Recently purchased a home with a 30 year fixed at 6.0% and looking to refinance to take advantage of lower rates. Our goal in 5 years is to buy another home and either keep our current property as a rental or buy an investment property. What type of loan would you recommend? A 30-year, a 5/1 ARM or 7/1 ARM? Current pricing for each is 5.375%, 4.25% and 4.625% respectively.
What type of loan is best?
29
Mar
messiah
March 29, 2010 at 3:03 am
the one with the lowest interest rate, but it also depends on how long you want to be paying the loan off.
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March 29, 2010 at 3:48 am
I would recommend not going with an ARM if you can avoid it. My thought process is…what if you can’t move? what if something happens? Could you afford it if you couldn’t move and your rate went clear up?
I would think about those kind of things just in case. 5.375 is still good and is way better than 6%
Janice 10
March 29, 2010 at 4:43 am
The loan with the lowest interest rate and do not get a loan with a ARM( meaning adjustable rate mortgage) the rates change daily and you are NOT locked in. Stay with a fixed rate loan. Go to different banks to see what they offer, many have incentives since the housing market is not doing very good. Best Wishes.
CreditTrauma
March 29, 2010 at 5:25 am
I would stick with a 30 year fixed, especially since you want to move in 5 years and keep it as a rental property.
If you choose an adjustable rate loan, unless you have a predetermined time where you are going to sell the property, if you move, you’re going to have to refinance that loan and it will no longer be an “owner occupied” loan. This means you will be subject to higher rates as a non-owner occ loan, along with lower loan to value rules and higher reserve requirements.
By sticking with a 30 year loan, you always know exactly what your payment is going to be and don’t have the concern of having to refinance with terms you may not be able to meet down the road, along with having to deal with higher interest rates. They WILL be going back up in the next five years….you can count on that.
golferwhoworks
March 29, 2010 at 5:59 am
with the cost involved you are not going to save enough to make a difference in all of this and always go fixed unless you know beyond any shadow of doubt that you can sell and move before the loan adjust
bjh
March 29, 2010 at 6:53 am
Lock in a rate, 30 year fixed and make sure to have over 20% equity to not pay PMI. Do not play the interest rate game, if you are trying to game for a lower rate and play with ARMs, you probably can’t afford the house. In times where the housing is in decline, I would plan to hold for a long time, and the rates are very low right now, so it means they will likely go up unless they plan to make the dollar worthless.
Kris
March 29, 2010 at 7:29 am
Interest only is a good option for investment properties as it leaves room for flexibility should you go a month or two without a tenant.