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Yes, it's prudent in most cases to get an ARM, in my opinion. The reason? Lower interest rates until you sell the house and move, presumably within 5 years. No prepayment penalty obviosly will allow you refinance off it easily.
Won't be moving for 7, 10 years. There calculators to find the break even point for that.
I think stats say the average family moves every, what, 6 years? So that's why I stand by an ARM. No one thinks their gonna move, but they usually do.
ARMs amortize just like conventional loans, unless you go interest only of course. They are also originated just like conventional loans, so no odd hoops to go through.
ARMs have been around for decades but have gotten a bad rap because people used them for the wrong reason. The wrong reason being to use the lower rate to afford a house they couldn’t afford on a conventional loan. The Key to having an ARM is to use the savings to invest or at the very least pay off higher interest debt. I’d look at a 7/1 ARM too, the rates are good and it gives you a little more stability.
I like LEGS myself :-)
Crazy Guy,
You have to consider several facts when comparing a fixed rate loan and an ARM. First obviously is the rate and payment. The second is consider the worst case scenario - when the loan can make it's first adjustment in the ARM, how will that effect you? Third, how long do you plan on keeping the home or loan? You will also want to consider what the index is on the ARM and the corresponding margin. If you are shopping 5/ 1 ARM, many of them can adjust as much as 5% on the first adjustment, providing interest rates have risen considerably in the five years since you took out the loan. Overall, if you think you will be in the home or keep the loan more than 5 years than for 1%, you are probably better off with the fixed rate loan.
Featured Rates are based on state rates for 5/1 ARM loans and are valid for the date shown, but they may change without notice. They are for consumers with a credit rating of 720 or higher and a 20% or higher down payment. Rate, terms, pre-paid finance charges, and APR may vary based on factors such as creditworthiness of the applicant(s), self employment status of the applicant(s), condo or townhouse structure, loan amount, and geographic location of the property.
If a lender does not offer a national rate, a state rate may be shown next to the lender's name. For example, 'Bank name (CA)'.
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can some explain a 5/1 arm to me
!crazy guy!
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1. Can some one explain how a 5/1 arm works? How much of the principal is paid down during those five years? How easy is it to refi off an arm? Are there a number of fees or hurdels one must jump through to refi?
2. That said, are there any circumstances when getting an arm instead of fixed rate mortage is the more prudent financial move?
Right now the divide between a 5/1 arm and 30 year is almost 1 percent
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