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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127737  
Subject: Re: Amortization: 30YR vs ARM Date: 2/6/2014 3:19 PM
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crackdclaw: "Why does an ARM loan product initially amortize quicker than a 30YR fixed?"

Assuming facts not in evidence. That statement is not true if the starting interest rate of the ARM is the same as the rate for the 30-year fixed.

"Both loan products have a term of 30YRs and the amortization schedule will allow both loans to be paid to $0 after 30YRs. Yet the ARM loan will have it's balance reduce quicker than a 30YR fixed."

You are not controlling for the interest rate.

I am also not sure that you are controlling for the monthly payment amount.

What terms are you comparing.

For example, a $100k loan at 5% fixed for 30 years requires a PI payment of 536.82 and after 7 years will have a remaining balance of 87,945.18.

An 7-year ARM that starts at 5% will also require a PI payment of 536.82 and after 7 years will have a remaining balance of 87,945.18.

An 7-year ARM that starts at 4% will require a PI payment of 477.31 and after 7 years will have a remaining balance of 86,059.98.

Regards, JAFO
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