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Author: Dwdonhoff Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 127801  
Subject: Re: Buying a new home, what type of loan? Date: 3/26/2013 12:01 PM
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Hi Deepa,

In the past, I always paid down 20% and got a Fixed rate loan. This time, we will only be here for 3-4 years. So, I am thinking perhaps we should get a 5-year ARM loan. I have never done this before but considering we will only be there for a few years, it makes sense.
<SNIP>
Any advise regarding the appropriate type of loan will be appreciated.

Are you (and your family) aggressive savers, or typically spender/consumers?

If you're spender/consumers, *definitely* go with the 30 FRM, and if you can find any way to afford the payments on a 20 or 15 year amortization, take that instead. It will lock you into a pattern of forced savings "that is good for you."

If you are savers, then you'll win with the 5 yr ARM, even if rates eventually begin to rise. The eventual rise in rates cannot "outrun" the savings you can accumulate in the vast majority of typical rising rate markets, since your savings interest rates will be rising ahead of your mortgage cost interest rates. Of course, you can also know if you are 'savers' by looking at your own bank account and observing how much reserves you have already accumulated. If you are a saver, your stash is already growing, and will also accelerate when rates rise.

Rising rates are a blessing for savers.
Dave Donhoff
Leverage Planner
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