30 Year Fixed vs 10 Year ARM

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GrewUpInIrvine_IHB

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As I get close to considering a home purchase, I have spent quite a bit of time considering mortgage rates. Today, as I viewed the rate sheet from the lender I will likely use, I noticed that I can get (and have already been approved) for a Jumbo 30 Year Fixed mortgage for 6%, no points, etc. However, I also noticed that I could get a 10 Year ARM for 5.5% no points for the same loan amount... which would amount to a savings of about $250/month.... but obviously, such loan accompanies the long term uncertainty of the loans (reset) rate after the 10 years.



My request for advice? What do you guys (and gals) think? I do expect to be in the house for at least 10 years... and have set up my professional circumstances such that I will not need (or be required) to move again... and the home that I am considering (a SFR) has plenty of room for a growing family. Is a 10 year ARM safe enough? Or, is the 30 Year Fixed worth the $250 premium?
 
While I understand your reasoning I do not agree with it. The preium is not $250, it is actually putting that money into the principal (at least some amount of it initially....). I say unless you have another 1000-1500 at a minimum just floating around every month, then you combine it with that 250 into an interest bearing account/investment account.



Otherwise I think the money that you "save" will be wasted. Thinking long term, why subject yourself to ANY amount of changing costs or uncertainity.... To quote a great man....,"set it... and forget it!".



-bix
 
[quote author="GrewUpInIrvine" date=1207949832]As I get close to considering a home purchase, I have spent quite a bit of time considering mortgage rates. Today, as I viewed the rate sheet from the lender I will likely use, I noticed that I can get (and have already been approved) for a Jumbo 30 Year Fixed mortgage for 6%, no points, etc. However, I also noticed that I could get a 10 Year ARM for 5.5% no points for the same loan amount... which would amount to a savings of about $250/month.... but obviously, such loan accompanies the long term uncertainty of the loans (reset) rate after the 10 years.



My request for advice? What do you guys (and gals) think? I do expect to be in the house for at least 10 years... and have set up my professional circumstances such that I will not need (or be required) to move again... and the home that I am considering (a SFR) has plenty of room for a growing family. Is a 10 year ARM safe enough? Or, is the 30 Year Fixed worth the $250 premium?</blockquote>


Some ARM loans actually increase pricipal balance over time because of lower monthly mortgage, the extra interest amount is added toward principal balance.



you need to find out from your lender if this is the case. You definitely dont want to own a loan for 500k and 10 years later, you end up owning like 700k.
 
[quote author="GrewUpInIrvine" date=1207949832]As I get close to considering a home purchase, I have spent quite a bit of time considering mortgage rates. Today, as I viewed the rate sheet from the lender I will likely use, I noticed that I can get (and have already been approved) for a Jumbo 30 Year Fixed mortgage for 6%, no points, etc. However, I also noticed that I could get a 10 Year ARM for 5.5% no points for the same loan amount... which would amount to a savings of about $250/month.... but obviously, such loan accompanies the long term uncertainty of the loans (reset) rate after the 10 years.



My request for advice? What do you guys (and gals) think? I do expect to be in the house for at least 10 years... and have set up my professional circumstances such that I will not need (or be required) to move again... and the home that I am considering (a SFR) has plenty of room for a growing family. Is a 10 year ARM safe enough? Or, is the 30 Year Fixed worth the $250 premium?</blockquote>


Wow, where are you getting a jumbo 30-year fixed for 6% at par?! The best I can find on that loan is 6.75%. That 3/4 point in rate makes a big difference in a potential buying decision.
 
Grewup,



I faced the same decision. I chose the ARM because there is a 75%-90% chance I will be moving in 10 years. In your case, sounds like the likelihood will be much lower. Therefore, if i were in your shoes, I'd choose the more conservative 30 year fixed.
 
Ipoplaya,



check out penfed.org. 6% 30 year fixed jumbo, no closing costs. My refi there cost me a grand total of $900 for a 750K loan. No one else comes close.
 
[quote author="rtlguru" date=1207954951]Ipoplaya,



check out penfed.org. 6% 30 year fixed jumbo, no closing costs. My refi there cost me a grand total of $900 for a 750K loan. No one else comes close.</blockquote>


Thanks rt. Looks like anyone can pay $20 and join penfed via the NMFA.



