Mortgage rate Lock now or wait

[Tom_Irvine_Guy]

Experts, what you think future of mortgage rates looks like?. Our new house will be ready in December, in house lender is WF, and they are charging 1% to lock rates for that long.

what you suggest, should we wait or lock rate now to avoid any increase in interest rates?

 

[Tom_Irvine_Guy]

2nd option was Lock the rate at the expense of higher interest rate

 

[qwerty]

So 30 years are whAt 4%?  I do t see rates going up much from here to December. Definety not above 4.5/4.75.

I would use the point you were willing to pay now to buy down the rate. Just checked amerisave, 4.0% paying 800, or 4.125 and get a credit of 5400. No brainer there

 

[irvinehomeowner]

#5oneARM

 

[Irvine1stTimer]

#5oneARM

Are there not risk associated with ARM 5/1?
Secondly my guess is rates would be same in NOV/Dec time frame, as that is a low activity period due to Xmas and Holidays seasons.

 

[Paris167]

Can someone comment on the benefits of ARMS? We plan to stay in our home about 10 years before upgrading, do you think an ARM would work better than conventional? Pros and cons?? We'd like to conserve cash capital for investments other than a home.

 

[ps99472]

Can someone comment on the benefits of ARMS? We plan to stay in our home about 10 years before upgrading, do you think an ARM would work better than conventional? Pros and cons?? We'd like to conserve cash capital for investments other than a home.

OS?  qwerty?

 

[Irvinecommuter]

So 30 years are whAt 4%?  I do t see rates going up much from here to December. Definety not above 4.5/4.75.

I would use the point you were willing to pay now to buy down the rate. Just checked amerisave, 4.0% paying 800, or 4.125 and get a credit of 5400. No brainer there

Rates dropped because of what happened in Ukraine...I actually expect a slight bump in rate from now to the end of the year...probably not worth the lock but I would expect a 0.5% increase especially cause the Fed seems to be bullish on the economy.

 

[qwerty]

Can someone comment on the benefits of ARMS? We plan to stay in our home about 10 years before upgrading, do you think an ARM would work better than conventional? Pros and cons?? We'd like to conserve cash capital for investments other than a home.

OS?  qwerty?

30 year give you more flexibility at a price. people think they are going to move/sell in 5-10 years, but you never know. what if you want to keep the house for a rental?  if you are on a 5/1 ARM the rate adjustments may not work in your favor to make it a rental.  the 30 year is just insurance, that as it turns out, most people dont need. you pay for peace of mind/flexibility.

for an ARM you just have to be well capitalized to either pay down the principal or be able to make the higher payment in the event you get the max rate jump in year 6 or 7.  the last thing you want to do is be forced into a sale of your house because you cant afford the payment and sell in a down market.  the pro to the 5/1 arm is faster principal reduction/lower interest.

im a reformed 30 year fixed borrower.

 

[Tom_Irvine_Guy]

What i have seen, ARMs are better by 0.75 or so, which means 100$ in payments if loan amount is 500K-550K, for ten years you would be paying extra 12K, which is not huge or worth the risk in my opinion. So i am more inclining towards 30 years fixed also.

Is there anyone here who still think ARMs are better option then 30 year fixeD?

 

[Tom_Irvine_Guy]

if switching to ARM saves me 200$ or so per month, then i can think about it.

But do we think in 7 years interest rates would be close to 7-8%. I doubt it

 

[Irvinecommuter]

if switching to ARM saves me 200$ or so per month, then i can think about it.

But do we think in 7 years interest rates would be close to 7-8%. I doubt it

It depends on your personal situation and how risk-averse you are.  We are definitely not moving for 10-15 years so a 30 year make senses to us.  We pay extra when we can to drop down the principal and pay the minimum if necessary.    With the deductions on the tax from the interest rate, it helps to bridge that gap between ARM and Fixed.

 

[irvinehomeowner]

While the monthly savings is nice, the biggest advantage is the faster pay down on principal on a lower interest mortgage.

