Which mortgage would you choose here

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B3GINN3R
Posts: 124
Joined: Fri Oct 28, 2016 4:05 pm
Location: chicago

Which mortgage would you choose here

Post by B3GINN3R »

Married in late 20s in VHCOL area. Rent in our apartment will be about 3300.
Current HHI is around 350k.
Current investments of 211k, cash of 45k. Will most likely liquidate some taxable investments for downpayment.

Proposed home cost is 650k.
We are going to do 65k downpayment.

We spoke with the bank yesterday. On a 595k mortgage we would get the following rates (also confirmed no PMI as long as we put 10% down). Below is our offers and monthly payment. We would try to stay in the new place for 10 years.

3.125% on a 30 year fixed--2549
2.875% on a 15 year fixed--4073
10/1 ARM 2.75%--2459
7/1 ARM 2.5%-- 2351

With these rates should I liquidate more and do higher downpayment? Would you do the arm or the fixed. We probably can't afford the 15 year fixed, but at the 7/1 arm or 10/1 arm, it seems like my payments even with tax etc will only be marginally higher than my anticipated 3300 rent.
tenkuky
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Re: Which mortgage would you choose here

Post by tenkuky »

Have you run the numbers on mortgage professor?
You can punch in all the variables you want (rate, term, fees, taxable investment expected returns, years in house) and compare offers.
https://www.mtgprofessor.com/calculators.htm
You want the mortgage payment (#7) calculators on this page.
dsmil
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Re: Which mortgage would you choose here

Post by dsmil »

3.125% 30-year fixed seems like a great rate. Your cash flow will be better and you don't have to worry about an adjustable rate. I'm guessing that you are in jumbo loan territory on a 595k mortgage, so you are likely paying a premium for that. You may be able to get an even lower rate if you can under that jumbo territory, which I think is below 510k or so (other than in certain HCOL areas). Those are very low rates and no PMI on 10% down? I haven't heard of that but it sounds like a good deal.
ChiKid24
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Re: Which mortgage would you choose here

Post by ChiKid24 »

Can I ask what bank is offering 3.125% on a 30-year fixed? That seems well below market. Are there a ton of upfront costs associated with it? Any need to move assets to get a "relationship" discount?
Topic Author
B3GINN3R
Posts: 124
Joined: Fri Oct 28, 2016 4:05 pm
Location: chicago

Re: Which mortgage would you choose here

Post by B3GINN3R »

We get special rates through my work. That is definitely one of the reasons I am considering buying instead of renting, to lock in the rate.
Topic Author
B3GINN3R
Posts: 124
Joined: Fri Oct 28, 2016 4:05 pm
Location: chicago

Re: Which mortgage would you choose here

Post by B3GINN3R »

tenkuky wrote: Thu Feb 06, 2020 12:40 pm Have you run the numbers on mortgage professor?
You can punch in all the variables you want (rate, term, fees, taxable investment expected returns, years in house) and compare offers.
https://www.mtgprofessor.com/calculators.htm
You want the mortgage payment (#7) calculators on this page.
Thanks! This is incredibly helpful. Seems like if I am confident only staying 10 years, then the 10/1 arm might make hte most sense. Otherwise the 30 year 3.125 fixed would be best.

Also rate is the same whether jumbo or not, no premium. $575 dollar total origination cost. So payment on day one is just down payment plus 575.
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Watty
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Re: Which mortgage would you choose here

Post by Watty »

B3GINN3R wrote: Thu Feb 06, 2020 10:31 am 3.125% on a 30 year fixed--2549
2.875% on a 15 year fixed--4073
10/1 ARM 2.75%--2459
7/1 ARM 2.5%-- 2351
Between the fixed rate loans the 30 year is an easy choice since a quarter of a point is not enough to make the 15 year worthwhile.

The ARM loans give a bit more of a discount but unless you are set on getting your mortage quickly paid off(which is an OK personal choice) then they would not make a lot of sense because you may still be in the house when the rate adjusts.

Usually keeping a house that you live in as a rental property is not a great choice but one of the exceptions is when you have a very low interest rate loan that you want to keep. You could very well find yourself in that position in 10 years when you want to move.

