I have taken few mortgages including primary and rental property at 30 year fix. I’m thinking of re-financing our current primary mortgage with $1M loan amount. I’m getting 30 year at 3.5 vs 10/1 ARM @3.125. Payment difference for monthly can save me $206 which I’m planning to put it extra towards my principal.
Based on my calculation 10/1 ARM makes sense.
$1M @ 3.5 = $4,490
$1M @ 3.125 = $4,284
10/1 ARM Loan balance with extra payment at 10 year will be $737,000. Max cap for the interest rate is $8.125.
If I re-cast my loan at year 10 assuming interest rate is really high and is at 8.25 will put my 5,259 . Assuming higher interest rate means higher inflation means higher salary. So value of $5259 is about same as $4284 as of today’s dollar value.
Given interest rate history do you see its going that high in future ?
Am I missing anything in my calculation ?