Financing in 90277>Question Details

Fat Franky, Home Buyer in Torrance, CA

What is the best type of mortgage to go with? 30 year fixed vs 10/1 or 7/1 ARM in the current market?

Asked by Fat Franky, Torrance, CA Mon Jun 15, 2009

My wife and I are perplexed by the number of products and options that are out there. All of our friends and family are telling us to stick to the 30 year fixed, but our realtor has mentioned 10/1 or 7/1 ARM. We took a look at the ARMs and they seem incredibly complex -- how could this be a good solution? A no Frills 30 year fixed sounds good but we are being told ( by our realtor) that hardly any mortal qualifies for these. Any thoughts?

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Ron Rovtar’s answer
Hi Fat Frank:

If you plan to be in your new home for many years, a fixed rate mortgage is probably your best bet. However, as Mandy notes below, people often move well before paying off their loan. If your job requires frequent moves, if you plan to buy a larger home as your family grows, or a smaller one when the kids leave for college an ARM may be your best bet. In other words, if you expect to sell the home before the fixed rate period at the beginning of the ARM, then it might make sense for you to keep your interest rate and payments lower by taking out the ARM. However, before you sign anything, you should talk to your lender and make sure you fully understand all the implications of any loan you take out. This is especially true of ARMs because they are more complicated than fixed rate mortgages.

0 votes Thank Flag Link Sun Jul 10, 2011
In the last 10 days or so the interest rates went up by about half a point or 0.5%. However they are still low but one thing is definite. They will rise and rise significantly. If you are planning to stay for a long time in the property your safest bet is a 30 year fixed.

Bob Khalsa
Broker Owner
United America Realty
0 votes Thank Flag Link Mon Jun 15, 2009
Dear Rodolfo,

You sound like an intelligent business man and I'm sure that you are a great agent and you mean well. However, I beg to differ with you. Unless Fat Franky has a huge amount of money put aside or has a crystal ball, I believe it is always better to go with a fixed rate. One never knows what the future is going to bring and in my 55 years, I have ssen a lot in this market and I can truly say that this type of thinking played a huge part in starting this economic turmoil we are now in. I heard the loan officers talk to my clients, many of them and what I found to be consistent were two things. The first was "you can always refinance". The second was, "Don't worry, we'll take good care of you." Since those times, I have spent much of my time, free of compensation, I might add - getting those clients out of financial trouble and helping them to hang on to those homes.

Even if they had an honest, trusted lender, I found that most people do not truly understand the different types of loans or the ramifications of them even when explained in detail.

Therefore, I stand by my first answer. 30 year fixed!!!!!!!!!!!!!!!!!!!

The only exception I would agree with is, if that person was extremely knowledgeable about the lending practices and extremely knowledgeable about the stock market and has a good working knowledge of the cause and effect of the stock market and how they effect interest rates.

Then let us hope that there are no changes in their personal circumstances, such as job loss, health issues, death etc. that would prevent them from moving on in a couple of years.

I do not mean to be disrepectful, but I'm afraid you really touched on a sore spot for me. I saw too many people go through horrible times that could have been avoided if they had gone with the 30-year fixed to begin with. I know someone will ask if they even qualified for the 30 year and the answer is yes, but their lenders made the alternative sound so much better.

Linda S. Cefalu
1 vote Thank Flag Link Wed Jun 17, 2009
30-year fixed!!!!!!!!!!!!!!
1 vote Thank Flag Link Mon Jun 15, 2009
A 30 yr.fix is your safest bet but if you want or need (for qualifying) lower payments then the others 5/1, 7/1, 10/1 would accomplish that.

Any other financing or loan questions let me know.

