Cohousing-L Mailing List: Re: Mortgage loans

[Martin Schafer (schafer]

> 
> I am still a beginner at loans and hope to get some advice from wiser,
> more experienced homeowners.  Am wondering what peoples' experiences 
> have been regarding different types of mortgage loans.  I've been offered
> a choice of 30 year fixed and a 6moCOFI as my current best alternatives.
> 
> I know ARMs can be gotchas, but might they be worth the risk if one can
> use the lower early costs to buy down the mortgage more quickly?
> Thanx for your advice.
> 

The main things to consider in the ARM vs Fixed decision are: Do you
think current interest rates are higher, lower or equal to the 
average rate over the next ten years?  If interest rates climb 
and the ARM rate increases the max each year until it reaches its
cap, will you be unable to pay the mortage and lose the house?

If the max ARM rate would be impossible, as opposed to a hardship, 
get the fixed (given that you can afford the fixed).  Otherwise, 
if you think interest rates are near their peak (I do, but I'm
not a financial analyst, and I don't play one on television) get
the ARM.

Frequently the initial ARM rate is lower than what the formula
gives (Prime +/- something, or xyear US treasury bond rate +/-
something).  So if interest rates don't move, it will go up after
a year.  Make sure you know what the rate will move to if interest
rates in general don't change.

Martin