30 year vs 10/6 arm

[uksho]

Hello, after going back and forth
we put an offer and it got accepted

the mortgage initially will be 890K
and after selling our current house will be roughly 490 k (roughly =annual gross for family )

question: 30 year 4.625
10/6: 3.875

which one should I choose? I am leaning towards 10/6

please advise . Thanks

[FIREshrink]

How long do you plan to live there? How long do you plan to take to pay off the house?

[StateOfMyHead]

Congratulations! I'd also probably go with the ARM. You can always refi.

[uksho]

How long do you plan to live there? How long do you plan to take to pay off the house?

For ever, if possible . Pay off will take at least 20 years

[GIMD]

I would take the 10/6 ARM. Many things can happen in 10 years.

[zlandar]

Website you can compare:

https://www.dinkytown.net/java/arm-vs-fixed-rate-mortgage.html

Fixed after 10 years:
Interest: $374,728.52
Principal: $174,372.28
Payments: $549,100.80

ARM after 10 years:
Interest: $310,413.51
Principal: $191,799.69
Payments: $502,213.20

If rates averaged 6% from years 10-30 the loans would be similar. I would take the ARM as it's unlikely you would carry that loan the full 30 years. You will likely have moved or refi by then.

[Tim]

Website you can compare:

https://www.dinkytown.net/java/arm-vs-fixed-rate-mortgage.html

Fixed after 10 years:
Interest: $374,728.52
Principal: $174,372.28
Payments: $549,100.80

ARM after 10 years:
Interest: $310,413.51
Principal: $191,799.69
Payments: $502,213.20

If rates averaged 6% from years 10-30 the loans would be similar. I would take the ARM as it's unlikely you would carry that loan the full 30 years. You will likely have moved or refi by then.

"For ever, if possible . Pay off will take at least 20 years" With the potential inflation, you might not be looking at 20 years if you work on it and pay it off with the inflated dollars. The inflation environment for the last 10 years had been manipulated with intent. That is the arbitrage play. ARM for 10yrs and cut the last 10 years.
Not really an increase in risk.

[uksho]

Website you can compare:

https://www.dinkytown.net/java/arm-vs-fixed-rate-mortgage.html

Fixed after 10 years:
Interest: $374,728.52
Principal: $174,372.28
Payments: $549,100.80

ARM after 10 years:
Interest: $310,413.51
Principal: $191,799.69
Payments: $502,213.20

If rates averaged 6% from years 10-30 the loans would be similar. I would take the ARM as it's unlikely you would carry that loan the full 30 years. You will likely have moved or refi by then.

Thank you for the link

[StarTrekDoc]

Congrats on the new home!

Really up to you. Small numbers mortgage if selling the other property and paying down mortgage. That makes me think you're more debt adverse in general.

That may play into the thought that you may pay down further ahead of schedule, which run contrary to the 30yr. Is there a reason no 15 yr fixed quoted since looking at the arm?

I would consider that if this is truly a 20yr forever home consideration horizon.

And just making sure....your current property not an opportunity to lease out for portfolio diversity beyond equities?

[burritos]

What happens if you take the 10/6 and just pay the mortgage as if it were the 30 year fix at the the higher rate?

[uksho]

Congrats on the new home!

Really up to you. Small numbers mortgage if selling the other property and paying down mortgage. That makes me think you're more debt adverse in general.

That may play into the thought that you may pay down further ahead of schedule, which run contrary to the 30yr. Is there a reason no 15 yr fixed quoted since looking at the arm?

I would consider that if this is truly a 20yr forever home consideration horizon.

And just making sure....your current property not an opportunity to lease out for portfolio diversity beyond equities?

Thank you . All these have crossed our minds

1: our current place would be easily rented . Not exactly sure how much but probably would net between 2500-3000. Tax and insurance probably 400/ month .
Equity I believe is 400K after closing realtor etc .

the market is hot , so selling would be easy . If I rent , the fear is prices dropping or not finding a renter in future if recession hits. I would still be able to pay the mortgage without selling the current house , but not save much for retirement.

2 .can’t afford 15 year without compromising on retirement savings , as two kids in private

Still thinking , but thank you for the advice .

Yes, I would like to pay it off before I retire .

[StarTrekDoc]

uksho -you have to know if you want to be a landlord; and that's definitely part of the retirement portfolio. So, it's serving a different purpose with costs there vs servicing your primary home mortgage.

We have three properties handled by company and they take 6% to do all the front end stuff. While yes this is a hot market; look at your property's overall rise over three years and rents collectible to determine value of that vs plowing it into your new mortgage.

Even during 2007 downturn, the Bay area recovered the fastest and never looked back. it may flatten and even regress a little, but it still will climb IMHO.

[uksho]

uksho -you have to know if you want to be a landlord; and that's definitely part of the retirement portfolio. So, it's serving a different purpose with costs there vs servicing your primary home mortgage.

We have three properties handled by company and they take 6% to do all the front end stuff. While yes this is a hot market; look at your property's overall rise over three years and rents collectible to determine value of that vs plowing it into your new mortgage.

Even during 2007 downturn, the Bay area recovered the fastest and never looked back. it may flatten and even regress a little, but it still will climb IMHO.

Definitely something to think about . I will try to find out how exactly much rent I can get to calculate . These 2 houses are only one mile apart and the current house is also newer less than 20 years old . So managing wouldn’t be difficult. That’s what my wife wants to do as well . Will see. Thanks

[StateOfMyHead]

In addition to it being a sellers market I would also consider the primary residence tax exemption in your rent vs sell calculations.

[Tim]

Often you need to consider this a separate business decision. You do have the sale of personal residence tax benefit, but that is the stop.

Would you buy this house as a rental property or something else? It is a stand alone decision. How much would you pay and a new mortgage does it cash flow and pay for itself? Your property taxes, insurance costs, and maintenance will be different. Don’t anchor in what you originally paid for it.