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FRM vs ARM

Hi, I'm looking to get a new home and I am curious about the difference between a fixed rate mortgage vs adjustable rate mortgage. From what I can see, I a FRM should be the safer choice, what are the advantages of an ARM? I'm looking at a home around 250K, my credit sits at 654 and I have 20% for a down payment saved. by mark23_503_909 from Orange, California. May 29th 2012 Reply


William J Acres (William_Acres)
#73 ranked lender in Arizona - 8,726 contributions

Hey Mark.. Both are safe products, however the ARM is ideal if you know you won't be in your home more than 5 to 7 years.. if that's the case, then an ARM will give you the lowest payment while you're in your home.. if you plan on keeping your home for many years, then a FRM would be idea since the principal and interest payment will never go up.. if you haven't already, you should contact a LOCAL mortgage broker, not the local "Big" bank, and certainly not one of those 50 states internet lenders...By applying with your LOCAL Broker, you have an advantage because he's familiar with local customs and works with numerous lenders, seeking out the best loan terms for your particular scenario. Because he has lower overhead, he can offer you lower rates and lower fees than most of the larger lenders.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. 480-287-5714 WilliamAcres.com

May 29th 2012
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Ralph Richard Guertin (ralph@absolutelowrates.com)
#136 ranked lender in Florida - 796 contributions

It depends on your risk tolerance and how long you intend on keeping home, if more than five years then I would recommend FRM

May 29th 2012
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Ken Burrows (mortgagesforamerica)
#19 ranked lender in Nevada - 572 contributions

The only advantage would be if you are planning on staying in your home less than 7 years. My advice is to lock in a fixed rate now while the rates are so low. We can lend in CA, give me a call if you need any further assistance: 1-888-320-7888 - Ken

May 29th 2012
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Brad Yzermans (HomeLoanArtist.com)
#513 ranked lender in California - 10 contributions

It can sometimes be more difficulty to qualify for an ARM than a fixed rate mortgage because depending on the ARM term you choose, you may have to qualify at a higher rate than the actual note rate, which affects your DTI ratio.Benefits of an ARM? Lower payment and rate.Risks? Rates will be much higher 3, 5, 7, 10 years for now when your ARM adjusts, but it will have caps on how high it can adjust each year, and you will incur costs to refinance in the future. Some banks claim the will do a 'no cost' refinance, but what they actually do is increase your interest rate and use the rebate to pay the costs. 'No cost' really means no 'out of pocket' costs.With your 654 FICO, your rate won't be nearly as low as you would expect, that will cause you to shop lenders more, then have your credit score pulled more, and then you'll ultimately feel like you are getting ripped off.Fannie Mae purposely penalizes people with lower FICO scores with their Loan Level Price Adjustments (LLPA's). Due to your FICO score, you will either have a much higher rate or incur more costs up front in the form of discount points to get the rate you think you will or should receive.You may want to consider doing what you can to bump your credit score up 20-40 points. That would help improve your rate or reduce your LLPA's adjustments quite a bit.If you can't get your fico score up, you may want to at least consider an FHA loan.

May 29th 2012
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Alexander K (alex@ogimb.com)
#396 ranked lender in California - 56 contributions

They are both good depending on your plans and goals. With that kind of credit score and the price range of the home you are looking for you may want to first decide on which loan program you want to take first. Please call me to discuss. 949-450-0980. Alex.

May 29th 2012
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Ryan Romero (REFIryan)
#452 ranked lender in California - 27 contributions

Your credit is a bit a low but doable for financing. You might want to make sure that you have a 5 in plan in home to ensure that you maximizing your mortgage. Most people refinance or move to larger or smaller home in 5-7 years. I suggest a 7 year ARM things happen in life change of jobs, divorce, death , and debt. Call me to go over your Break Even Point in this calculator. 888 308 7775 ext 3 Ryan

May 29th 2012
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Ronald Farah (ronaldf)
#515 ranked lender in California - 4 contributions

For an FHA, your Fico is pretty good, it allows you for a low downpayment of 3.5%Given today's economy and low rates, and obviously being much higher in 3, 5, 7 years down the road; I would recommend fixed rate, as the adjustable rate means you will need to refinance after 3, 5, 7 years and usually means at a higher rate.So if you are planning on staying in this house, fixed rate is the way to go. If you are planning on selling some X-number of years, you might want to consider adjustable rate.We are a Direct Lender and we can help you with anything you need. Give me a call and we can discuss it further.Ronald with American Lending, 951-693-LEND (5363)

