No. of Recommendations: 0
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.
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
Print the post  


Useful Resources
Our Home Center has all you need to make buying and owning a home a great experience. Get or refinance a mortgage and much more!
Buying/Selling a Home FAQ

Mortgage Professor
Offsite resource for mortgage questions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.