Good luck.
1 vote Thank Flag Link Mon Jun 15, 2009
Go for the 30 year fixed. Rates are incredibly low and a 30 year fixed limits your risk. If you do not qualify for a 30 year fixed loan at the price point you are looking at you should be looking in a lower price point. Tons of mortals qualify for 30 year fixed loans.
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0 votes Thank Flag Link Sun Jul 10, 2011
You never know where you will be in a year, 5 years, 10 years, etc. The average homeowner buys and sells every 8 years. Think very carefully about ARMS in light of how they adjust, as they adjust EVERY month.
0 votes Thank Flag Link Tue Jan 26, 2010
Hello Fat Franky,

The best advice I can give is do not rush into choosing a loan. Make sure you understand the terms of the loan before signing anything. A Fixed Loan is the way to go. Do not allow yourself to get caught up on what your interest rate and payment will be. Making this common mistake can come back to bite you in the long run. Make sure to ask the lender these questions:
1. What will this loan cost me?
2. When will I pay this loan off?
3. Let the lender know you prefer a Daily Average Unpaid Balance Loan. Do they offer one? This will ensure that the lender actually applies EACH payment immediately to capture the interest savings for you, and does NOT wait until the end of the month.

Make sure to also research a 15 year fixed rate along with the 30 year fixed rate. Make sure you understand all the applicable fees before agreeing to the loan. Also make sure that once you have purchased your new home and closed escrow to speak with your Life Insurance professional. At this point you will need to protect your family and your investments future by updating your Life Insurance. Lastly, a great book to pickup online is It's Your Money! Tools, tips & tricks to borrow smarter and pay it off quicker. By George J. Boelcke. His website is It's an outstanding book and Mr. Boelke has over 25 years experience in credit and finance. If I may be of any further help regarding real estate, financial or life insurance questions please let me know. Good luck.

0 votes Thank Flag Link Wed Jul 15, 2009
Hi Fat Franky,

I think that the loan program that you choose really depends on your personal needs. Things to look at: 1.) How long do you anticipate living in the home; 2.) Current and Future Financial Situation; 3.) Financial Priorities (looking toward savings for retirement, financial freedom, college funding, etc...); and 4.) Current and future economic factors.

I don't agree with your agent regarding the 30 year fixed vs. ARMs (assuming you are utilizing a loan amount at $729,750 or less). I say this because the interest rates are not much different between the two. If you're looking at Jumbos (loan amounts above $729,750), then you're in a different category. There are not too much being offered, but ARMs, in the Jumbo arena these days. The Jumbo fixed rates are very expensive and those who advertise lower rates, you'll need to be careful because they don't close most of the time.

In general, I have been advising my clients to go with a longer term of financing because I agree with many economists who are projecting hyper inflation in the near future from all of this Stimulus spending (and talk about another bill, which will create more concern). Inflation means higher interest rates, which we saw in the 1980's (the first time in American history that we reached double digit rates).

If you're interested in which loan program is best for you and your family, then feel free to contact me any time. My office is located in Torrance (on Hawthorne Blvd).

Best wishes,
Mike Bjork
Guild Mortgage
Direct: (310) 694-3544
0 votes Thank Flag Link Wed Jul 15, 2009
Hi Fat Franky,

In relates to your question, the answer really depends on what is your plan with your home... If you are planning to stay for couple of years and move on, then ARM is best for you. But, if you and your wife is thinking of staying in your property for more than 30 years, then 30 year fixed is best option for you.

It would be wise to explore all posibilities first before deciding which loan program you are going to get. Most of the loan officers are willing to explain to you how each program works.

I hoped this will give you some insights. Good luck.

Best regards,

Rodolfo Barcenas
(562) 881-1620
0 votes Thank Flag Link Wed Jun 17, 2009
Fat Franky,

I think you have two choices here:

1) Make the effort over the next few days/weeks to understand how ARM loans work, and what benefits they might bestow. It ain't rocket science and if you have the willingness to learn, I would be happy to send you an article I've written that explains ARM financing.

2) Go with what you know. I have known very few borrowers that don't appreciate the peace of mind offered by fixed rate loans. There is nothing wrong with saying, "this is the right product for me." And be done with it.

I am here to help with questions. Good luck with your search.

Best regards,

Rob Spinosa
0 votes Thank Flag Link Mon Jun 15, 2009
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