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Fixed rate or adjustable? Hmmm...

February 22nd, 2011 at 07:03 pm

We have yet to make the offer on the house. First, the banks were closed on president's day, and then today, the mortgage guy at my local bank magically called me back during the whole 10 minutes I wasn't in the house today, then I couldn't get ahold of him at all the rest of the day.

I did print out all of the documents we'd need to get preapproved and prequalified. During that process, I forgot how much I hate having to deal with all of this-- shopping around for loans, having some stranger look over all your numbers! Blech. Just hand over the cash. I'm good for it, really.

I did briefly consider a 5 year adjustable rate. It could save me about 10,000 in interest during the first five years, and I like the idea of that money going to pay down the balance rather than pad the bank's coffers. Still, I'm not sure the interest-rate reset risk is worth it, even if we are planning to pay off the house within five to seven years.

**update**
I just got off the phone with the bank offering the seemingly attractive ARM loan. Yep. Not worth it. The rate lock option I was interested in doesn't lock it at the incredibly low rate you get for the first five years, it locks it at whatever the market rate is when your loan resets, or you have the option to just take the normal 2 percent increase. Too much interest rate risk. I'm not comfortable with that.

**

So, tomorrow I begin again trying to set up meetings for preapproval. I plan to shop at a few smaller community banks as well. I have heard from friends that they are offering better rates than even some of the larger locals. We'll see.

I almost feel like a pro at this. This will be the third house we've bought in eight years!!!

5 Responses to “Fixed rate or adjustable? Hmmm...”

  1. Ima saver Says:

    I would stick with a fixed rate!

  2. ceejay74 Says:

    I've really lucked out with the 5-year ARM I got when I was young(er) and stupid...the first re-set it increased by I think .75%, but it's gone down every year since then. The introductory rate was 5%, and now it's at 3.75%!

    That said, I wouldn't recommend doing an ARM. Unless...you're really sure you'll pay it off as fast as you say. I think with my ARM (haven't looked into it deeply since there's no way I can refi; underwater), it can only go up a certain amount with each reset, so it's not like it can baloon out of control or anything.

    Plus, how much would it cost to refi if the re-set is ugly? If less than $10,000, you might still save some money.

  3. ThriftoRama Says:

    I need to crunch more numbers. It could save us about 10k in interest the first five years, but if there is a kink in the pay off plan, it will leave us with a rising payment.

  4. MonkeyMama Says:

    I'm with Ima on this one!

    If you sold the other house first, I don't think the ARM is a bad idea. But it just adds more risk to a situation with risk.

    That said, are the ARM rates even that great these days? With interest rates so low? I remember looking at the rates last time we refied, and not seeing the draw. They were just so close to fixed rates. I suppose it depends on the day.

  5. ThriftoRama Says:

    The arm was 3.6 and we're looking at 5 percent for fixed. It would be about 150-200 less a month, which is why I briefly considered it. But, as you said, why add more risk?

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