Shonaa,  in Fremont, CA

Which way is right when we buy house 30 year fixed or 7/1 ARM. 5 year before we bought a townhome 30 year fixed loan but now we sold .

Asked by Shonaa, Fremont, CA Wed Jun 19, 2013

We get low interest rate when we take 7/1 ARM. Mostly people after some sold our house why we take 30 year fixed pay high interest rate

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If yoy planning to stay short tetm than I would go for 7/1 otherwise go for 30 yr fixed.
0 votes Thank Flag Link Wed Jun 19, 2013
The power of the ARM allows you lower payments in the short term. If you intend to sell in the short term an ARM might be right for you.

Further, deciding on an ARM will naturally make you inquire about where interest rates are going for the future. If you believe interest rates will increase later, you can decide to use the ARM but be prepared to sell or refi.
0 votes Thank Flag Link Sat Jul 20, 2013
Hi Shonaa, my opinion is if you are planning to sell in less then 5 years then the 7/1/ arm would be a fine choice, but, since we have a historically low 30yr fixed right now and, if you plan to stay longer, I am pretty sure the rates will be up significantly in 5 or 6 years so at that time your rate will automatically go up. You need to decide how long you plan to stay and then choose. Dawn
0 votes Thank Flag Link Wed Jun 19, 2013
Looking at today's interest rates, 7/1 ARM rates are negligibly lower than current 30-year rates. Since we are at historical lows, it may make the most sense to simply lock-in a 30 year, as there will be no changes at all.

Buyers who plan on owning a property for a short duration (let's say, under 7 years...), then an adjustable rate may make more sense.

Then again, plans change over time... I'm sure there are plenty of people who planned on owning a home for 5 years, then end up staying for 15 years. Or the converse may be true! ;)

However, in general, I would have to recommend simply going with a 30-year fixed rate. Be sure to discuss your options with your lender to make the best decision for YOU!
0 votes Thank Flag Link Wed Jun 19, 2013
with the fixed rates still very low, I'd agree with the fixed loan.
But really that is you and your family decision (with a little help from your lender)

0 votes Thank Flag Link Wed Jun 19, 2013

Great question.

The first thing you will want to think about is where the home fits into your life. If you are a couple buying a home and just starting out, with no real plans for the future, a shorter term (5 or 7 year ARM) will work just fine. In fact, the majority of buyers of homes do something (refinance, pay down or sell and move on) every 5-7 years on average.

If you have a family, then you may already be considering schools and a longer term relationship with the area or neighborhood. In that case, the 30 year may work best.

You also have to consider the economy and the cost.

Looking at the economy as it stands today, we are seeing vast improvements (especially here in the Bay Area) in regards to low unemployment, greater job creation and spending, all of which are positive signs. To translate that into rate - the better the economy is doing, rates tend to rise.

They rise because as the economy becomes healthier, investors move money from safe, but low-yielding investments (bonds) to ones with slightly more risk, but with a greater upside (stocks). Bonds will always need investors, so to attract them, they raise their yields and that translates into higher rates.

With cost - you probably already know that the 30 year rate is the highest and that as you have less "guaranteed" rate, the rate declines. So the 30 is the highest, the 10 year slightly lower, the 7 lower still and so on. Banks can do this because they know that you will be back to see them and most likely spend money on a refinance in the future with those shorter termed ARM's. They also look at them as lower risk to the bank in that if rates rises down the road, when you refinance they will do better than what they have now. If they are locked into a 30 year fixed, they don't have that option and cannot recover if you purchased at 3.75% and now rates are at 5%. They are losing that difference in rate over time.

Cost also applies to those 5 and 7 year ARMS then when you go to refinance. You will spend about $3,000 in a typical refinance. Even those that say "No Cost" are basically making it up on rate - so you will always pay, one way or the other.

Personally, if buying a single-family home, it is my recommendation that you choose for the 30 year fixed as I would see rates moving upwards for the foreseeable future.

I hope this helps, but should you have further questions, please don't hesitate to call.


0 votes Thank Flag Link Wed Jun 19, 2013
Thank you
Flag Wed Jun 19, 2013
This is a decision that no one but you can decide. Have your listing agent go over the pros and cons of each type of loan for you.
0 votes Thank Flag Link Wed Jun 19, 2013
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