Traditionally, everybody wants a 30 year fixed mortgage. You know the interest rate isn’t going to change for 30 years. Cool, but what if you’re paying a lot of money for that longer term guarantee? What if you’re planning on moving in 7 or 8 years? Have to refi to pull money out for kid’s education? The average house is only retained for around 7 years before it’s sold, and the average mortgage retention is less…
I’m not taking anything away from 30 year fixed mortgage. Rates are presently great, and if the property is a long term holding, and you can’t see a need for refinancing in the future, it’ll probably be advantageous going with a 30 year fixed. Rates aren’t going to be this low forever.
BUT think of it this way… You’re going to be paying for an “insurance policy” guaranteeing the rate won’t be changing after a specific period. Would a 10 year, 7 year or even a 5 year guarantee be good enough? How much extra is it going to cost you monthly starting day one on the loan, to guarantee year 8’s rate, when you only need 6 or 7 years?
Look at the attached chart for estimated savings going with a 5, 7 or 10 year fixed loan verses a 30 year fixed. Remember that the loans are 30 year amortized loans, it’s just the intermediate ARMs rates can adjust annually after the fixed period.
The difference in payments monthly, and the accumulated interest over the guaranteed period can be substantial. Always use a loan officer that is astute on the interest rate curve. Sometimes the difference between the ARMs and the 30 yr fixed is minor. Then always go with the 30 fixed… but sometimes the difference can be substantial, and it’s worth it to crunch the numbers to determine the true cost of going with the 30 fixed over one of the other guaranteed periods.
If you are in the Los Angeles area, have any questions or real estate sales or financing needs, feel free in contacting me.
Ron Henderson GRI, RECS, CIAS
Multi Real Estate Services, Inc.
Gov’t Affairs Chair – California Association of Mortgage Professionals
Specialist in the Art of Real Estate Sales and Finance
Real Estate market, mortgage rates, Los Angeles, San Fernando Valley, Conejo Valley, Simi Valley, Woodland Hills, West Hills, Calabasas, Chatsworth