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Answers (18)
- James Y. Kuang, "jkuang626"
- Contributions:29
Fixed rate for 5 years and adjusts according to market rates once a year after the initial 5 year fix.
Who knows, maybe you will get lucky and have even lower interest rates or be burdened with heavy interest.
How much risk can you handle?
Who knows, maybe you will get lucky and have even lower interest rates or be burdened with heavy interest.
How much risk can you handle?
- sunnyview
- Contributions:25139
You could refinance to a fixed if rates start to go up, but fixed rates are pretty low right now so they are almost guaranteed to go up. You also have to consider the cost of the future refi and whether your house will be in a positive or negative equity position at that point.
Will the savings upfront on the 5/1 interest rate be more than the cost to refi before the loan goes to variable? A good lender could help you run all those scenarios.
Will the savings upfront on the 5/1 interest rate be more than the cost to refi before the loan goes to variable? A good lender could help you run all those scenarios.
- KoiMan2012
- Contributions:1
If you have a 5/1, and you end up staying in the house for over 5 yr and are looking at a rising interest rate scenario at that time, you could always refinance to a fixed rate, am I correct? It seems like the 5/1 has pretty limited downside, and a very nice up side currently with rates less than 2.5%!
- Clay Branch, "Georgia Loans"
- Contributions:7839
" if i will pay off the loan in 5 years "
- Jeff Nunley, "Jeff Nunley CMPS"
- Contributions:23
On the question about whether you pay more interest on the 5/1 or the 15 yr fixed it really depends on the interest rate of each and what payment you are willing to make. If the rates are the same the 15 fix will have less interest charges at the minimum payment because you are paying down principal quicker. As you pay down principal and the amount you owe drops so does the interest charged. That said, you could have the same effect by making the 15 year payment on a comparable 5/1 ARM and have the flexibility to pay less if you needed to. Also, you still have to decide if paying down the mortgage is the right thing to do in the context of YOUR financial situation. If you do not have adequate savings or you have consumer debt I would probably lean to a lower mortgage payment so long as I have the disciplne to save the difference.
- Clay Branch, "Georgia Loans"
- Contributions:7839
- knight gene
- Contributions:1
if i will pay off the loan in 5 years, then i should 5/1ARM, or get a 15year fixed? which one i pay less of interest?
- Christian Shaw, "Windermere Mortgage"
- Contributions:34
ARM stands for Adjustable Rate Mortgage. A 5/1 ARM is fixed for 5 years (rate does not change) and then adjusts once a year every year after the initial 5 year fixed period. If you are fairly certain you will not have the loan in 5 years then it can be a good option, however if you plan to be in the home for longer than 5 years this can be a risky program.
- Richard Pelleriti, "rickpelleriti"
- Contributions:1
While the vast majority of borrowers are taking advantage of the security of a 30 year fixed, 5/1 ARMS are now in the 2.75% range, so they can be an attractive option under the right circumstances.
The rate is fixed for 5 years, and then it adjusts every year after that.
If it were to adjust today, it would adjust to the "Index" + "Margin."
The Index is the 1 year LIBOR (.77%), and the margin is 2.25%, so the total would be 3.02%.
The rate is fixed for 5 years, and then it adjusts every year after that.
If it were to adjust today, it would adjust to the "Index" + "Margin."
The Index is the 1 year LIBOR (.77%), and the margin is 2.25%, so the total would be 3.02%.
- Adrian Gastelum, "Mortgage.Expert"
- Contributions:47
It is a rate that is fixed for only five years if you plan on living in a property less than 5 years pull that trigger, but also look at the 30year fix you might be pleaseantly surprised.
- Matt Hensley, "Matt Hensley"
- Contributions:13
What is your situation that you would be shopping for an ARM?
- Jeff Nunley, "Jeff Nunley CMPS"
- Contributions:23
I agree, the five year ARM is a very effective financial tool for the right borrower. Do your research and ask yourself how long you're going to have the home. Why pay for a long term fixed rate if you don't need the money for more than a few years?
Also, you need to have a plan for your monthly savings. Too often, we say we're saving money when really we're just wasting it somewhere else. The 5/1 ARM saves you money every month but use it as part of a financial strategy and don't just absorb it into your lifestyle. Pay extra on credit cards, build a side fund or add extra to your 401k every month. Make the program work for you.
Also, you need to have a plan for your monthly savings. Too often, we say we're saving money when really we're just wasting it somewhere else. The 5/1 ARM saves you money every month but use it as part of a financial strategy and don't just absorb it into your lifestyle. Pay extra on credit cards, build a side fund or add extra to your 401k every month. Make the program work for you.
- Ryan Ambrose, "Finance Expert1"
- Contributions:10
5 year fixed than adjusts every year. Do not think it is a suicidal machine.
