In Part I we laid the foundation by briefly looking at 15 and 30 year loans. These traditional products offer safety, security, and in the case of the 15 year, save a pile of money. What they don’t do well is to create affordable payments.
In Part II, we examined the heavily promoted 40 and 50 year loans to see what they’re made of. It turns out they’re more sound bite than substance. They do little to help lower payments and they are far more costly in the long run.
So now let’s look at the “intermediate ARMs”, also sometimes called 3/27, 5/25, etc.
Normally we find lower rates in this category–sometimes as much as a full percentage point lower–and that can help. Let’s continue our comparison of monthly payments.
- 15 year loan, $300,000, 5.75% = $2491 mo
- 30 year loan, $300,000, 6.00% = $1798 mo
- 40 year loan, $300,000, 6.25% = $1703 mo
- 50 year loan, $300,000, 6.50% = $1691 mo
- 10/1 ARM, $300,000, 5.75% = $1751 mo
- 7/1 ARM, $300,000, 5.50% = $1703 mo
- 5/1 ARM, $300,000, 5.25% = $1657 mo
- 3/1 ARM, $300,000, 5.00% = $1610 mo
That’s a little better. But remember I said “normally”. Well, these are not normal times. Mortgage interest rates mirror yields of U.S. Treasury securities, and right now the short term yields are about the same as the long term yields. Translated to mortgage rates, the intermediate ARM rates don?t offer a rate different than the 30 year fixed. Even if you plan to be in the home a short time, these choices don?t help with payments. .
So, in our quest for mortgage programs to create affordable payments, we’ll look next at the much maligned Interest Only loans, and we’ll see why they’re not so bad. Got a question? Need help with a loan? Send me an email or call. I’m happy to help; it’s what I do.
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