Most people looking for a low interest rate select these options potentially leaving money on the table. Here is why: A lot of people think that when they purchase a home that they will be in it forever. The common mortgages, 15 and 30 year conventional loans seem to confirm this notion. However, the statistics show a different story.
The average American moves 12 times in a lifetime according to U.S. Census Bureau. The motivations to move can include renting or buying a new residence, job opportunities, a change in marital status and so on. Often times, when I work with a client, there is a conversation around how long s/he intends to stay in their new home. This is a reasonable goal. However, life has a funny way of interfering with our plans.
I can speak from personal experience. In a span of 7 years, I have had a lot of changes. I bought my first home in Arlington, TX in 1992. I thought this was a great starter home, right out of college and in the town in which I was raised. In 1995, I took a job in Austin and bought a home. A couple of years later, I met my wife. She and I, separately, sold her condo and my house and purchased a new one together. In 2000, a job opportunity took me to Portland, OR, so we sold the Austin home and bought in Portland. Five years later, we had a our first child, sold our home and moved back to Austin in 2005. We promptly bought a home and lived there until our family grew and our needs changed. We moved again, and now we’re about to embark on a remodel. To sum up 24 years: seven home purchases, six home sales, one refinance, one wife, two kids and now a remodel.
These are similar scenarios that many of my clients encounter. When they come to me, they count on me for my professional knowledge about their particular home investment portfolio. Many are accustomed to conventional products such as a 30 year or 15 year fixed rate mortgage. The reality is that this product may not always meet their needs, especially if the lowest interest rate is their priority. Another product for those with more dynamic lives with competitive interest rate is the 7 Year ARM. These rates are typically .375 – .50% lower than a fixed rate. Many homebuyers are not aware of this product or hesitant to consider a adjustable rate mortgage. The mortgage is fixed for seven years. There are also 5yr and 10yr ARMs.
Here is why they are a good thing: If you plan on moving within the fixed rate period, you can save good money: $60/mo on a $200K loan. That’s $5040 over the seven year period. You can always refinance at any point during the loan’s life. Even if the rate adjusts, you will be aware of the adjustment and can plan accordingly. If you are concerned about today’s rates and are sitting on the fence consider: 1) rates are still at historical lows; 2) rates are cyclical and will continue to rise and fall; and 3) regardless of rates, housing prices will continue to rise. All in all, the 7 year arm is a program that might be worthy of today’s home owner. Give me a call to discuss your purchase plans today. I am happy to provide you with a complimentary, no obligation consultation to pull together your best purchasing strategy for today and into the future.