Inc.
bmecsey@amerifirst.us
(510)725-2665
NMLS: 861229
0 votes Thank Flag Link Wed Dec 11, 2013
I would recommend finding a broker or service to help get you to the right lender who has the perfect loan product you need like The Lenders Network. They will get you to a couple of lenders that have loan products that match up with what you need. Hope this helps!
2 votes Thank Flag Link Thu Dec 12, 2013
All these loans have their perks, but like the others said it depends on how long you plan on staying. If it is long term, the 30 year fixed is always a safe and risk-free route because at least you know what you will be paying for the entirety of your loan (unless you refinance). The ARM has the benefit of short-term low rates which is good if you do not plan to live there long term. Either way, the best thing for you to do is to speak with a lender directly to see if you can get started on financing with your situation. There are lenders like myself that would be glad to speak with you to help you get the loan that you need. Well I hope this helps! If you have any further questions or if you would like a loan, feel free to contact me. Good Luck! Brian Nguyen Sr. Mortgage Banker NMLS # 659743 Phone: 949.667.2887 brian.nguyen@nafinc.com
0 votes Thank Flag Link Mon Feb 3, 2014
I also prefer the 10 year ARM unless you know you are leaving in less than 7. I can't think of a single client who has stayed in a property for more than 5 years let alone 7 or 10, but San Francisco is a much more transitional market.

Think about what your long term goals are and decide accordingly.
0 votes Thank Flag Link Tue Dec 10, 2013
Sonu,

I personally like the 10 year ARM. But go with whatever will make you sleep better at night!
Cheers
0 votes Thank Flag Link Tue Dec 10, 2013
All of the choices are good choices. If you think that you will move or sell within 7 to 10 years then the adjustable. Also if you think that you may want additional money out of the home in the future then that is a consideration. Are the fees equal on all the loans? And, what is the movement after the adjustable time period. All in all this could become a coin tossbut if you plan to stay in this home forever and forever then the 30 year fixed is always good. In a way your question is like which is better German Chocolate Carke or Pecan Pie? Matter of preference and timing.

Doug Jones
0 votes Thank Flag Link Tue Dec 10, 2013
Given the current interest rate it is best to lock in these remarkable rates for 30 years. In addition, if you are looking to buy big it might be beneficial to you do use a 80/10 program to minimize the 1st loan size and downpayment.
Flag Thu Dec 19, 2013
Hi Doug,
Fees are equal on all the loans. After Adjustable period its +/- 2% every year till max cap of 8%. I buying bigger home more than I need right now in good school district, good neighborhood. However I have long time before my child even go to elementary school. So considering all factors what mortgage option seems wiser to you?
Flag Tue Dec 10, 2013
Hi Juliana,

This is really insightful suggestion. When I run amortization for 10 ARM @ 3.5% but paying payment same as 30 year fixed i.e. 2,888 then after 7 years I would be having $487,366 principal left and in 10 years $432,031 principal left.

With 7 ARM @ 3.125% paying payment same as 30 year fixed i.e. 2,888, after 7 years principal balance is 470,697

However in 30 year fixed @ 4.125% after 7 years principal balance is 514,381 and after 10 years principal balance would be 471,526

I'm in dilemma which option to take. I plan to pay same payment as 30 year fixed if I take ARM so can reduce principal much faster. If take ARM will try for best option to refinance from 5th year onwards. But, I'm keep hearing that 4.125% is all time lowest rate if we exclude 2012 rates and may not happen again. I see rates going up and as you say elections may have rates increased.

I'm buying home at almost market peak so not sure if home price will drop or same in next 7 - 10 years to refinance. Though I'm planning to reduce principal as much possible till my ARM rates are fixed, by any chance if interest rates go up till 8% cap of ARM, will I get in trouble with mortgage payments. I understand risk and gain go together but considering your expert foresight will this 30 year fixed rate of 4.125% is run away rate that make it right choice to go with it and ignore perks of ARM. Or, ARM approach with reducing principal faster sounds good plan then which one of 7/1 ARM @ 3.125 or 10/1 ARM @ 3.5% seems wiser. With ARM my goal would be to refinance at any opportunity I see to refinance with in fixed rate period.
0 votes Thank Flag Link Tue Dec 10, 2013
If interest rates will remain relatively constant the 7 ARM will be the cheapest as long as the upfront fees and points are the same between the loans. The biggest uncertainty is due to the upcoming presidential elections. Will the new president/congress change policies driving interest rates higher making the ARM become very expensive? I don't know.

Most people are very familiar that lower interest rates give a lower mortgage payment. Most don't realize that the lower interest rates pay off the principal quicker in the early years even with the lower payment.
A $500k loan at 3% has a monthly payment of $2,108 and pays off $55,468 of the principle in 5 years.
A $500k loan at 6% has a monthly payment of $2,998 and pays off $20,599 of the principle in 5 years.
See http://julianalee.com/reinfo/mortgage.htm for a table showing equity for different interest rates.

If interest rates don't increase above the 4.125% fixed rate, the ARM can save you quite a bit of money. However if interest rates do rise above 4.125%, you need to be able to pay the higher monthly mortgage. Your thoughts to get the ARM but make a monthly payment equal to the higher fixed rate loan is most often a very good plan. You will actually pay down the loan so much quicker that a future increase in interest rates may not be very costly. The biggest concern is will the upcoming elections result in a quick increase in interest rates?

San Jose home values can be viewed at
http://julianalee.com/san-jose/san-jose-statistics.htm

Recent San Jose home sales can be viewed at
http://julianalee.com/san-jose/san-jose-home-sales.htm

Juliana Lee
Top 2 agent nationwide at Keller Williams Realty, the nations largest
Cell 650.857.1000
juliana@silicon-valley-homes-for-sale.com

Over 20 years experience
Over 1,000 homes sold in Santa Clara County and San Mateo County
.
Web Reference: http://julianalee.com
0 votes Thank Flag Link Mon Dec 9, 2013
Hi Alex,

Thanks for response. Which option do you suggest is best considering rates going up? Will it make sense to go for ARM and pay payment like 30 year and reduce principal fast and refinance before fixed rate adjust or take 30 year? I'm looking to stay in home for 12-15 years.

Thanks.
0 votes Thank Flag Link Mon Dec 9, 2013
I would be more then happy to help you. I can send you some worksheets that will help you decide.

Alex Greer
Loan Officer
NMLS #1056079
http://www.TheMortgageOutlet.com

408-352-5147
AGreer@TheMortgageOutlet.com
0 votes Thank Flag Link Mon Dec 9, 2013
Did you recieve my email?
Flag Thu Dec 12, 2013
Thanks Alex. really appreciate. Can you please email worksheet to me at sonu200333@yahoo.com?
Flag Mon Dec 9, 2013
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