I was curious where 24 was getting his rate from. 6% on a 30-year jumbo fixed is insanely good for a retail rate...
 
the rates I posted on that other thread was for that guy looking to refinance on his 200k loan. It was just from octfcu.org, but it wasn't a jumbo.



edit : oops, maybe you were just getting grewupinIrvine mixed up with 24inIrvine :)
 
I'd take the 10/1 ARM.



Assuming a 700k loan at the end of 10 years the 10/1 ARM balance would be 561k. The 30 yr balance would be 570k so you're 9k ahead in terms of equity.



Add in the $250 per month savings and you're $30000 + $9000 ahead. At that time a re-fi should be fine because you've paid down 130k (almost 20%) of loan balance so your home value doesn't even have to be back up to the purchase price. And, you've had 10 years of extra spending money (you know you're not gonna save it, so don't start that argument people :) )



Doesn't seem like much of a risk to me.
 
Bix -



I am not sure I understand your reply. The $250 additional payment per month represents the additional .5% that I'd been paying to take a 30-year fixed vs the 10 year Arm. This $250 is all interest. I have omitted the actual differential (interest plus principle) from this post. Needless to say, I'm going to be tackling a 750K+ mortgage.... which I can handle. Thus, the additional $250 really does represent a premium to have the safety of a 30 rate vs a 10 year rate.



Homeless Newbie -



As for the 10 year ARM adding to principle? I don't understand. It is a 30 year mortgage with a 10 year ARM... I'm not understanding where the 500K to 700K increase in principle is coming from.



IPO -



As for the rate. Both DCU.org and Penfed have great rates. Places like BoA, etc. are laughable.
 
[quote author="24inIrvine" date=1207959998]the rates I posted on that other thread was for that guy looking to refinance on his 200k loan. It was just from octfcu.org, but it wasn't a jumbo.



edit : oops, maybe you were just getting grewupinIrvine mixed up with 24inIrvine :)</blockquote>


Yup, sorry 24... Got my inIrvine's mixed up.
 
[quote author="GrewUpInIrvine" date=1207961251]Bix -



I am not sure I understand your reply. The $250 additional payment per month represents the additional .5% that I'd been paying to take a 30-year fixed vs the 10 year Arm. This $250 is all interest. I have omitted the actual differential (interest plus principle) from this post. Needless to say, I'm going to be tackling a 750K+ mortgage.... which I can handle. Thus, the additional $250 really does represent a premium to have the safety of a 30 rate vs a 10 year rate.



Homeless Newbie -



As for the 10 year ARM adding to principle? I don't understand. It is a 30 year mortgage with a 10 year ARM... I'm not understanding where the 500K to 700K increase in principle is coming from.



IPO -



As for the rate. Both DCU.org and Penfed have great rates. Places like BoA, etc. are laughable.</blockquote>


Yes indeed, the rates on jumbos are compelling. Some of their other rates are near or above market, but they aren't charging a jumbo premium. That's amazingly cool. Pay a point and get a 30-year jumbo for 5.75%?! Might have to look at some houses this weekend :)



I am a proud PenFed member now. Cost, $20. Potential mortgage savings, $500 per month...
 
Just called PenFed and it looks like those rates are real. The financing costs will range however from 1 - 1.5% of the loan size for members for a re-fi. That is close to paying points upfront. The reason why it is so high is b/c they need full docs, the appraisal, title, everything.
 
[quote author="etheran" date=1207966187]has anyone actually gotten a loan from PenFed at the advertised rates?</blockquote>


I closed on a Pen Fed loan last month and was very pleased with the process. No hidden fees and their advertised rates are what you get. I got their 5/5 product and locked in at 4.875. Since it can only adjust by a maximum of 2% after the first 5 years and then is locked again for the next five years, I felt this was a good deal for me. At the very worst I am looking at 6.875% from year 5-10, which is still a good rate. I would be somewhat surprised if I am still in the house after 10 years. As etheran mentioned, they do require full docs and I had 20% LTV.
 
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