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Real Estate Home Mortgages/What Type of Mortgage Should I Get

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Question
My wife and I will be purchasing a new home in the next few months and need some advice on what type of mortgage to get. I will be getting a 5% down, conventional loan and am debating on whether to get a 30-year fixed rate or an ARM (5/1, 7/1, 10/1). I realize many people will say that the interest rates are so low right now that I should go for the 30-year fixed. My only hesitation in doing so is that I donít believe this will be the last home we will buy. I know we will be living in this home for at least 5 years but beyond that, I canít say for certain. The thought has crossed my mind to turn this home into a rental property once we decide to move again but am not sure if I want to be a landlord or pay a property management company. Another thought crossed my mind that if we do have a child while in this home, we may want to stay put longer.

In any case, I need some honest feedback/advice on whether it is worth it to roll the dice on an ARM or play it safe with a 30-year fixed given the information above? I have been told that because the interest rate is lower in the beginning on an ARM, that more is applied to the principal in the early years of the mortgage as opposed to a 30-year fixed where most of the payment in the early years goes towards interest. Letís say we donít decide to move away after 5 years or do turn it into a rental, better to take the chance with the ARM and refi to a fixed rate later if necessary? Or would we save more money in the long run by going with a fixed rate from the get-go? Which AR do we go with if we go that route (5/1, 7/1, or 10/1)? I appreciate your feedback on this. Thank-you.

Answer
Using an ARM to finance doesn't change what is paid towards principle. It just lowers the payment.
If were a disciplined investor and made your pmt based on the 30yr fixed rate... applying the extra towards principle.... that might still be a good strategy.

But, in my opinion, if you stay beyond the fixed period of your ARM.... you will likely lose. I just don't see rates swinging back this low again.
And certainly, if you rent the home. You will be kicking yourself for not having a fixed rate.  
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This topic answers questions related to purchasing a home, owning a home, home ownership, mortgage education, mortgage applications, and mortgage needs whether buying a first home or refinancing a current loan. Issues related to home ownership, home equity, mortgage education, refinacing options, home improvment finacing, first time home loans, home equity loans, vactation home loans, and mortgages for investment homes are dealt with here also. Though not the primary focus of this topic, Home Equity Lines of Credits (HELOCS), reverse mortgages, and calculating home equity may also be asked. If you do not see your home mortgae, home finacing, or home equity question answered in this area then please ask a question here

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Tom Burris

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I can answer any question regarding Mortgage loans for Purchase or Refinance. I currently work as a Mortgage Banker in Dallas, TX and have experience as a Mortgage Broker. The favorite part of my job is helping First Time Home Buyers. I also consider myself an expert of Credit and Credit Qualifying for a home loan. Many of my loans are the result of showing clients how to credit qualify for a loan after they were denied in the past. We do FHA, VA & Conventional Financing. I have extensive experience in Investor Loans as well. I will NOT answer questions about 'getting around guidelines', ect. Or if I sense that you are trying to call your 'investment' property a primary residence, I will reject the question. I will ALWAYS err on the side of caution if I sense that the question is fraudulent in nature.

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7 years experience as a Mortgage Broker and as a Mortgage Banker

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Mortgage Professionals in Texas are required to take many ethics courses and other industry training to satisfy State mandated continuing education requirements.
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