Financing in 07302>Question Details

Agmo, Home Buyer in 07302

7 year ARM vs 30 year fixed

Asked by Agmo, 07302 Mon Nov 9, 2009

I am thinking about what kind of loan I should get for my purchase of a condo. I understand the basics of ARM loans and fixed rate loans. Currently it seems the ARM loans have much lower rate than 30 year fixed rate loans. Almost 1% lower? I plan to move out of this condo within 5-7 years. Does that mean I should certainly go for the 7 year ARM loan since it has lower rates? Since I will move out after 7 years, I won't have any interest rate risk later? Are there any pitfalls ?

Thanks a lot!

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I hate to be redundant but stay with the fixed rate. Plans change for unforseeable reasons. The value of your home could devalue and you might need to stay. And you may discover that you are extremely happy in your new home and don't want to leave. Play it safe with your largest investment.....go with the fixed rate.

Bruce Levitt, Real Estate Agent.
973-710-2293 Cell phone
Weichert Realtors
273 Grove Street
Jersey City, NJ 07302
201-333-4443
0 votes Thank Flag Link Fri Nov 27, 2009
HI Agmo
I'll be short, sweet and to the point...I agree with what others here have said..................plans change..nothing in life is definite...I thought I'd be in my first house 5-7 years, and wound up there for 22 years.

Take a 30 yr fixed...rates are at historical lows...lock in a great rate, and your future will be secure as far as your mortgage payments go.
Forget the ARM - go with the fixed.

Best wishes
Debbie Rose
Prudential NJ Properties
0 votes Thank Flag Link Thu Nov 26, 2009
Agmo,

It is very hard to answer without knowing your situation, price of the home or personality.

Are you for sure moving out after 7 years?

Does it depend on something that might not materialize-like a new job, getting married, having children, moving out of town after school, etc.?

Even if you do move out, would you consider keeping it as an investment property (after 7 years you will only have paid off approximately $12,000 on a $100,000 loan. After closing costs and paying a Realtor, it leaves you with very little for a down payment on a new house. Although home prices should rise significantly over 7 years, you still have to consider the possibility of slow growth given current market and economy)?

Are there other reasons you may cosider keeping it after 7 years?

Clients call me all the time with scenarios similar to yours. The answer depends on how definite you are that the loan will terminate within 7 years. Just as an example, If you are here for medical school, but you live California and are planning on moving back after you're done, then yes you should go with the ARM. If you're just assuming that in approximately 7 years you'll feel like moving on, then I wouldn't necessarily recommend it. You have to figure out as best as possible where you stand before you can make that decision.
0 votes Thank Flag Link Mon Nov 16, 2009
I will have to agree with David and Dan. 30 year fixed rates right now in some cases are UNDER 5%. This is truly a remarkable time for mortgage rates and home buyers. I know it is tempting to take the lower ARM rate, but as Dan alluded to, not everything goes according to plan. Depending on the purchase price, you could be talking about a difference of under $100 a month, but the security of the fixed rate the life of the loan. Also keep in mind that condos usually have a rate hit when going conventional (as a 7 year ARM would be), so the difference might not be as great as you think. Hope this helps. Please feel free to contact me for a detailed quote.
0 votes Thank Flag Link Thu Nov 12, 2009
Sometimes in life crap happens and life sucks. Imagine a scenario where something, anything happens and you no longer can move or sell. The 7 years have passed and now you have to pay a much bigger payment you can not afford. On the other hand if crap happens and you have a fixed rate mortgage you are still stuck there, but can keep the same payments you always had.

If you are looking at moving in 6-7 years I would expect you *might* be able to break even. I would not see any appreciation.

We have 2.7 million foreclosures already in the pipeline. We have up to 7 million to come from 2010-2013. Those will compete for the buyers you need. The federal reserve is going to stop buying mortgage backed paper soon. When they do interest rates will go up. That will drop prices. Consider the real market. Consider why you want to buy instead of rent. Right now is not the time to buy to get ahead financially from purchasing and selling a house.
0 votes Thank Flag Link Wed Nov 11, 2009
Currently fixed rate mortgages are at their lowest levels since the early 70s. You have to read the fine print on adjustable rates as sometimes that low rate is "introductory" and will escalate very quickly. You may want to discuss it with a mortgage broker. I work at Weichert and we have Gold Service Managers that can answer your questions with no obligation. Call Toby Robinson at 201-891-6900. Good Luck
0 votes Thank Flag Link Wed Nov 11, 2009
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