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Started by Sir Aaron, November 24, 2018, 10:48:07 AM
Quote from: Eric on December 02, 2018, 05:58:19 PMI would definitely recommend the ARM.There is no point locking yourself into longer duration than you need. Also remember that you can refinance if rates go down, and there will probably be a change in the interest rate cycle from now until then.Get a good mortgage calculator or build a robust spreadsheet where you can see the amortization. If you are paying 4.10% on the ARM vs 4.85 on the fixed and a new mortgage or your ARM resets to 5%, you are still very well ahead on the ARM. Remember that the interest rate is calculated on the principal amount outstanding. At year 10, your principal would be much smaller.If you payoff the 30yr fixed payment on your ARM, you are making additional principal payments and shifting each future payment to be more principal and less interest (as your balance decreases). If you do this, I think the breakeven reset rate would be much higher, probably 8-9% which I would think would be very unlikely before hitting a point where it made sense to refi. Also most ARMs have maximum reset rates, how much it can move at the first reset and then subsequent resets, providing additional protection in a rising rate scenario.