10 yr arm vs. 30 year Mortgage

Oh yeah, where do you stand on bump stocks and military grade weapons in the hands of the general public?:grinning:

(Sorry, we can take this to @marcus335ā€™s fav thread ā€œGun Controlā€ā€¦)

1 Like

Thatā€™s the point I havenā€™t seen anyone raised. Say you are 30-40 years old at the prime of earning power and both spouses work. Your familyā€™s credit profile could be vastly different in 10 years.

What if one spouse doesnā€™t work any more? What if you changed career and make less than now? What if lending standard got tightened?

Because I work for myself itā€™s harder for me to get loans. I need to pay more down payment and interests rate is higher. I now wish I had taken out more loans when I still had a W2 job.

2 Likes

I actually did that breakdown for my own sanity :roll_eyes:

1 Like

I mean total mortgage amount of 900K. We have only 5 more years left on the ARM, so getting nervous now. I think I will start shopping for 30 yr fixed rates.

I was going to comment on the same point. Both my wife and I have been working full time over the years. My wife took a part-time job a few years ago and she really enjoyed it, but later that job went away and she couldnā€™t find another part-time job so she went back to full time. During that period when she was part-time we went through a few refi cycles and we had to go through extra hoops to convince lenders that we were worth the small risks they were taking. So I made a mental note to myself that we should do 30-year mortgages only so that we donā€™t have to worry about qualifying for loans later on when considering different careers or lifestyles.

But, when we later refiā€™ed our primary mortgage, we ran the numbers and ended up choosing a 7-yr ARM program because the rate was significantly lower than 30-yr (about 1%). Part of the reason was just being greedy, and other part was that our loan agent convinced us that 7 years is long enough to last till the next recession when rates will come down again (fingers crossed :slight_smile:). My plan is we will refi to a 30-year program at that time then my wife can be free to choose whatever job she wants to do. Weā€™ll see if greed will prevail again. Itā€™s been 2 years into the 7 years, and I am ā€œeagerlyā€ awaiting that moment of doom.

But at 0.375% spread, no-brainer to get the peace of mind. 30-year fixed rate program is a beautiful thing. Lock it in at a low rate and you can forget about it for the rest of your life.

1 Like

to be a little contrarian (full disclosure: most of my mortgages are fixed but i also have a 7/1 ARM), questions to ask is:

i) When do you expect the economy to enter a recession? (1-3 years from now, 3-5 years from now, 5-7 years from now, etc)
ii) Do you expect monetary policy to loosen to come out of the recession (depending on answer above)
iii) Would the easing of interest rates, give you an opportunity to refinance at that point or make it a moot point as the float on your interest rate will still keep it low because of LIBOR/PRIME rates at that point in time

You can figure out my thinking since I have a 7/1 ARMā€¦

How does the loan qualification process work with ARM? Is that temporary rate used to determine how much loan you qualify for? If so, over what period? I wonder if you can get a bigger loan under ARM due to the initial lower rate, unless they build in assumptions that the rate will increase by x% in the futureā€¦

Yes, they use what you would be paying as P+I during the fixed period of the ARM. So you can qualify for a larger loan. That said unless you believe your income will grow over time, itā€™s risky to max your borrowing capacity with no space for higher debt servicing.

1 Like

I thought after the loan debacle of 2008-2011 they tightened rules on ARMs so you had to be able to pay the maximum payment that the ARM could adjust to. Did they change it?

I think that change was for IO only loans. That you needed to be able to make payments when it recasts to include amortization.

Good to know, thanks!

Not only this, the lending standards and lending rules are changing every year. It creates lot of uncertainty on future rates or the spending amount and even down payment and appraisal at that time, Ltv at that timeā€¦ so many uncertainties!!!

1 Like

IMO, you should have done 18 months before when 30 fixed was 3.5% !

Even now, it is not too late to dog got fixed !

Choose fixed rate of Greenspan is right

ā€œAt the end of the day, the bond market bubble will eventually be the critical issue, but for the short term itā€™s not too bad,ā€ Greenspan said. ā€œBut weā€™re working, obviously, toward a major increase in long-term interest rates, and that has a very important impact, as you know, on the whole structure of the economy.ā€

I just changed my automatic payment on my 2.5% fixed loan to not pay the extra principal. At the rate I was going, say bye bye to that lovely rate even soonerā€¦

2 Likes

Are you going to spend the extra principal payment on a world tour?

Probably need the extra money to go towards my new mortgage on my exchange propertyā€¦

Oh great idea. When you switch your current primary to rental, youā€™ll never want to refinance again

If I love the exchange property sooo much that we end up living there beyond the min what, 2 out of 5 years we go to market with the Sunset home. My RE finder is salivating at the prospect of that but you know how I love Jason Chanā€¦ I may have to go with the King Of The Sunset if I want top dollar (2M min)ā€¦

If your gain is much more than 500k, holding may still make sense. But the rent might be too low to justify holding. Also some crazy apples want to repeal Costa Hawkins so your single family house is at the danger of rent control.