Profile picture for user19362947

7/1 ARM or 30 YR FIXED

I am about 5 years into a $375,000 30 Yr fixed mortgage @ 4.5%, and I am considering either a 7/1 ARM @ 2.9% (no points) or a 30 Yr fixed @ 3.75% ($10k in points).  Pretty concerned about what rates will look like in 6-7 years, even though the cash-out could be 75k on the 7/1 ARM, versus only a $45K cash-out on the 30 Yr fixed.  Would like the additional cash-out for more home improvement stuff.  What would you do?
  • June 16 2013 - San Carlos
  • 0
    0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

Be a Good Neighbor. Be respectful and on-topic. No spam or self-promotion! See our Good Neighbor Policy.

 
 

Answers (3)

Profile picture for GMerino
How major are your home improvements?  Taking cash out of your home will result in a higher rate because it would be considered a cash out refinance.  If there is not much improvements that you need to do, then a rate and term refinance would be wise.  An arm product is about preference and with your rate being at 4.5% you will for sure benefit from a refinance.  

Not knowing what you value is, it would be hard to determine if a HELOC is appropriate for your improvements.  It is hard to predict where rates will be in 7 years, as for now go with what you will feel comfortable.  
  • June 17 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

I feel that for $10k in closing/points, the 30 Year rate should be in the area of 3.375%. Also, there is a way to close your refinance, then do a loan for home improvements, and then wipe out half of the home improvement loan withing a year. Please feel free to contact me through my profile to discuss.
  • June 17 2013
  • 0Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.

If you are planning on staying at your home for awhile (much longer than 7 years) I would probably go with the fixed rate.  The 7/1 ARM likely can increase 5%, meaning that your rate could be 7.9% down the road (you should find out through your lender what the cap is).  I would also consider shopping around, 10,000 in points seems pretty high.
  • June 16 2013
  • 1Yes

  • Report a Problem

    Please enter a valid email address.

    Content flagged

    We will review this content. Thanks for helping make the site more useful to everyone. To learn more, read Zillow's Good Neighbor Policy.

    We're sorry. This service is temporarily unavailable. Please come back later and try again.