Importance of low interest rates in buying a house?

[calbear2000]

I know low interest rates are supposed to make buying a home an attractive investment right now.

But the benefit only lasts 3 years for a 3-year ARM correct? After which, it tracks with whatever the market's current interest rate is. I was advised to get a 3 or 5-year ARM, which is why I'm asking.

Thanks

 

[radioouman]

Umm, well, someone is trying to screw you, and you are listening. Why would you get a variable rate when fixed rates are the lowest they've been in 40 years? A 3 year ARM is only good right now if you are absolutely sure that you will be selling the property within 3 years.

 

[XZeroII]

If you get a fixed rate, then it will always be this low and will never change unless you refinance.

 

[CPA]

radioouman hit it on the head, nothing else needs to be said.

 

[Zebo]

15 year fixed and pay it in 10 is the way to go IMO. As RADIOMAN indicated it's at a 40 year low and you'd be nuts not to take advantage of this. Capital will become more expensive when the economy picks up.

 

[BDawg]

Originally posted by: CPA
radioouman hit it on the head, nothing else needs to be said.

Yes, more needs to be said. A lot of times, a fixed rate loan will come with more points which will increase the cost of the loan. If you know you're only going to be in a house a set number of years (5 or so), you can get a variable rate mortgage with fewer points, and I believe lower up front costs (closing). If you're going to stay in a house for less than 5 years, there's really no point in buying a house.

My wife and I were advised if we refinance to get a 5 year fixed loan since it will be cheaper and we don't plan on living in this house in 5 years.

In re-reading, Radioman did say to get a 3 or 5 year if you're planning on staying for that number of years.

 

[calbear2000]

I do plan to sell within a few years when my family gets bigger and we'll need a larger house

Fixed rates are always higher than the current market rate, correct? So if the current market rate in the next X number of years stay below whatever fixed rate I can get now, I should go with the variable market rate... let me know if I'm missing something there.

What is the downside of getting a 5-year ARM and refinancing for another 5-year ARM when it expires?

Thanks again

 

[BDawg]

Originally posted by: calbear2000
I do plan to sell within a few years when my family gets bigger and we'll need a larger house

Fixed rates are always higher than the current market rate, correct? So if the current market rate in the next X number of years stay below whatever fixed rate I can get now, I should go with the variable market rate... let me know if I'm missing something there.

What is the downside of getting a 5-year ARM and refinancing for another 5-year ARM when it expires?

Thanks again

In 5 years, the intrest rates could be 20%. There's no telling what they'll be in the future. You know what they are now though, and you know it's a great rate.

 

[calbear2000]

Originally posted by: BDawg

Originally posted by: calbear2000
I do plan to sell within a few years when my family gets bigger and we'll need a larger house

Fixed rates are always higher than the current market rate, correct? So if the current market rate in the next X number of years stay below whatever fixed rate I can get now, I should go with the variable market rate... let me know if I'm missing something there.

What is the downside of getting a 5-year ARM and refinancing for another 5-year ARM when it expires?

Thanks again

In 5 years, the intrest rates could be 20%. There's no telling what they'll be in the future. You know what they are now though, and you know it's a great rate.

And if you do get a fixed rate, you can always refinance if the rate is even lower in the future right?

 

[BDawg]

Originally posted by: calbear2000

Originally posted by: BDawg

Originally posted by: calbear2000
I do plan to sell within a few years when my family gets bigger and we'll need a larger house

Fixed rates are always higher than the current market rate, correct? So if the current market rate in the next X number of years stay below whatever fixed rate I can get now, I should go with the variable market rate... let me know if I'm missing something there.

What is the downside of getting a 5-year ARM and refinancing for another 5-year ARM when it expires?

Thanks again

In 5 years, the intrest rates could be 20%. There's no telling what they'll be in the future. You know what they are now though, and you know it's a great rate.

And if you do get a fixed rate, you can always refinance if the rate is even lower in the future right?

Yes, but unless you're an excellent customer (with $$$$ in their bank), you have to pay closing costs again, which S-U-C-K!

 

[Garet Jax]

An ARM is perfect for you if you intend to sell the house before you own it outright. For example, if you see yourself selling the house before 7 years are up, then a 7 year ARM is perfect. The ARM will get you a lower interest rate than a 30 year fixed (assuming no points or origination fee).

If however, you are buying the house of your dreams (or if you intend to try and rent it out) than a 30 year fixed is the way to go.

Sometimes the decision is made for you. For example, the FHA loan only allows a 30 year fixed or a 1 year ARM.

 

[calbear2000]

Originally posted by: Garet Jax
An ARM is perfect for you if you intend to sell the house before you own it outright. For example, if you see yourself selling the house before 7 years are up, then a 7 year ARM is perfect. The ARM will get you a lower interest rate than a 30 year fixed (assuming no points or origination fee).

If however, you are buying the house of your dreams (or if you intend to try and rent it out) than a 30 year fixed is the way to go.

Sometimes the decision is made for you. For example, the FHA loan only allows a 30 year fixed or a 1 year ARM.

Sounds like my situation... thanks.

Is your reasoning that the variable interest rate within the next 7 years will be consistently lower than whatever fixed rate I can get right now?

 

[Apathetic]

I haven't checked lately, but let's just say a 30 year fixed mortgage is 5.50% and you can get an ARM with a fixed lower rate for 3 years. The ONLY reason to get an ARM right now is if you plan on being in your home for 3 years (or less) and then moving in which case you'd have to sell the house and then get a new mortgage (at the new rate) for the new house.

So, unless you know FOR A FACT that you will be moving before ARM rate rises, the fixed rate is the way to go.

Dave