Is a 5 Year Arm a Good Or Bad Idea?

I own a home and plan on staying here for 10+ years. My current rate is 6.125% - 30yr fixed. I am being offered a 5 yr Arm at 5.125%...and a 30 yr fixed at 5.75: Is the risk of the 5 yr arm,that in 5 years rates will have risen and I will only have a higher rate available? Need help?

thank you.

6 Answers

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  • 1 decade ago
    Favorite Answer

    Ask yourself these questions -- Am I financing this house at 100% of the sales price? And, Is there a chance that the value of my home will depreciate below the amount owed on the mortgage?

    If the answer to either of them is yes, then I would recommend against using an ARM. The ARM is only a good thing if you know 100% that you are going to be able to sell, or refi before the ARM resets. You would not be able to do either, without paying down the amount of the mortgage, if the amount owed was greater then the current resale value of the home.

    There is a good chance that rates will go lower, however rates will eventually go back up in the future. I would go with the fixed rate. Then, if a year or two down the road rates go down enough to justify the PRICE of refying your loan, I would.

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  • 1 decade ago

    The only one I would suggest a 5yr. arm to is either an investor or an individual who will be married, move or retire soon and will want to unload the home in 5 years time.

    There are loan programs that have 10 to 15 year adjustable terms. If you might think you will sell somewhere in that time frame go for it. Most people only hold onto homes about 10-15 yrs due to life changes. (They retire, the kids move away and they downsize, they have a job transfer, they get married, they have kids and need a bigger house etc. etc.

    Banks may try to offer you a lower rate, but it is only temporary or it is a "teaser" rate. BE CAREFUL! Teaser rates usually last only 1-3 months, then the higher regular rate kicks in.

    If you know for sure that you are keeping your house for at least 15-20 years, it will do you well to get the lowest FIXED rate you can find.

    By the way, 5.75% for a fixed rate is a GREAT RATE..

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  • Gary
    Lv 4
    1 decade ago

    ARM's are not a good idea to have. If I were you, I stick with your 30 year conventional and refinance to another 30 year loan later in the year and hope that the rates will go a little lower.

    The news about how bad the housing market is that so many people got ARM loans. Don't be one of them.

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  • Anonymous
    1 decade ago

    ARM loans basically are gambles. You are gambling that rates be better in 5 years or less. Ask yourself this....It your home worth gambling?

    The 30 year fixed rate is a safe bet. If your mortgage rates are lower in five years and it is beneficial to you... refinance again.

    Now if you think that you can get a better 30 year loan then I would suggest you shop around.

    Source(s): I am a Licensed Loan Officer davidshomesandloans@yahoo.com
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  • Anonymous
    1 decade ago

    No the true risk is after the 5 yrs they will hit you with a balloon payment which you would not be expecting and then its too late if you can't pay off the balance of the loan.

    Source(s): 16 yrs real estate Title & Escrow Loans
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  • Anonymous
    1 decade ago

    if you have a fixed rate why are you going to commit suicide. Enjoy your home and watch as the rest doing the stupid stuff go into bankruptcy

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