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Asked by Raj, 95035 Wed Jul 9, 2008

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Roland Barcos, Agent, San Jose, CA
Wed Jul 9, 2008
Hi Raj,
It looks like you are in good shape with 20% down. The choice between a 5/1 ARM and a 30 year fixed really comes down to how long you plan to stay in this home. The 30 year gives you stability and certainty in the future. With the 5/1, you get a lower rate, but you will have three choices in 5 years: risk an adjustment to higher rates and payments; refinance to a better rate before the adjustment; or sell the home, pay off the mortgage and move. The difficulty is knowing what you will want or need to do 5 years from now. And of course, who knows what will happen to interest rates over the next few years, but most experts are predicting that interest rates will be higher than they are now.
There are other things to consider. Does the loan have a prepayment penalty? This makes it more difficult to refinance when you want to. Are you planning to pay interest only, or principle and interest? You are starting off with 20% equity and that only grows through paying off principle or by appreciation. As you know, many people have been burned recently by counting solely on appreciation. By the way, I don't do loans and will suggest that you make sure you are working with a reputable lender.
There are other things to consider, but I want to keep this brief and not stray too far from your basic question. In order to decide whether to go with a 30 year or a 5/1, you need to predict or be able to plan what your situation will be 5 years from now. Only you can make that decision.

Good luck,
1 vote
, , Las Vegas, NV
Wed Jul 9, 2008
Dear Raj,

I would concur with the answers below. The most important thing is that you feel comfortable with the terms of your loan. I highly agree with the comment below that you should try and educate yourself or find someone that will educate you, not only on the current market, but understand how your decision today will effect you in the future. The first question you should ask yourself is how long do you intend to live in the property? This question is sometimes easier said then done, but you should have a general idea going in. The next question would be, what is your risk-threshold? Some borrowers are ok with shorter term Arm’s vs. a longer-term fixed loan. Each borrower is unique in their needs/wants, and only they can answer this question. For an ARM product, I would also ask questions like, what index is the ARM attached to, LIBOR, COFI etc. What is the maximum adjustment the rate could go up or down after the fixed period? When will the adjustment period end, and what effect does this have on my payment? Can I sell my home anytime without a pre-payment penalty? Although these are just a few questions I hope this gives you a start. Again, I truly believe the main thing is that you should feel comfortable with your decision. To do this you have to be informed, and ask the right questions.

Thank you, and my hope is that this information at the very least gives you a few ideas of where to start with your questions.

Have a great day.

Patrick Moore
Senior Mortgage Banker
Good Morning,
0 votes
The Sanborn…, , Los Angeles, CA
Wed Jul 9, 2008
It is very important that you consult a financial advisor and look at your current situation and see what best suites your needs. When purchasing a home, it's important to think about how long you are planning on being there and most of all what your real estate goals are.

If you have any additional questions, you can always email us at or visit our website at
0 votes
Ailynne PeBe…, , San Leandro, CA
Wed Jul 9, 2008
Hello Raj,
It would be better to consult a Real Estate financial consultant. They could better explain to you the pros & cons of each program. That would also depends on your financial standing and how discipline you are in your finances.
0 votes
Bill Mccord, Agent, San Jose, CA
Wed Jul 9, 2008
Your question is perfectly understandable but in order get the optimum answer you need to be willing to give some of your time to become educated in ALL of your alternatives. From experience I can tell you it takes up to 2 hours face to face to make sure you are aware of your choices and understand how to eveluate them. The Golden Rule of the Mortgage business is "Getting the Lowest Interest Rate on the Wrong Loan will cost you Money". If you choose not to do your homework then you will have no way of knowing whether you got the best Loan for YOU vs the one that provided the biggest fees to your Mortgage Broker.
0 votes
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