If you really do plan to stay for 30 years, you can probably chain refi 2-3 (or 20 if you are ps9) 5/1 ARMs (or 2 7/1 ARMs) for the first 10-15 years and then refi into a 15 for the last 15 years to give you better cash flow than a 30-year fixed. It's a hedge against whatever the rates are because the ARMs and finally the 15 will always be lower than the prevailing fixed 30-year rate.

But that is theoretical and the 10th man could end up blowing up in your face. Also, in that scenario, you will always have to qualify for those refis and who knows what your finances will look like then.

It's really depends on each person's financial situation. For us, I don't imagine a drop in income in the next 10-20 years nor do I expect a huge jump in rates within that span (although no one thought rates would drop to 3-4% either), and I doubt we'll become landlords again so we can risk the ARM.

For you, just like solar, you have to do the math (and depending on your loan amount, an ARM can save $200+/month over a fixed).

 

[usctrojancpa]

Can someone comment on the benefits of ARMS? We plan to stay in our home about 10 years before upgrading, do you think an ARM would work better than conventional? Pros and cons?? We'd like to conserve cash capital for investments other than a home.

A 7 year ARM might be the best option for you.  Assuming worst case scenario with rates, your breakeven with a 7 year ARM compared to a 30 year fixed will be about 10-11 years. 

 

[O Hills]

Can someone comment on the benefits of ARMS? We plan to stay in our home about 10 years before upgrading, do you think an ARM would work better than conventional? Pros and cons?? We'd like to conserve cash capital for investments other than a home.

A 7 year ARM might be the best option for you.  Assuming worst case scenario with rates, your breakeven with a 7 year ARM compared to a 30 year fixed will be about 10-11 years.

Splain the "breakeven" point, please.

 

[usctrojancpa]

While the monthly savings is nice, the biggest advantage is the faster pay down on principal on a lower interest mortgage.

If you really do plan to stay for 30 years, you can probably chain refi 2-3 (or 20 if you are ps9) 5/1 ARMs (or 2 7/1 ARMs) for the first 10-15 years and then refi into a 15 for the last 15 years to give you better cash flow than a 30-year fixed. It's a hedge against whatever the rates are because the ARMs and finally the 15 will always be lower than the prevailing fixed 30-year rate.

But that is theoretical and the 10th man could end up blowing up in your face. Also, in that scenario, you will always have to qualify for those refis and who knows what your finances will look like then.

It's really depends on each person's financial situation. For us, I don't imagine a drop in income in the next 10-20 years nor do I expect a huge jump in rates within that span (although no one thought rates would drop to 3-4% either), and I doubt we'll become landlords again so we can risk the ARM.

For you, just like solar, you have to do the math (and depending on your loan amount, an ARM can save $200+/month over a fixed).

+1  The big pro on an ARM is that more of the payment goes to principal.  Keep in mind that the ARM loan adjustments are capped to 5% from your start rate.  The loan also reamortizes at the adjustment period.  I'm a landlord and I prefer ARM loans because if the economy is doing better than I can expect to get higher rents which will cushion an increase in rates and when the economy is weak then I can lower rents/keep them the same for years as rates will drop.  Most all of my real estate investment clients opt for ARM loans.

 

[Irvinecommuter]

While the monthly savings is nice, the biggest advantage is the faster pay down on principal on a lower interest mortgage.

If you really do plan to stay for 30 years, you can probably chain refi 2-3 (or 20 if you are ps9) 5/1 ARMs (or 2 7/1 ARMs) for the first 10-15 years and then refi into a 15 for the last 15 years to give you better cash flow than a 30-year fixed. It's a hedge against whatever the rates are because the ARMs and finally the 15 will always be lower than the prevailing fixed 30-year rate.

But that is theoretical and the 10th man could end up blowing up in your face. Also, in that scenario, you will always have to qualify for those refis and who knows what your finances will look like then.

It's really depends on each person's financial situation. For us, I don't imagine a drop in income in the next 10-20 years nor do I expect a huge jump in rates within that span (although no one thought rates would drop to 3-4% either), and I doubt we'll become landlords again so we can risk the ARM.

