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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Mortgage Question - Which would you choose?
We're in the process of financing a large addition to our home. Here are our two options right now:
5.25% on a 15 year ARM which adjusts only once based rates at that time...cannot adjust more than 4%
5.625% 30 year fixed
The payments on the latter are $120 more per month.
If I knew we would only be there for 15 years I'd go with the first option....I can't say for sure that we won't stay here for more than 15 years either. 15 years is a long time. Who know where rates could be by then. Do you think they'll ever go over 9% like they did once upon a time?
Anyway, WWYD?
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Posted 8/26/09 9:38 PM  |
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Alexandra17
Keep It Positive
Member since 4/09 6262 total posts
Name:
Alexandra (ali)
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Re: Mortgage Question - Which would you choose?
I would go with fixed or at least FH just said never ever go adjustable lol...but seriously, go with the fixed!
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| Posted 8/26/09 9:50 PM |
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BaroqueMama
Chase is one!
Member since 5/05 27530 total posts
Name:
me
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Re: Mortgage Question - Which would you choose?
I would never, ever do an ARM. But that's just me. That's why so many people are in the shitter right now with their mortgages and foreclosing. How do you know that the rate won't skyrocket in 15 years?
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| Posted 8/26/09 11:13 PM |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Mortgage Question - Which would you choose?
Posted by prncsslehcar
I would never, ever do an ARM. But that's just me. That's why so many people are in the shitter right now with their mortgages and foreclosing. How do you know that the rate won't skyrocket in 15 years?
I think there is a large misconception with people who take ARMs who are irresponsible vs. those who take them for good reason. We are currently on a 5 year arm that expires this year. We took it because the rate was cheaper and we knew we would make a move within 5 years. We could have also afforded the 30 year fixed at the time but didn't make sense if we knew we would refinance either with a new purchase or an addition. Why pay more in interest? This is very different than the people who took ARM's because that is the only way they could afford the homes they purchased.
The tricky part of this ARM is just what you said, how do you know rates won't skyrocket? In this case the max rate I would have is 9% which would still be very expensive. It only adjusts once. I have to assume that our income would be much more than it is now in 15 years. Plus the principal I would be paying that rate on would be lower than it is now. But another factor would be that if I knew for sure that we would move out within 15 years than it makes sense to do the ARM. The thing is that I don't have the answer to that. 15 years is a very long time.
But I suppose for $120 a month maybe I"m better safe than sorry.
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| Posted 8/26/09 11:25 PM |
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BaroqueMama
Chase is one!
Member since 5/05 27530 total posts
Name:
me
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Re: Mortgage Question - Which would you choose?
Umm, I didn't say that people who take ARMs are irresponsible I just meant that many people didn't know that the rates would skyrocket like they did and then they couldn't afford their payments. That's not irresponsibility to me, that's not being able to predict a ridiculous skyrocket in rates. You asked for an opinion, I gave it based on what I know, which, let's face it, isn't much.
Message edited 8/26/2009 11:43:02 PM.
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| Posted 8/26/09 11:42 PM |
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ckone
LIF Adult
Member since 8/06 3014 total posts
Name:
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Re: Mortgage Question - Which would you choose?
I had an adjustable with our first house and I have a fixed with our second. I would suggest that you go with a fixed.
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| Posted 8/27/09 12:08 AM |
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Superkat
More a stranger than a friend
Member since 5/06 9730 total posts
Name:
K
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Re: Mortgage Question - Which would you choose?
Stay away from ARM's, especially in the current market. 
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| Posted 8/27/09 1:16 AM |
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rkoenke
my little piggys
Member since 3/08 4315 total posts
Name:
rachel
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Re: Mortgage Question - Which would you choose?
Posted by lbelle821
Posted by prncsslehcar
I would never, ever do an ARM. But that's just me. That's why so many people are in the shitter right now with their mortgages and foreclosing. How do you know that the rate won't skyrocket in 15 years?
I think there is a large misconception with people who take ARMs who are irresponsible vs. those who take them for good reason. We are currently on a 5 year arm that expires this year. We took it because the rate was cheaper and we knew we would make a move within 5 years. We could have also afforded the 30 year fixed at the time but didn't make sense if we knew we would refinance either with a new purchase or an addition. Why pay more in interest? This is very different than the people who took ARM's because that is the only way they could afford the homes they purchased.
The tricky part of this ARM is just what you said, how do you know rates won't skyrocket? In this case the max rate I would have is 9% which would still be very expensive. It only adjusts once. I have to assume that our income would be much more than it is now in 15 years. Plus the principal I would be paying that rate on would be lower than it is now. But another factor would be that if I knew for sure that we would move out within 15 years than it makes sense to do the ARM. The thing is that I don't have the answer to that. 15 years is a very long time.
But I suppose for $120 a month maybe I"m better safe than sorry.
But what happens if in six months rates go to 7%?
can you afford it in six months rather than 15 years?
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| Posted 8/27/09 7:23 AM |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Mortgage Question - Which would you choose?
Posted by rkoenke
Posted by lbelle821
Posted by prncsslehcar
I would never, ever do an ARM. But that's just me. That's why so many people are in the shitter right now with their mortgages and foreclosing. How do you know that the rate won't skyrocket in 15 years?
I think there is a large misconception with people who take ARMs who are irresponsible vs. those who take them for good reason. We are currently on a 5 year arm that expires this year. We took it because the rate was cheaper and we knew we would make a move within 5 years. We could have also afforded the 30 year fixed at the time but didn't make sense if we knew we would refinance either with a new purchase or an addition. Why pay more in interest? This is very different than the people who took ARM's because that is the only way they could afford the homes they purchased.
