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18 votes

First time home buyer - Need suggestions and views on few things

Wow, you are in an excellent situation. If it was me here is what I would do: 0) I would only buy if I plan to stay in that location for about 5 years. If you are planning to move, then renting is ...
Pete B.'s user avatar
  • 76.7k
16 votes
Accepted

How does pre-payment affect an adjustable-rate mortgage?

When the interest rate of an ARM resets, the payment amount is re-calculated based on the remaining principal, term, and new interest rate. If you pre-paid a portion, your principal amount will be ...
D Stanley's user avatar
  • 137k
13 votes

Scenarios in 10 years of fixed vs. adjustable rate mortgage (ARM) at the same rate?

This answer is US-centric and is based on the fact that the US government implicitly subsidizes the 30-year fixed rate mortgage. Other countries and other financial systems have different trade-offs ...
Justin Cave's user avatar
  • 27.3k
11 votes

Adjustable Rate Mortgage (ARM) in 2022?

they say that interest rates are very high right now and are likely to come down in the next 10 years, at which point I can refinance with a fixed rate. Or not. And then what? Is the rate difference ...
littleadv's user avatar
  • 177k
11 votes
Accepted

What determines the interest rate on an ARM mortgage?

This depends on your mortgage agreement. The rate is generally a published index plus a margin. Exactly which index is used and what the margin is will vary based on lender, or even between loans from ...
yoozer8's user avatar
  • 9,513
8 votes

First time home buyer - Need suggestions and views on few things

I often use the cliche "don't let the tax tail wag the investing dog." In this case it's the house dog. If the tax consideration is enough to sway your decision either way, you need to sit down and re-...
JTP - Apologise to Monica's user avatar
7 votes

Scenarios in 10 years of fixed vs. adjustable rate mortgage (ARM) at the same rate?

The major risk with an ARM mortgage was front and center in the 2008 recession: that rates will begin adjusting up when you are unable to sell your house. The major advantage of a fixed interest rate ...
Joe's user avatar
  • 35.8k
6 votes

First time home buyer - Need suggestions and views on few things

I see that you have considered the value of the tax deductions Presumably you are in a area with fairly low property taxes. Another thing to consider is that when you sell, as long as you use any ...
JimmyJames's user avatar
  • 3,878
6 votes

Adjustable Rate Mortgage (ARM) in 2022?

From a risk assessment point of view, an ARM reduces lenders risk and increases the borrowers risk. Any plan to avoid the increase by refinancing is foolish. Typical ARM loans are less than 1% “...
jmoreno's user avatar
  • 1,355
6 votes

Adjustable Rate Mortgage (ARM) in 2022?

The advantage of an ARM is that the initial interest rate may be lower than what you would have to pay for a fixed rate. Suppose the bank calculates that, under present market conditions, they could ...
Jay's user avatar
  • 22.8k
5 votes
Accepted

Am I calculating the future payment on my ARM correctly?

I believe that you are confusing a pair of numbers. in your first formula: -FV(0.0199/12, 19, 430, -145000, 0) = -$141,344 You decided to input $430 because that is the amount of your current ...
mhoran_psprep's user avatar
4 votes

How to hedge an adjustable rate mortgage to lock in the current rate for the whole loan duration?

Spreadsheets are your friend. You don't offer the dollar amount, so I'll offer $100,000 and you can scale it up to your numbers. $100,000 at 3% requires a payment of $421.60. Instead, pay $477.42,...
JTP - Apologise to Monica's user avatar
3 votes
Accepted

Refinance a 15yr fixed to a 5/1 ARM?

It's probably not worth the closing costs. With only 6 years left you're not paying much interest relative to the principal. In fact, based on your current balance and interest rate you're paying ...
D Stanley's user avatar
  • 137k
3 votes

Interest only mortgage with extra payment towards principal

The big problem with interest only mortgages in the 2005-2008 time frame was that they seemed like a great deal if prices continued to rise. People were able to "buy" more house than they ...
mhoran_psprep's user avatar
3 votes

How to hedge an adjustable rate mortgage to lock in the current rate for the whole loan duration?

Not really. What you want is essentially an option to take a 20 year 3% loan ten years from now for the balance of your loan. In theory such an instrument might exist, but in reality it doesn't, ...
jrlevine's user avatar
  • 151
3 votes
Accepted

What is the difference between the LIBOR data from the FRB and WSJ?

I don't have a definitive source for this, but this looks like the Wall Street Journal quote is that of the previous day. This makes sense in the context of the processes of setting LIBOR, and ...
Guest5's user avatar
  • 1,324
2 votes

How to hedge an adjustable rate mortgage to lock in the current rate for the whole loan duration?

One option, similar to what JoeTaxpayer suggests, would be to take some amount above your minimum payment and invest it in an investment - or investments - that are likely to do better in a higher ...
Joe's user avatar
  • 35.8k
2 votes

When does 7-1 (or 5-1) ARM make sense for mortgage?

If you plan on selling or paying off your mortgage in 5-7 years then the ARM makes sense. You'll have a lower interest rate than with the 30-year fixed.
minou's user avatar
  • 7,536
2 votes
Accepted

Better loan option: PMI or Higher+variable interest?

"That is, is there a point in paying down the loan where that $20/month outweighs the higher interest rate on the HELOC?" Yes - the reason for this is that your fixed PMI increases as a % of ...
Grade 'Eh' Bacon's user avatar
1 vote

Scenarios in 10 years of fixed vs. adjustable rate mortgage (ARM) at the same rate?

Though usually not applicable in the US, one thing to keep in mind is that there can be limits on how much you can repay on a fixed loan (without paying an additional fee), so if you want to have this ...
Aequitas's user avatar
  • 716
1 vote

Combining adjustable rate mortgages and interest rate swap

Mechanically, yes, combining a floating rate loan with an interest rate swap is equivalent to a fixed-rate loan. There's not an exchange for these instruments, though, so you'd have to talk to your ...
D Stanley's user avatar
  • 137k
1 vote
Accepted

When does 7-1 (or 5-1) ARM make sense for mortgage?

A long time ago we had a 7/23 mortgage. The rate only adjusted once at the 7 year mark. That gave us a target for moving up from a townhouse to a single family house. For those first 7 years the rate ...
mhoran_psprep's user avatar
1 vote
Accepted

Refinance Cost is high

The important figure is how much interest you are saving each month by refinancing, which is what offsets the upfront cost of refinancing over time. (For simplicity, I'm ignoring the increase in your ...
chepner's user avatar
  • 4,466
1 vote

Formula for Calculating Periodic Fixed Payments with Multiple Rate Changes

Extending the example in the link. d is the periodic payment p is the loan amount r1 is the periodic rate for the first m periods r2 is the periodic rate for the next n periods r3 is the periodic ...
Chris Degnen's user avatar
  • 9,877

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