Which Mortgage would u choose?

[Hannah McBee]

Hi, I'll be househacking my 1st duplex this year. I have 2 options for a mortgage and I'll like to know which one you'd choose in my situation. It's a buy and hold long-term and we plan to buy another property to househack in a couple years from now. To keep it simple, I won't include reserve amounts or rehab costs.

Option #1: 0% downpayment with a 3.5% interest rate ARM (adjustable after 7 years) *We should have enough equity to refi before the 7th year hits*. Closing costs are $5,800 so that's all the money we'd spend out of pocket. Monthly payment is $1,375/month.

Option #2: 3% downpayment with a fixed 3.375% interest rate for 30 years. Closing costs and downpayment combined is $12,560. Monthly payment is $1,410/ month.

Which option would you choose and why?! Thanks! 

[Bill B.]

You’ve got a math problem. 

The second loan is for less money because of the down payment, at a lower interest rate, and yet you say the payment is higher. That just can’t be. 

After you fix that. There’s zero percent chance I would take an adjustable rate loan. Let’s say rates are only 1% higher in 7 years instead of 2 or more. So that will cost you $23,000 per $100k borrowed over those last 23 years.