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URL:  http://boards.fool.com/thanks-for-the-offer-but-a-1-month-arm-would-31122149.aspx

Subject:  Re: financing the next house Date:  2/16/2014  5:09 PM
Author:  CCinOC Number:  126819 of 127684

Thanks for the offer, but a 1-month ARM would make DH crazy.

I can understand that, but for the benefit of other readers...since the 1-month LIBOR ARM recasts each month, more of the fully amortized payment is going toward principal than would the fully amortized payment for a 5/1 ARM, thereby making the 1-month LIBOR ARM as stable as a 5-year ARM and saves interest, too.

Example:

$750,000 loan amount

Conventional jumbo 30-year fixed rate: 4.30%
Payment: 3711.54
Interest: 2687.50
Principle: 1024.04
Balance after 5 years: 674067

1 month LIBOR ARM: 1.75% amortized over 25 years
Payment: 3088.42
Interest: 1093.75
Principle: 1994.67
Balance after 5 years: 617430

674067 minus 617430 = $56,637 difference!

A 30-year loan takes until Year 9 and 4 months to get to this point. Most homeowners refinance or move during this period; meaning, they just gave away $57,000 in equity and paid $95,000 over 5 years in additional interest charges.

(2687-1093 = 1594 * 60 months = 95640)
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