30 Year Fixed or ARM???

[MoreCowbell]

Question: according to my math, the current payments on a 1 million dollar 30 year fixed is 6418. For the 5/1 ARM interest only, it’s about 5428. So, about $100 different per month. Other than the risk of rates going up in the future, is anything lost by taking the 5/1 io and paying an extra $1000 every month to reduce principal?

In which scenario do I have more equity on 5 years?

[dmfitz82]

I think it all depends upon the variance between the loan interest rate and the local market appreciation rates...

[obLu]

No expert, but my quick thoughts are that since the first 10-12yrs of a 30yr fixed is going toward interest that the ARM / and paying 60k principle would net you more equity sooner.

Might look at doing 30yr fixed on 80% and a short term, higher interest loan on the 20%. If you went that way, say a 10yr loan on the 20% you'd have 20% equity at the end of that loan.

That's how we went, just because it was the cheapest monthly. The rate on the 80% came down enough by putting 20% down (I'd like to salute the people who can actually put down 20% on today's housing prices) to more than cover the payment on borrowing that 20%. Go figure.

Equity isn't our primary concern though. The market out here has never died in the 20+ years I've lived here. It's slowed, but never died. I know the equity in my house has to come from appreciation and not by paying off the mortgage.

[MoreCowbell]

Originally Posted by obLu

No expert, but my quick thoughts are that since the first 10-12yrs of a 30yr fixed is going toward interest that the ARM / and paying 60k principle would net you more equity sooner.

Might look at doing 30yr fixed on 80% and a short term, higher interest loan on the 20%. If you went that way, say a 10yr loan on the 20% you'd have 20% equity at the end of that loan.

That's how we went, just because it was the cheapest monthly. The rate on the 80% came down enough by putting 20% down (I'd like to salute the people who can actually put down 20% on today's housing prices) to more than cover the payment on borrowing that 20%. Go figure.

Equity isn't our primary concern though. The market out here has never died in the 20+ years I've lived here. It's slowed, but never died. I know the equity in my house has to come from appreciation and not by paying off the mortgage.

Excellent insight!!! Thanks!!!