The tricky part of this ARM is just what you said, how do you know rates won't skyrocket? In this case the max rate I would have is 9% which would still be very expensive. It only adjusts once. I have to assume that our income would be much more than it is now in 15 years. Plus the principal I would be paying that rate on would be lower than it is now. But another factor would be that if I knew for sure that we would move out within 15 years than it makes sense to do the ARM. The thing is that I don't have the answer to that. 15 years is a very long time.
But I suppose for $120 a month maybe I"m better safe than sorry.
But what happens if in six months rates go to 7%?
can you afford it in six months rather than 15 years?
The rate only adjusts ONCE in 15 years...so if rate go to 7% in 6 months my rate is still fixed at 5.25% for 15 years.
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| Posted 8/27/09 7:40 AM |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Mortgage Question - Which would you choose?
Posted by prncsslehcar
Umm, I didn't say that people who take ARMs are irresponsible I just meant that many people didn't know that the rates would skyrocket like they did and then they couldn't afford their payments. That's not irresponsibility to me, that's not being able to predict a ridiculous skyrocket in rates. You asked for an opinion, I gave it based on what I know, which, let's face it, isn't much.
I didn't say you said they were irresponsible. I was staing my opinion of the misconception about ARMS and why they exist.
my response was more driven from the fact that when some people hear the term "ARM" they automatically think it is a bad thing and will end bad.
Fact of the matter is that many people did take ARMS to get a lower rate but then when the rate adjusted up they were surprised at how high their payment went and no longer could afford it. Therefore the homes are being foreclosed.
Maybe irresponsible is the wrong word. Perhaps I should have some misinformed. That is my opinion though.
Most people who find out we're on an ARM assume that we're going to have to foreclose our home soon but truth is that we purposely did it that way and were informed of the implications.
Anyway, don't get the wrong idea....I wasn't trying to attack what you said and maybe should not have quoted your specific post.
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| Posted 8/27/09 7:46 AM |
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skinny
3 boys and a princess!
Member since 11/08 8178 total posts
Name:
Momma
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Re: Mortgage Question - Which would you choose?
I would only take a fixed mortgage. I would worry too much that the arm would go up too high----even 4% is a lot.
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| Posted 8/27/09 8:56 AM |
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Cpt2007
A new love!
Member since 1/08 5946 total posts
Name:
Liz
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Re: Mortgage Question - Which would you choose?
I dont' think it's worth the risk of the rates skyrocketing to take the ARM. If rates fall in 5 or 10 years, after you've got more equity in the home, refinance to another conventional at that point. You just never know what the rates will do. When my parents bought their home, their conventional mortgage had a 12% interest rate. You never know.
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| Posted 8/27/09 9:43 AM |
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lbelle821
Arghhhhh
Member since 2/06 5285 total posts
Name:
Lisa
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Re: Mortgage Question - Which would you choose?
thanks everyone...looks like everyone agrees that the fixed is the way to go...i think i feel better eliminating the element of risk anyway.
Thanks again
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| Posted 8/27/09 10:08 AM |
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JBmommy
LIF Infant
Member since 8/09 252 total posts
Name:
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Re: Mortgage Question - Which would you choose?
I say fixed, worth it for the peice of mind!
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| Posted 8/27/09 2:08 PM |
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Beth
The Key to your new home....
Member since 2/06 24849 total posts
Name:
Beth
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Re: Mortgage Question - Which would you choose?
since the difference is so small- go with the fixed
at $120 a month for 15 years
it's could be cheaper in the longer run over a rate increase and refi
if it was a larger difference- my opinion might change
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| Posted 8/27/09 2:25 PM |
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Erica
LIF Adult
Member since 5/05 11767 total posts
Name:
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Re: Mortgage Question - Which would you choose?
i think it depends on the loan amount.
i f you pay the $120 extra each month on the ARM- that's an extra $22K in principal that you would pay off before the rate even increases.
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| Posted 8/27/09 3:46 PM |
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Re: Mortgage Question - Which would you choose?
Fixed.
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| Posted 8/27/09 3:53 PM |
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browneyedgirl
family is all that matters
Member since 6/06 6513 total posts
Name:
browneyes
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Re: Mortgage Question - Which would you choose?
i personally would never ever do an ARM since you don't know what can happen.
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| Posted 8/27/09 6:36 PM |
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KLSbear
LIF Adult
Member since 1/06 1908 total posts
Name:
Karen
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Re: Mortgage Question - Which would you choose?
Posted by Erica
i think it depends on the loan amount.
i f you pay the $120 extra each month on the ARM- that's an extra $22K in principal that you would pay off before the rate even increases.
I was thinking along these lines too. It's a gamble, but you have 15 years to make it work.
Pay at least the $120 and preferably closer to $500 per month to pay down the loan faster - check amortization schedule sites that let you plug in the full loan amount and amounts of extra payments to see the effect. Try to determine how low you can get the loan balance if you make significant extra payments. The upside of doing that is that you have much more equity in the home if you move before the 15 years, if you stay and rates go up you have a much smaller principal due that would have the higher interest rates, and you could always refinance that remaining smaller amount over a longer period if the payments were just ridiculous. You need to crunch the numbers and must be VERY committed to making those extra payments every single month.
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| Posted 8/27/09 9:13 PM |
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