< Read Another Article   Fixed or Adjustable? There’s so many loan programs available, fixed and adjustable, how do you know which one is best for you? You remember well your parents telling you to go with that fixed rate. You also know that the adjustable rate mortgage (ARM) lower payment is very attractive. So let’s look at some basics to resolve this question. Most important to know, as best you can, is the length of time you are to stay in the property you are buying. As an example, let’s say you are purchasing your first home. It’s not everything you’ve ever wanted but you know this is a stepping stone to your dream home in the future. You have estimated to the best of your ability that you will be in your home for about four years. Now let’s explore loan options for this scenario. Purchasing at $310,000 with 20% down gives you a loan amount of $248,000. Current fixed note rates on this loan amount are in the range of 8.00% with zero points, 7.75% at one point, and 7.50% at two points. Respectively, the annual percentage rates are 8.043%, 7.898%, and 7.751%. If you’re keeping this loan thirty years, you can see the loan to get is the one whereby you pay the full two points.  But, we’re targeting the four-year mark. And, at the end of four years the total dollars spent on these fixed rate loans are within $100 of each other at $365,455. This number includes all closing costs, payments, and pay-off at the end of the four-year term. Advantages of one of these fixed rate loans over another would now be reduced to your cash flow at close of escrow, and whether or not you needed to pay points for a greater tax deduction in the year purchased. What about the adjustable? Since our example calls for a move in four years, it’s OK to take a three-year, pre-payment penalty. These penalties vary slightly from lender to lender, though most will not penalize you at all in the event you are selling inside the first three years, and not refinancing. For our adjustables we must calculate fully indexed rates, not allowing for any negative amortization (interest being added back to the principal), and use worst case scenario. If the ARM is figured at worst case scenario (a market of spiraling upward interest rates), and it still is less expensive than the fixed, there is no risk and we must go with the adjustable. Best current margins of 2.125, 1.875, and 1.625 are offered with respective loan origination credits (points) of one point, ½ point, or ¼ point in cost, and tied to the “Monthly Treasury Average” index, also known as the MTA. I know, that’s a lot of mumbo-jumbo verbiage you’re probably not used to, but stay with me. Running the numbers based on the above, your total cost selling in four years is $325,340 with a difference of $1,500 between the three ARM’s. There’s a difference of $40,000 between the fixed and ARM’s. This is only one loan scenario. Yours is bound to be different.  Make sure you and your loan agent run the numbers. As you can see, it can make a big difference at the end of a few short years.  < Read Another Article

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