1. For most people owning a home is a life long investment. When asked most homeowners plan on living in their home until they die. This is hardly ever the case because most people will move within 5-10 years if they plan on making this place a primary residence. Families grow and life happens. You may want to put your kids in a better school district or you may have been given a better job.
2. Why take a risk on something that you want to keep in your family for ever. With a 30 year fixed rate mortgage you know what your payment on your house is going to be like until the day it is paid off.
3. Even if you only plan on being in your home for less than 3 years you do not know what is going to happen between now and the next 3 years. Maybe you are offered a promotion to stay with that company, maybe you meet somebody and get married.
4. Interest rates change every single day. So what sounded like a great idea 2 years ago to get a adjustable rate mortgage because you could save .5%-1% on that mortgage might bite you in the butt when it adjusts anywhere from 2%-5%.
5. Sure, you could just refinance the loan before it adjusts but why would you do that. It would just take away all of the savings you had with lower payments from the time you were in the loan. If you were able to save .5% over the past three years and now lets say you refinance to the same interest rate (won’t happen) as you had with your ARM to a 30 Year Fixed Rate Mortgage you still have to pay all of the closing costs again. Sure the lender will just roll the costs into the loan so its not like you paid anything out of pocket on the front side, but you are paying. With closing costs in the $2k-$4k range that monthly interest savings of $50 you had with your ARM just went bye bye.
6. Mortgage brokers and banks knew what they were doing when they started pushing these loans during the housing boom. They knew that everbody before took fixed rate loans and that most people never refinanced out of their loan. They stayed in that loan until the day it was paid off. Now you had first time home buyers and so called real estate investors getting into the mix with all of this cheap money going around because of Alan Greenspan lowering interest rates to historically low numbers. The mortgage companies knew they could market the hell out of adjustable mortgages on television and the internet saying that “we have the lowest rate” or “when banks compete you win.” So now it is embedded in our heads that we NEED the lowest rate and that’s all that is important. So while you were out shopping the lowest 30 year fixed rate mortgage somebody decided to present a 3 Year ARM to you with an interest rate 1% less than everybody else’s. Its sounds so good because it is the lowest rate so you take it. After closing on the loan your mortgage broker or banker says don’t worry about the rate adjusting in a couple years we will give you a call and lock you in before it happens. Of course they will do this because then they can charge you more costs and make more money when they sell your loan.
7. If the rate is all you are concerned about then what you can do to protect yourself from ever having to refinance in the future is to save up the money and pay for the house with cash in full. I know its old school thinking but it works.
8. If the interest rate thing bothers you then you need to find out the break even point on getting the lower interest rate versus taking the higher rate on the 30 year fixed. You will see that a lot of times that the break even time is going to be when it adjusts and then after that the 30 year fixed mortgage’s benefits kick in. What makes more sense, saving money on interest for 3 years or saving costs and interests for 27 years? The math is simple but the American population is so interest rate focused that they never stepped back to think about what might happen when the rate changes.
9. This is a neat trick. How about take the 30 year mortgage and just put more money on top of your monthly payment. This additional money every single month will get the balance going down faster and over the life span of the loan you will effectively pay less interest.
10. The 30 year fixed rate mortgage just makes sense. There is no need to ever refinance. You would only need to refinance if interest rates drop more than 2% from what you are currently fixed in at or for life emergencies. Besides that an adjustable rate mortgage is just a way for the mortgage companies to make more money.
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