I would use the 30 year loan and save several thousand dollars each month. When you have a good amount of money saved up like 10 or 20 percent of the loan you can call your lender and ask if they will "recast your mortage"(Google this). They are not required to but they usually will for a few hundred dollar processing fee. The way this works is that if you pay the mortage down by 20%(or whatever) then your required monthly payment will be reduced by the same percentage. The length and interest rate will stay the same. This could be very important if something happens like interest rates go way up or you get laid or or disabled. If you just prepay the loan without a recast then the length of the loan will just be shortened.
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unclescrooge
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Re: Which mortgage would you choose here

Post by unclescrooge »

B3GINN3R wrote: Thu Feb 06, 2020 10:31 am Married in late 20s in VHCOL area. Rent in our apartment will be about 3300.
Current HHI is around 350k.
Current investments of 211k, cash of 45k. Will most likely liquidate some taxable investments for downpayment.

Proposed home cost is 650k.
We are going to do 65k downpayment.

We spoke with the bank yesterday. On a 595k mortgage we would get the following rates (also confirmed no PMI as long as we put 10% down). Below is our offers and monthly payment. We would try to stay in the new place for 10 years.

3.125% on a 30 year fixed--2549
2.875% on a 15 year fixed--4073
10/1 ARM 2.75%--2459
7/1 ARM 2.5%-- 2351

With these rates should I liquidate more and do higher downpayment? Would you do the arm or the fixed. We probably can't afford the 15 year fixed, but at the 7/1 arm or 10/1 arm, it seems like my payments even with tax etc will only be marginally higher than my anticipated 3300 rent.
there's a high chance you will sell this house within a decade. I would get a 7/1 ARM.
tesuzuki2002
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Re: Which mortgage would you choose here

Post by tesuzuki2002 »

B3GINN3R wrote: Thu Feb 06, 2020 1:58 pm
tenkuky wrote: Thu Feb 06, 2020 12:40 pm Have you run the numbers on mortgage professor?
You can punch in all the variables you want (rate, term, fees, taxable investment expected returns, years in house) and compare offers.
https://www.mtgprofessor.com/calculators.htm
You want the mortgage payment (#7) calculators on this page.
Thanks! This is incredibly helpful. Seems like if I am confident only staying 10 years, then the 10/1 arm might make hte most sense. Otherwise the 30 year 3.125 fixed would be best.

Would you really pay the bank for 10 years? It seems like to me you would be able to pay this off before 10 years..
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Brianmcg321
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Re: Which mortgage would you choose here

Post by Brianmcg321 »

15yr fixed.
Rules to investing: | 1. Don't lose money. | 2. Don't forget rule number 1.
masha12
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Re: Which mortgage would you choose here

Post by masha12 »

Any kids in your future? If there are, or even a chance they are, I’d go for the 30 year just to minimize the monthly payment.

The 10 year arm is appealing, but you would still owe about $450k at the time you need to refinance (assuming I’m calculating that correctly).

I generally am in favor of 15-year mortgages, but I’m also a big believer in living off one income even when there are two earners. You don’t want to get saddled with a huge monthly payment and then have a kid or two and be struggling to make the payment due to child care costs or going down to one income.

If you can afford the 15-year with one income, I’d do that. Otherwise, 30-year fixed.
softwaregeek
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Re: Which mortgage would you choose here

Post by softwaregeek »

I like 30 year fixed. There is no guarantee you will even be able to refi if you have another 2009 situation and are negative equity or if banks are Not lending. Had a coworker who lost her house that way.ARM tends to float MUCH higher than initial period after initial fixed rate.
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unclescrooge
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Re: Which mortgage would you choose here

Post by unclescrooge »

softwaregeek wrote: Sat Feb 08, 2020 12:56 am I like 30 year fixed. There is no guarantee you will even be able to refi if you have another 2009 situation and are negative equity or if banks are Not lending. Had a coworker who lost her house that way.ARM tends to float MUCH higher than initial period after initial fixed rate.
I don't think ARMs have floated higher in 20 years.

Maybe your co-worker had a neg-am loan on a property she couldn't afford in the first place? When it became fully amortized, even at the same interest rate, she couldn't make the payments.
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