30 year Fixed (max points) versus 5 or 7 yr ARM

[Prathamesh Joshi]

Hello Hive,

I am a first time home buyer and investor. I am buying a duplex and will be renting it out for a long haul. I would like to seek advice on whether to avail of 30 yr Fixed mortgage or 5/7/10 yr ARM.

At this point, I am not sure if I would be still invested into this rental property or not. Based on my analysis, I don't think I will have any cash flow problems with 30yr Fixed and hence ARM is not a necessity.

Also, I am open to refinancing options after the ARM period expires and hence the ARM options are also on the table. But I am still concerned that cost of refinancing will wipe out any savings in mortgage payment difference.

The most I am concerned about is making sure that I get the best Return on my Invested capital over the long run.

The lender is offering the following interest rates for different options - 

1. 30 yr Fixed

    Discount Points - 1.46%

    Interest Rate - 3.625%

2. 10/1 ARM

Discount Points - 1.679%

Interest Rate - 3.375%

3. 7/1 ARM

Discount Points - 1.812%

Interest Rate - 3.000%

4. 5/1 ARM

Discount Points - 1.636%

Interest Rate - 2.75%

I would be really grateful for the more the more experienced investors here and guide me to get the best bang for my buck.

The most I am concerned about is making sure that I get the best Return on my Invested capital over the long run.