Fixed interest rate or Variable rate

[gsellis]

That consolidation loan site list

 

[Mayfriday0529]

I have applied with SallieMae and waiting on their response and rate. Hopefully it will be lower, but they only offer Variable rates, no fixed rates.

 

[Xavier434]

Originally posted by: DBL

WRT mortgages, this is not true. If you happen to know that you would be selling within a predefined number of years, it likely could make sense to take a variable rate and save the money in the short term.

Yes, but this thread is about student loans. Not the real estate market. I did hint at how time was a factor when it comes to the risk though. The odds of it going up and staying up over time are greater than it going down and staying down. When it comes to student loans, rates almost always go up and stay up because no one takes a student loan to try and turn a profit. It's a completely different business.

Originally posted by: Jnetty99
I have applied with SallieMae and waiting on their response and rate. Hopefully it will be lower, but they only offer Variable rates, no fixed rates.

I have a SallieMae student loan and after I consolidated it became a fixed rate. The deal was also that I paid no interest until after I got my degree or quit going school.

 

[kalrith]

I'll give an example from what I have done and an example of what I'm going to do in regards to fixed vs. variable. To those saying fixed is ALWAYS better should know better than to use the word always. If you don't plan to stay in a house for 30 years, then an ARM can DEFINITELY be a better decision.

In my situation variable was definitely better. I purchased my first home in April 2003 with a 4.5% ARM. The best fixed rate I could get was 6.5%. My interest rate can adjust up to 1% per year, and the max is 5% total. I knew I would only be in this house for 5 years and will sell it roughly 6 months from now. My interest rate did decrease in 2004 to around 3.8%. I can't remember what it did the second year, but it has increased the past two years. It increased from 5.875% to 6.875% this past April. This means that compared to the fixed-rate interest rate of 6.5%, I had a significantly lower interest rate for three years and have had a .375% higher interest rate for 6 months. I have definitely spent less money on interest over the past 4 1/2 years with my ARM than with a fixed-rate mortgage.

My next mortgage will also be adjustable. I plan to go with PenFed (link to ARM) and their 5/5 ARM at 5.125%. 5/5 means that the interest rate only adjusts once every 5 years. It can adjust up to 2% each time with a 5% total max. There is a long thread at Fatwallet about it (link). Bankrate.com shows the 30-year fixed rate currently at 6.11%. If we assume that the 5.125% ARM will increase 2% every 5 years, then on payment 118 (or almost 10 years in) the fixed-rate mortgage would come out on top. I plan to live in my next house for 5-8 years, so the ARM will once again be a better choice even if I assume that the rate will increase the maximum-allowed 2% every 5 years.

 

[DBL]

Originally posted by: Xavier434

Originally posted by: DBL

WRT mortgages, this is not true. If you happen to know that you would be selling within a predefined number of years, it likely could make sense to take a variable rate and save the money in the short term.

Yes, but this thread is about student loans. Not the real estate market. I did hint at how time was a factor when it comes to the risk though. The odds of it going up and staying up over time are greater than it going down and staying down. When it comes to student loans, rates almost always go up and stay up because no one takes a student loan to try and turn a profit. It's a completely different business.

I hear you but the thread really does not make that distinction and neither did your post.

 

[Special K]

Originally posted by: Special K

Originally posted by: Pale Rider

Originally posted by: Special K

Originally posted by: Pale Rider
Fixed. Always.

When the economy goes belly up (recession - it does this every few years, no one knows why, democrats and republicans blame each other) the rate will skyrocket and your payment may get to be unbearable. A moderate fixed rate with a payment you can afford is the way to go.

Wait - if we had a recession, wouldn't interest rates drop, which would make the variable rate loan cheaper?

Wouldn't inflation cause interest rates to rise since the government would be trying to keep people from spending money as fast?

Look at the housing crash in the 80s. Interest rates weren't exactly low... I can remember people paying 10% or higher on new mortages then.

Well I meant in general - isn't the purpose of increasing interest rates is to reduce spending, and the purpose of decreasing interest rates is to promote spending in a recession, such as what happened in the ~3 years following 9/11?

<- not an econ major, just curious

bump - can anyone answer my question that I quoted?

 

[gsellis]

Originally posted by: Special K

Originally posted by: Special K

Originally posted by: Pale Rider

Originally posted by: Special K

Originally posted by: Pale Rider
Fixed. Always.

When the economy goes belly up (recession - it does this every few years, no one knows why, democrats and republicans blame each other) the rate will skyrocket and your payment may get to be unbearable. A moderate fixed rate with a payment you can afford is the way to go.

Wait - if we had a recession, wouldn't interest rates drop, which would make the variable rate loan cheaper?

Wouldn't inflation cause interest rates to rise since the government would be trying to keep people from spending money as fast?

Look at the housing crash in the 80s. Interest rates weren't exactly low... I can remember people paying 10% or higher on new mortages then.

Well I meant in general - isn't the purpose of increasing interest rates is to reduce spending, and the purpose of decreasing interest rates is to promote spending in a recession, such as what happened in the ~3 years following 9/11?

<- not an econ major, just curious

bump - can anyone answer my question that I quoted?

The 70's and 80's are a special notation. That was Stag-Flation. There was a recession and inflation, which was not part of a Keynesian model because they were exclusionary in the old model (why the Monetarist finally got real traction in my opinion.) Yes, classical model says lower the interest rate to make money easier to access and spend the way out of the recession. It would be similar to changing the savings rate or increase the money supply. In the current case, the changes in the tax rates probably had a much sharper effect on the economy than the interest rate. And Greenspan was an idiot to then start moving the interest rate up to hedge inflation - inflation was assured with the increase in oil prices and the idiot was trying to fine tune something that would have corrected itself. At least the fallout of our low USD is we have had a high domestic export.

Me, stick the interest, set money supply growth to GNP, and leave the economy alone. Fine tuning usually amplifies the change and makes any inflationary or recessionary periods steeper.