Hi,We just bought a house last night for 320K. We need to decide what kind of loan to get. This house is brand new, in a state university setting (10 min to the campus). Houses get bought and sold often in this area due to large university. 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. The real estate in this area has remained strong through the downturn.Please do not post chiding me for buying a house. We have lived in rental houses for the last 4 years and sicken tired of not getting what we wanted. So, we are done thinking over that part.Any advise regarding the appropriate type of loan will be appreciated.Thanks!
30 year FRM.we will only be here for 3-4 years. So, I am thinking perhaps we should get a 5-year ARM loan.The transaction costs will be much larger than any different in mortgage costs, FRM vs. ARM. Rates are only going up from here. Which means your ARM will be going up. Just because you *plan* on selling in 3-4 years doesn't mean you *will* be able to sell it.
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 DonhoffLeverage Planner
You might consider "buying short/paying long." That is, buy the short term sack of money (5 year ARM) but make the payment equivalent to a 30 year FRM or, as Dave said, bank the FRM-ARM payment differential in an instrument whose yield is higher than the interest rate on the ARM.If rates are higher at the time your fixed rate converts to an ARM, simply take the money you've accumulated in your account--to borrow Dave's language, let's call it your Mortgage Freedom Account--and pay down the mortgage balance, thereby mitigating payment shock.The practical reality is, if you select a 30 year FRM, you're stuck with the payment. If you select an ARM, you've got flexibility and you won't be paying for a 30 year rate guarantee you're likely to never use.Some posters here are staunch 30 year FRM proponents. I've been advocating the "buy short/pay long" strategy for as long as I've been posting here. Indeed, all the borrowers for whom I originated 6-month LIBOR loans many years ago are still loving that loan. I check in with them periodically; they're saving the interest rate differential precisely as Dave describes. I can't drag them out of their ARMs--not that I'd want to--to today's 30 year FRM rates, even as low as they are.
Thank you for all the responses. We are not spenders. So, I will go for the 5 year ARM with saving one of the paychecks option.
BTW, What is the best way to find and compare loans these days?
Get a < 10% down conforming FHA loan with a 30-year term. Insist on an assumable loan for a subsequent buyer. A 10% down, 30 year, FHA loan that's assumable?Please let me know where you can get one of those.(And I mean now, not where you got one in the 70s or 80s)Perhaps the mortgage professionals will correct me - but my impression is that those don't exist - assumable mortgages are unusual for any 30y fixed.If such a thing is available (and not much more costly than a regular 30y fixed), I'd be interested for myself
Perhaps the mortgage professionals will correct me - but my impression is that those don't exist You're right... with one exception; VA mortgages.Else, neither FHA nor Conforming are assumable (the terms are contradictory btw... there is no "conforming FHA" loan.)Dave DonhoffLeverage Planner
Get a < 10% down conforming FHA loan with a 30-year term. Insist on an assumable loan for a subsequent buyer. The current mortgage interest rates are almost FREE Money.Au contraire. The new UFMIP (upfront mortgage insurance premium) effective April 1, 2013 is 2.25% added to the loan amount AND an annual MIP (monthly insurance premium) every month. http://www.bloomberg.com/news/2012-02-27/fha-to-boost-cost-o...Until April 1, 2013, the MIP schedule for new FHA loans is as follows :15-year loan terms with loan-to-value over 90% : 0.60 percent annual MIP15-year loan terms with loan-t0-value under 90% : 0.35 percent annual MIP30-year loan terms with loan-to-value over 95% : 1.25 percent annual MIP30-year loan terms with loan-to-value under 95% : 1.20 percent annual MIPThere is also a 0.25 percentage point premium for loans which exceed $625,500. Loans of this size are only available in high-cost areas in which the median home price is elevated as compared to national norms.Fixed rate mortgages are not assumable, so don't bother "insisting" on it.
Recs should be unlimited for frequent message board posters.This isn't the Improve the Fool board.PSUhas never run out of recs
VA fixed-rate mortgages are only assumable by a Veteran who qualifies.Donna
You should check out the PenFed 5/5 ARM loan that is at 2.375% today.https://www.penfed.org/55-Adjustable-Rate-Mortgage/They pay almost all the closing costs, I refianced with this a while back and they paid everthing except for a couple of hundred dollars that was a local tax or fee.
Age is also related to home-finance decisions. My brother recently refinanced to a 15-year fixed at 2.65%. He plans to retire in his late 60s, 5-8 years from now, and is saving to pay off the mortgage in full at retirement. (He will retire on a single person's Social Security benefit and his small-business-owner SEP-IRA and wants to keep ordinary living expenses as low as possible in old age in case of expensive health issues, major recession, or other financial challenge when going back to work to make extra money is no longer feasible.)
They pay almost all the closing costs, I refianced with this a while back and they paid everthing except for a couple of hundred dollars that was a local tax or fee.No, you paid the closing costs through a higher interest rate than you could have gotten had you paid the closing costs yourself.
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