May 29th 2012
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Bert Carpenter (BertCarpenter)
#37 ranked lender in Arizona - 1,823 contributions

Fixed mortgage are by-and-far the safest loans. Once the rate is established, it does not change for the life of the loan. In exchange for this "security", the interest rate tends to be a little higher than rates for an ARM. The risk for an ARM, is that the rate is set for only a short duration... 3, 5, 7 years. The rate is lower, but once the initial term is up, the rate will float with the market. Based on where rates are today, the likely movement will be UP. Why then would you want to risk an ARM? If your life plans included you selling this home in say, 8 years, the gamble to take the lower rate now will allow you to pay much less in interest than if you had taken a 30 year fixed loan. BUT, if you don't sell, and instead stay on with the property, the increase in interest for the remainder of the term, or the cost to refinance into a new fixed rate loan, may eat up any savings, and end up costing you more. ~ Bert Carpenter, The LoansA2z team of NOVA Home Loans ~ NMLS 40586 ~ www.LoansA2z.com 888-889-9950

May 29th 2012
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Sean Graves (sean.graves)
#627 ranked lender in California - 2 contributions

Hello,A Fixed Rate Mortgage is definitely the safer option. With an Adjustable rate mortgage, you may be able to get into the home at a lower rate, but the rate will adjust higher in a few years. Adjustables are okay if you plan it out right, such as getting into the home at the lower rate, and refinancing at a fixed rate a couple years later. This is seen when people cannot qualify at the lower fixed rate right now, but expect their situation to change in the future with possibly a job promotion or otherwise.With your down payment and credit score, you likely do not need an ARM.Are you working with an agent right now to help you find your home?If not please give me a call at562-313-2239.Thank You,Sean A Graves562-313-2239DRE#01895587

May 29th 2012
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Linda Wintersteen (Linda123)
#62 ranked lender in Arizona - 1,256 contributions

I CAN help you with your loan for CA.. On a arm vs a fixed, it is all dependable on your ease of availbility of mortgage payments. For example, I did a 5 yr arm, interest only, back in 2006, it was fixed for 5 yrs. and the payment was $1786 with escrows, at 6.125% and last november, my arm readjusted due to the market, and yes ,I won, my payment went down to 3.00%, fixed, at a payment of $900 a month... and yes, it will still adjust every 6 months, but since the libor rates are low, its only about $5.00 a adjustment, so saving over $900 a month, I can afford the $10 dollar extra a year... linda yourloanpartnerforlife.live.com most people out there, do not know how to read the libor rates, and look at adjustments, i do!!

May 29th 2012
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VIkki Nguyen (VikkiNguyen)
#405 ranked lender in California - 13 contributions

Mark,Fixed Rate Mortgage (FRM) and Adjustable Rate Morgage (ARM), each has it's own advantages and disadvantages, and of course, they are designed for specific purposes.FRM: It's is safe (the rate will not change over the life of the loan). However, your interest rate is higher versus an ARM (for example a 30-year fixed mortgage can be at 4% and a 5-year ARM can be at 3% for the first 5 years and will adjust for the remaining 25 years)ARM: The rate is fixed for a specific period of time, and will adjust based on the index that is used to calculate the rate. There are several components to an ARM:o Initial Interest Rate (teaser rate) -- The benchmark for the ARM loan,it will typically be one to three percent lower than a comparablefixed-rate mortgage.o Index -- The economic indicator used to determine changes to theARM's interest rate. The loan is "tied" to this index. As the index risesand falls, so does the interest rate. An example of an index commonlyused for ARMs is the yield on a one-year U.S. Treasury bill (T-bill).o Margin -- The percentage points the lender adds to the index toestablish the actual interest rate of the ARM. The margin remainsfixed throughout the life of the loan.Most families tend to move (or refinance) every 5 years. Therefore, paying a higher interest rate for a FRM (15- or 20- or 30-year mortgage) and then selling or refinancing the mortgage within the first 5 years, would be an unnecessary cost. The borrower should plan and examine his/her goal before taking out a mortgageFor example, a new couple who plans to buy a "starter" home now and grow the family (have more kids) a few years down the road, an ARM for the current mortgage might be appropriate because this couple plans to sell the "starter" home and buy a bigger house within the next 5 years. On the other hand, if this couple plans to keep the "starter" home as a rental and purchase another bigger house, then a FRM might be a better choice.

May 29th 2012
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