Posted on: 23rd Nov, 2010 12:07 pm
Hi - I recently refi'd my condo with my Credit Union: 5/1 ARM with option for fixed rate. My current APR is 4.93. I now need to pay off a one-time bill associated with my prime location San Francisco condo that I must pay, I only need $13K cash out and this increase in my loan amount would still leave me with 64% LTV ratio ($357K loan to $600K value). Sadly, my credit union no longer offers the fixed rate option with any of their ARMs, so if I refi again, I need to choose between straight ARM and fixed. The ARM is very attractive as my salary was cut and I could really use the extra $225 a month...however, I am super concerned that I will end up with a 6%, 7% or higher mortgage rate at the end of the 5 years .... any advice - I don't know who to talk to about this as no one else in my family owns property.
Hi DeliciaK,
It will be better if you can go for a fixed rate mortgage. The mortgage interest rate will remain the same throughout the loan term. Though, initially it will be a bit difficult for you to pay the loan but you don't have to worry about the 6% or 7% interest rate at the end of 5 years.
Thanks
It will be better if you can go for a fixed rate mortgage. The mortgage interest rate will remain the same throughout the loan term. Though, initially it will be a bit difficult for you to pay the loan but you don't have to worry about the 6% or 7% interest rate at the end of 5 years.
Thanks
I would 1st advise not to speak to a non-professional about this important financial decision. Buying a home does not make anyone a mortgage pro. Far from it. I have helped over 1000 clients with mortgages. Very few of them are capable of advising anyone else.
In 5 years, you can expect that rates will be higher. Period. So, if you have to refi out of the 5/1 ARM back to a fixed after 5 years, you will lose out on the low fixed rate you can get now.
Rates are so low now. If you have good credit, you should be able to get a rate around 4.25% for a 30 yr fixed. At least as of today.
If for any reason you think you will be out of that home after 5 yrs, then go for the ARM.
In 5 years, you can expect that rates will be higher. Period. So, if you have to refi out of the 5/1 ARM back to a fixed after 5 years, you will lose out on the low fixed rate you can get now.
Rates are so low now. If you have good credit, you should be able to get a rate around 4.25% for a 30 yr fixed. At least as of today.
If for any reason you think you will be out of that home after 5 yrs, then go for the ARM.