If you are taking this loan so you can afford to increase the amount of home you can buy, or because you are struggling to meet your monthly payment, then it is most likely not a good idea. If 100% confident you would be out of home within 5 years and rate is much better than standard mortgage, go for it.
- Jeff Nunley, "Jeff Nunley CMPS"
- Contributions:23
A 5/1 ARM is a loan product where the loan rate is fixed for the first five years of the loan. The "5" is the initial fixed term; the "1" shows that the rate will adjust once per year after the initial five year term.
Like any adjustable rate mortgage the changes in the rate are based on an index and a margin. The index is typically the treasury yield or the LIBOR. The index changes when market rates change. This is the variable portion of the loan. The margin is the spread over the index. This is set contractually and represents the lenders interest income over time. Adding these two numbers together gives you the "fully indexed rate" or the maximum rate you can be charged when the loan adjusts.
There are safety measures built into this type of loan to keep rates from going up too quickly. These measures are the caps on the rate increase. Typically, if a loan moves once a year the cap is a maximum increase of only 2%. Be careful though as in most 5yr fixed ARMS the first adjustment can be as much as 5%.
I typically only refer this type of loan to a borrower who is confident they will only own the property for less than 5 years. This is why this type of loan was created and since rates on these loans are lower they can be used effectively in these cases to lower the total cost to the borrower.
I hope this helps. If I can answer any other questions feel free to contact me directly. I'm just down the road in Eugene.
Like any adjustable rate mortgage the changes in the rate are based on an index and a margin. The index is typically the treasury yield or the LIBOR. The index changes when market rates change. This is the variable portion of the loan. The margin is the spread over the index. This is set contractually and represents the lenders interest income over time. Adding these two numbers together gives you the "fully indexed rate" or the maximum rate you can be charged when the loan adjusts.
There are safety measures built into this type of loan to keep rates from going up too quickly. These measures are the caps on the rate increase. Typically, if a loan moves once a year the cap is a maximum increase of only 2%. Be careful though as in most 5yr fixed ARMS the first adjustment can be as much as 5%.
I typically only refer this type of loan to a borrower who is confident they will only own the property for less than 5 years. This is why this type of loan was created and since rates on these loans are lower they can be used effectively in these cases to lower the total cost to the borrower.
I hope this helps. If I can answer any other questions feel free to contact me directly. I'm just down the road in Eugene.
- Binny Joseph, "BINNY JOSEPH"
- Contributions:34
In a 5 year Arm Interest rate will be fixed for the first five years and then it will adjust the rate every year according to the market rate.
- Dan, "the_country_hick"
- Contributions:4700
An ARM is a financial suicide machine. It gives a rate for awhile then it resets. When it resets your payment could double.
If you can not afford to buy a house with a fixed rate mortgage (or cash) do NOT buy. The ARM loan is a leading cause of the foreclosure crisis we are in now.
Do some research. Look for inventory levels of real estate near you. Find out how many foreclosures are happening in your area. Then expect to see lower prices coming for the next 2 years. You will not miss much by waiting to buy and saving every penny you can until then for your down payment.
p.s. many people originally got adjustable rate loans thinking they would sell and move out in time to avoid the rate increase. The number of foreclosures we have now strongly suggests that plan is a bad one to follow.
If you can not afford to buy a house with a fixed rate mortgage (or cash) do NOT buy. The ARM loan is a leading cause of the foreclosure crisis we are in now.
Do some research. Look for inventory levels of real estate near you. Find out how many foreclosures are happening in your area. Then expect to see lower prices coming for the next 2 years. You will not miss much by waiting to buy and saving every penny you can until then for your down payment.
p.s. many people originally got adjustable rate loans thinking they would sell and move out in time to avoid the rate increase. The number of foreclosures we have now strongly suggests that plan is a bad one to follow.
- Nick Heth, "nheth"
- Contributions:11
The 5/1 Adjustable Rate mortgage also comes with a margin based on an index LIBOR is a typical index and 2.25-2.75 are typical for a margin so as the 1 year LIBOR rate today's rate 0.78 so if you had a 5/1 ARM 5 years ago your rate would adjust (most likely down) to 3.08-3.58%. I'm finding a lot of people who are sticking with these incredible rates while they are so low. I wouldn't automatically suggest this to anyone, as everyone situation is different, and if you think you're going to be in your house for a long time or uncertain time the historically low 30 and 15 year rates are the way to go.
- Steve Casey, "SteveCasey"
- Contributions:151
It's an adjustable loan with a fixed term of 5 years at the original rate. It then can adjust every year from then on. If you are only going to be in the house for 5 or 6 years it's a good idea. Otherwise take advantage of historical low fixed rates.
what is 5/1 arm
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