​ARM or Fixed Rate Loan - First Time Homebuyers

[Griffin Detrick]

We have two options to structure our first home loan - Loan will be for $158,400 (purchase price is 176k with 10% down) - conventional.

1) 30 yr fixed rate (90% LTV) at ~3.85%. This would require a PMI payment until we get to 80% LTV.

2) Either a 5/1 ARM @ 3.0% or 7/1 ARM @ 3.25% (both 90% LTV). With these ARM's, the min the rate can go is 3.0% and the max is 9.0% with a max adj per year of 2.0%. No PMI since it is a secondary market loan.

We could refi after the 5 or 7 year fixed rate portion of the loan expires (and get a fixed rate) - question is: are there any other drawbacks with an ARM loan that we should take into consideration when making a decision? Other than the chance that when we go to refi the interest rates could have gone up and we would have to pay the costs/fees associated with the refi?

Thanks all.

[Bryan Hancock]

The Mortgage Professor has a lot of good calculators to toy with for your exact scenario and assumptions.  Tax rates and other variables come into play for an exact answer.  Here is a good place to start:

Choosing Between Fixed & Adjustable Rate Mortgages

If you look through his site you'll find the calculators and other good commentary as well.