Mortgage question--are variable rates no-nos?
Just curious about the community’s opinion on mortgages right now. We’re deciding between financing 80% of our purchase with a jumbo loan at just over 7% (fixed)–or taking out a conforming loan for 65% of the price at a much lower rate and financing the remainder 15% through a home equity line-of-credit (still with 20%…
Just curious about the community’s opinion on mortgages right now. We’re deciding between financing 80% of our purchase with a jumbo loan at just over 7% (fixed)–or taking out a conforming loan for 65% of the price at a much lower rate and financing the remainder 15% through a home equity line-of-credit (still with 20% down).
The latter rate is, of course, variable (at prime) which we are worried about with the uncertainty of financial markets. But spliting the mortgage in this way could save us a lot if rates don’t skyrocket.
Any advice? We plan to stay in the place for the long-run–hopefully, 10 years or so.
Thanks!
Some very helpful mortgage calculators here:
http://www.vertex42.com/ExcelTemplates/
including an ARM calculator. Just punch in the values and you can play around with different scenarios
Opinion Only : 7% on a jumbo, I would go with it. I think rates are low and will only go up eventually. Gut reaction from a risk averse scaredy cat.
You all are awesome. Thanks for much for the smart, insightful advice. Your comments really clarified things for me.
The site is such an amazing resource!
My advice is get a fixed home equity loan on the second instead of a heloc.
That way you lock in a low fixed rate for the conforming and a slightly higher, still lower than 7%, fixed rate on the second.
this is the best rate I’ve seen:
http://bank.commerceonline.com/personal_banking/home_equity.cfm
Lets see over the next few years will interest rates go up or down WTF do you think? FIXED RATE unless you are looking to see if you can get some government bailout down the road, you know that might not be a bad idea. I would ask The What for his advice. Someday this war is gonna end… because some fucking A-rab terrorist is going to bomb NY again and then we are all fucked.
just do a spreadsheet and enter your best and worst scenario (highest variable rate) for both choices, and see which you like depending on your outlook.
my opinion is they are going to try to save this economy from recession in an election year by printing money – dropping rates like crazy. This means inflation or stagflation (yikes). That scenario might help your variable rate but refi would be hard if home values drop and/or lending standards tighten further due to banks in pain. On the other hand fixing for 7% for 30 years is going to look pretty sad for you with fed funds at 3%!
I really can’t see them raising rates for 12 months. If they do, it is because the economy has recovered and so you should be able to catch a refi, or personally be in a healthy financial state and pay off that variable part early.
I may be wrong, but I think everyone including the OP is confusing the issues. It doesn’t sound like the OP is talking about ARM loans. (Arms are the loans that have been getting a huge amount of criticism because they offer low introductory rates that intice people into buying more house than they can afford.) You’re basically talking about a HELOC (home equity line of credit) or a Home Equity Loan. HELOCs are generally pegged to Prime plus or minus a small rate based on your credit rating. i.e. if you have a 720 credit score, you could get a HELOC from Chase for Prime – .50%
Arms are the rates that you have to be caution about resets. HELOCs don’t reset, they are pegged to prime and change when the fed decides to lower or raise interest rates. This rate does not typically move with mortgage rates. Mortgage rates move usually with the Ten Year note.
If you have the ability to qualify for a conforming loan, depending on how much lower the rate is, I’d take the conforming loan.
Good luck. As long as you’re avoiding PMI, which I think you are being you’re putting 20% down, I think you’ll be fine.
One size does not fit all, people! ARMs have their place. You need to find out which rate the variable loan is set to, how often it resets (monthly, quarterly, bi-annually?), if there is a cap on the increase over the reset periods and/or over the life of the loan. Is there a prepayment penalty?
The real questions are about you. Do you expect to make more, less, or the same money over the next few years? Are you expecting an inheritance or any other windfall that would allow you to pay off the equity line in some shorter period of time. In these type of situations, it is often better to get the lower rate on the first with a variable second instead of taking a higher rate jumbo and refinancing later after you can pay down a large chunk.
Talk to a morgage broker who actually has several products offer about which is best for your specific situation. If you think they are all crooks and are pushing one form over another, ask them how they get paid on each. A full service broker isn’t going to steer you to the wrong product to make more $ because they have several types to offer.
If you will be living in the property for the long run, look into fixed rate mortgages.