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30-Year Fixed vs. ARM

Home Mortgages and Home Buying 30-Year Fixed vs. ARM

  • Avatar orthodoc2018 
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    Status: Physician
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    Joined: 07/18/2018

    I know there have been many discussions on this that I’ve read through but I’d like to hear opinions on specifically whether it would ever make sense to do an ARM if there’s a reasonable chance that I would be in the house longer than the initial fixed period and I’m not 100% sure I’d pay it off during the fixed period.

    I’m a very new attending and have better uses for my money for the next 3-4 years than paying a mortgage early (currently paying down 300k in student loans over 3-4 years and will obviously max all retirement accounts and more to get to 20%).  By the time either of these ARMs end, I would be looking at a significantly higher income than now (if still in the house, that means I’m still at this job and partner salaries are high 6-figure to low 7-figure).  I believe the max rate would be 5% higher than the initial rate though if I’m still in the loan, I imagine I’d probably want to just refinance.

    Currently looking at these rates:

    7/1 ARM: 3.125% with ~$500 credit

    10/1 ARM: 3.25%

    30-year fixed 3.75% ~$100 fee

     

    Thank you!!

    #223159 Reply
    jfoxcpacfp jfoxcpacfp 
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    Status: Financial Advisor, Accountant, Small Business Owner
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    Joined: 01/09/2016

    That 10/1 ARM looks pretty appealing, given what you’ve provided, but at these rates, I’d be ok with either that or the 30-yr fixed. Going with 10 instead of 7 just gives you some breathing space and makes me more comfortable.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #223160 Reply
    Avatar orthodoc2018 
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    Status: Physician
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    Joined: 07/18/2018

    Yeah that was my initial thought…those could be a valuable 3 years where I’d be at a much higher income and therefore if rates spike and I know I’ll be facing a big increase, I’d be able to aggressively pay the mortgage during that time.

    #223161 Reply
    ENT Doc ENT Doc 
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    Status: Physician
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    Joined: 01/14/2017

    10/1 ARM is reasonable. Huntington has a 15/1 ARM product for physicians as well. The ARM is fine as long as you plan on doing one of two things IMO – paying it off early, or refinancing.

    #223166 Reply
    wonka31 wonka31 
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    Status: Physician
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    Joined: 03/24/2018

    What’s the quoted rate on a 15 year fixed? I fee that would help determine whether or not the 10yr ARM makes sense.

    #223171 Reply
    ENT Doc ENT Doc 
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    Depends on who you get as an agent, your credit, assets, jumbo vs non-jumbo, assets, income, and state. Hard to give a definite % but should be between the 30 and 10/1.

    #223176 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4447
    Joined: 01/08/2016

    Wait… Or not buy a house yet…

    #223180 Reply
    Avatar Bmac 
    Participant
    Status: Physician
    Posts: 313
    Joined: 10/21/2017

    Wait… Or not buy a house yet…

    Click to expand…

    Ding, ding, ding . . . and we have a winner.

    #223183 Reply
    Avatar orthodoc2018 
    Participant
    Status: Physician
    Posts: 79
    Joined: 07/18/2018

    What about my situation in particular makes you say that? I’ve been a long time reader here and can usually quickly pick out the posts where someone shouldn’t buy a house and I just don’t see it here. Maybe I’m blinded by it being me though…

    -Job is one I’m very familiar with and I know I get along with all doctors and staff
    -moving back to hometown to be near my and wife’s families
    -don’t see any way we’re here less than 10 years, more likely forever
    -house is 1.25-1.5x base salary, likely 1x total income and is in a neighborhood we love

    #223192 Reply
    Liked by jhwkr542
    Avatar Peds 
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    Status: Physician
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    Joined: 01/08/2016

    Well you didn’t say any of that.
    You just said you have better uses for your money.

    #223194 Reply
    Avatar orthodoc2018 
    Participant
    Status: Physician
    Posts: 79
    Joined: 07/18/2018

    True – sorry about any confusion.

    I’ll be able to afford the mortgage and a student loan payment that gets me done with them in 4 years but I just want the loans gone so any extra cash that I have (after maxing retirement accounts of course) I’d prefer to put towards student loans rather than extra mortgage payments until the student loans are gone.

    #223197 Reply
    Avatar Tim 
    Participant
    Status: Accountant
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    Joined: 09/18/2018

    Okay, so you employment isn’t a “blind date”.
    When is the partnership? It sounds like a sweet situation, but buying the house in like an engagement. I would consider holding off until the partnership is solidified. You can afford to wait. Sometimes things turn out differently. Hope the neighborhood doesn’t disappear, pretty sure it won’t. Owning vs renting certainly won’t hurt you at all for a couple years.
    Not a recommendation, just another path to consider. It is a reasonable option.

    #223199 Reply
    Avatar jhwkr542 
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    Joined: 02/15/2016

    Getting back to the topic at hand, I’d do the 30 year for the insurance. 10/1 would be ok but you’d have to pay off quickly or refinance later, but no guarantee rates will be that low still.

    #223245 Reply
    Liked by Tim
    Avatar StarTrekDoc 
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    Status: Physician
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    Joined: 01/15/2017

    Hard to tell right now.  Back in 2009 few thought we’d still be hanging around in low interest rate territory.   We’ve never seen things this low and we’re entering a decade of recovery.  So due soon with the inversion curve peeking its head every so often lately.   I wonder if the Japan stagnation for a ‘decade’ will be coming….of course we don’t save like them so doubt deflation would be an issue—just stagnation.

    So 10ARM isn’t really a bad bet at this stage if this is all coming to pass.

    #223299 Reply
    Avatar ajm184 
    Participant
    Status: Other Professional
    Posts: 637
    Joined: 07/14/2017

    Historical (albeit limited) data suggests using an ARM is a better financial decision.  Given average home ownership at a given location is 7’ish years, it intuitively makes sense for use of an ARM.  A couple of issues with an ARM including the future unknown rate environment; don’t want to be on the wrong end of 10%+ rate reset.  Also, given the slow demise of LIBOR as rate resetting mechanism within ARM’s, the question becomes the effectiveness of alternative future rate setting metric upon which ARM’s would be based.

    #223328 Reply
    Liked by Zaphod

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