For you, just like solar, you have to do the math (and depending on your loan amount, an ARM can save $200+/month over a fixed).

+1  The big pro on an ARM is that more of the payment goes to principal.  Keep in mind that the ARM loan adjustments are capped to 5% from your start rate.  The loan also reamortizes at the adjustment period.  I'm a landlord and I prefer ARM loans because if the economy is doing better than I can expect to get higher rents which will cushion an increase in rates and when the economy is weak then I can lower rents/keep them the same for years as rates will drop.  Most all of my real estate investment clients opt for ARM loans.

ARM definitely makes sense for investors, who are probably not going to keep a property longer than 5-7 years.  But for the rest of us (99%), we just have one mortgage to think about.

 

[usctrojancpa]

While the monthly savings is nice, the biggest advantage is the faster pay down on principal on a lower interest mortgage.

If you really do plan to stay for 30 years, you can probably chain refi 2-3 (or 20 if you are ps9) 5/1 ARMs (or 2 7/1 ARMs) for the first 10-15 years and then refi into a 15 for the last 15 years to give you better cash flow than a 30-year fixed. It's a hedge against whatever the rates are because the ARMs and finally the 15 will always be lower than the prevailing fixed 30-year rate.

But that is theoretical and the 10th man could end up blowing up in your face. Also, in that scenario, you will always have to qualify for those refis and who knows what your finances will look like then.

It's really depends on each person's financial situation. For us, I don't imagine a drop in income in the next 10-20 years nor do I expect a huge jump in rates within that span (although no one thought rates would drop to 3-4% either), and I doubt we'll become landlords again so we can risk the ARM.

For you, just like solar, you have to do the math (and depending on your loan amount, an ARM can save $200+/month over a fixed).

+1  The big pro on an ARM is that more of the payment goes to principal.  Keep in mind that the ARM loan adjustments are capped to 5% from your start rate.  The loan also reamortizes at the adjustment period.  I'm a landlord and I prefer ARM loans because if the economy is doing better than I can expect to get higher rents which will cushion an increase in rates and when the economy is weak then I can lower rents/keep them the same for years as rates will drop.  Most all of my real estate investment clients opt for ARM loans.

ARM definitely makes sense for investors, who are probably not going to keep a property longer than 5-7 years.  But for the rest of us (99%), we just have one mortgage to think about.

ARM loans are not for everyone and shouldn't be used by everyone, especially people trying to stretch to qualify for a loan.  That being said, it's for folks who are willing to take on a little bit of interest rate risk and are good with their money.  I just don't like paying for extra insurance that I'll never use/benefit from.  Remember, the US has so much debt that the powers that be won't let interest rates go up too high. 

 

[usctrojancpa]

Can someone comment on the benefits of ARMS? We plan to stay in our home about 10 years before upgrading, do you think an ARM would work better than conventional? Pros and cons?? We'd like to conserve cash capital for investments other than a home.

A 7 year ARM might be the best option for you.  Assuming worst case scenario with rates, your breakeven with a 7 year ARM compared to a 30 year fixed will be about 10-11 years.

Splain the "breakeven" point, please.

It's basically when the cash flows between the 7-year ARM and 30-year loan are equal using worst case scenario (aka 10th man scenario).  There's the link to the thread that I created years ago and an excel spreadsheet that has the numbers...
http://www.talkirvine.com/index.php?topic=1588.new#new

 

[Irvine Dream]

Can someone comment on the benefits of ARMS? We plan to stay in our home about 10 years before upgrading, do you think an ARM would work better than conventional? Pros and cons?? We'd like to conserve cash capital for investments other than a home.

Here is some calcs to help you assess
Initial Loan Rate Type Interest Rate Monthly P&I Extra Monthly Payment Loan Balance at end of 7 years
$1,120,000 30-Year Fixed 3.875 ($5,267)    $0                                 ($961,075)
$1,120,000 7 Year ARM 3.125 ($4,798)         $0                                   ($943,625)
$1,120,000 7 Year ARM 3.125 ($4,798)         $469                         ($899,665)