Take out 30 year FRM or go on Refinancing 5/1 year ARM?

Sam

Hi all,

I find a lot of people going the wrong way when it comes to choosing a mortgage. Perhaps it's their lack of knowledge and understanding that prevents them from taking the right loan offer or making the right financial decision. Dealing with right lender also matters a lot.

Primarily, choosing a fixed rate or an adjustable rate loan is something most borrowers fail to decide and they end up taking the wrong step. Depending upon your situation, a 30 year FRM could be good enough for you compared to a 5/1 year ARM. But how do you decide?

To help you choose the right loan, Rick Pelleriti, our community member and an Upfront Mortgage Planner, has come up with a Comparison on 30 year FRMs and 5 year ARMs – basically it's about whether you will choose a 5 year ARM time and again or go for a 30 year FRM instead.

The best thing about the white paper is that, it shows through simple calculations how much you need to pay on a 30 year FRM and what if you go for 5 year ARM instead and then refinance the latter time and again.

I hope you'll be able to take better decisions when you glance through the white paper.

Thanks,

Sam

Guest

Ok that's interesting! i'd have to look through it.

jenkin7 · Posted: Sat Dec 15, 2007 5:42 am Post subject:

I never gave it a thought this way!

The calculations are clear enough to show how a 30 year fixed mortgage is advantageous over a 5/1 year ARM. This will indeed help people to decide which way to go.

larry · Joined: 27 Jun 2007 Posts: 3328 474.44 Dollars($)

Hi Sam,

Great information indeed. Congratulation Rick! That is really a very good effort and it will surely help thousands of home buyers to make their decision which is better 30 year FRMs or 5 year ARMs. At the end of the day it is quit clear that 30 year FRM is much better than 5 year ARM.

Thanks,
Larry

brad · Posted: Tue Dec 18, 2007 3:16 pm Post subject:

Great work! I appreciate your knowledge!

jameshogg · Posted: Mon Dec 31, 2007 5:37 am Post subject:

I would like to go through it too Smile

scherzeroni · Joined: 05 Jan 2008 Posts: 51 18.77 Dollars($)

A 30 Year mortgage is just a better deal right now with the market the way it is. You get very little discount in rate to have to refinance within 5 years and not knowing what the rate is. Right now, a 30 year mortgage is definately the way to go.

jbarto65 · Joined: 04 Nov 2007 Posts: 625 0.17 Dollars($)

another great post, thank you

I am sure this information will come in handy for a lot of people that are shopping for a mortgage, weather it be a first timer or someoone looking to refinance.

charlesarmbruster · Posted: Wed Feb 20, 2008 10:43 am Post subject:

Yawn! Come on, Folks! The reason there are so many varied mortgage products out there are too numerous to mention here -- this salesman's 'white paper' is wonderful; I don't need it. I can sell the client the mortgage he/she needs or is looking for -- some homeowners prefer to 'rent' their mortgage rather than own their home -- the tax benefits are there, too.

I will admit that a well-grounded couple with good earning potential and two kids in a good school district with plenty of reason to stay in the neighborhood will insist on a 30-year Fixed product; many other applicants will not fill out this picture in the same manner -- hence, the varied product offerings by the financial institutions who are eager to help any credit-worthy borrower become a homeowner/homerenter.

This salesman would do well to offer the Home Ownership Accelerator to his 65% LTV, good FICO, and plenty of disposable income clients.

Guest

This person must get a bonus on how many fixed-rate mortgages he/she sells, because there are many reasons to choose a variable rate mortgage, with lowering payments being only one of them. Here are just a few off the top of my head...

1. allow you to own a home in a neighborhood that you couldn't qualify for at the higher rate.

2. credit scores are too low to get a decent rate mortgage due to unforseen bankruptcy due to divorce, failed business startup, etc. and will be refinancing in a year when your BK is out far enough to get a conforming loan.

3. Have a job where you will only be in an area for a few years.

4. Have a 2nd home or investment property (where ARM's are the norm and fixed-rate mortgages are MUCH higher typically).

5. Divorced and need to buy out ex-husband or wife and don't have the income to qualify for a fixed-rate mortgage (many of my deals are from divorce or marriage).

And I could come up with many more if I needed to, but I think people get the idea. True, fixed-rate mortgages are good for the majority of people, but there are many people who don't fit the box so neatly. I guess the moral is that I wouldn't go and just put someone into a fixed-rate until you've done an analysis of their situation first.

larry · Joined: 27 Jun 2007 Posts: 3328 474.44 Dollars($)

Hi Burlington,

Welcome to the forum.

I actually agree with Sam that FRM is a better option compared to ARM but you are also absolutely right that it is actually the situation that may suit someone ARM than FRM. No one can take blindly a program whether it is ARM or FRM. After a thorough analysis he should go for ARM or FRM.

It is really good to have someone knowledgeable like you around this community. I think your knowledge and experience will be of great help for the people who are facing problems in this industry. So why do not you join this community and help people with your sound knowledge and at the same time you can earn some $$$.

You can also introduce yourself at http://www.mortgagefit.com/introduce-yourself.html

Best of luck,
Larry

jbarto65 · Joined: 04 Nov 2007 Posts: 625 0.17 Dollars($)

great advice

cliff · Posted: Mon Jun 09, 2008 5:42 pm Post subject:

Wow what a great post and thread!

Just one thing I would like to add. Given current "inflation expectations" we are in an environment where mortgage rates will be increasing. In addition as we all know ARM adjust with a specific benchmark index. With these on the rise you had better be prepared to pay higher interest rates in the future than you would pay today.

charlesarmbruster · Posted: Thu Jun 12, 2008 10:14 am Post subject:

If your adjustable is coming due or has already seen a new rate, you may be surprised.

IF YOUR INDEX IS THE 6-MONTH LIBOR, you're in good shape -- the index dropped on June 1st and forecasts continue to show dropping numbers through December. If you can't refinance due to LTV restrictions, you should wait, since your payments aren't likely to up for quite a while.

Check your contract for the margin, and if you can delay refinancing until the lenders improve their LTV restrictions, you'll be fine.

cliff · Posted: Fri Jun 13, 2008 7:52 am Post subject:

Dropping…Chuck who put out that forecast and when? Current data and news supports the contrary?

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