I'm shopping between two 5/5 ARMs. One is from an online credit union and the other is a local credit union.
ARM #1 has a rate of 2.75 for first 60 months, APR of 3.240 and will cover closing costs.
ARM #2 has a rate of 3.00 for first 60 months, APR of 2.923 but you have to pay closing costs.
Everything else seems the same (max adjustment for instance). The APR differences is what's throwing me off, especially if #1 supposedly covers all closing costs( wouldn't that bring down the APR?).
Are you paying points on either of them? That would be the difference in APR.
szeis4cookie wrote: Are you paying points on either of them? That would be the difference in APR.
I don't believe so?
Something doesn't add up then, need to take a closer look at the loan docs. The reason that the APR differs from the posted rate is for points and fees. Do you have a Good Faith Estimate on either of these loans yet? That will spell out exactly what the differences are.
I did find this for loan #1
2.500% 3.297% 1.250% $5,024.90 $406.18 View 2.625% 3.301% 0.750% $4,510.90 $412.90 View 2.750% 3.304% 0.250% $3,996.90 $419.67 View 2.875% 3.328% 0.000% $3,739.90 $426.51 View
Hmmm that didnt work. Basically it looks like the 2.75 ARM has .250 points.
Maybe it's because I don't know anything, but adjustable rate mortgages scare the E36 M3 out of me. Are you going to flip the house before it becomes adjustable?
That's a possibility, but most likely I will pay it off and keep it as a rental property.
RossD wrote: Maybe it's because I don't know anything, but adjustable rate mortgages scare the E36 M3 out of me. Are you going to flip the house before it becomes adjustable?
The adjustments on an ARM are limited. They will have caps for each adjustment period, likely every 12 months (5/1) after the first 60 months...and they will have a lifetime cap. Generally the strategy will be to refinance the ARM before the 60 months are over.
The "rate" is the interest rate that the payment is based on; the APR takes into account all costs, including closing costs, title, appraisal etc. The lower rate with the higher APR will likely end up with a higher principle balance to begin with...and you need to do the math to see where the payoff is at 60 months to see what is best deal for you. Ask for a GFE and closing summary.
I feel I've paid, as have the rest of us with trillions of tax dollars, for a couple of seconds right to rant about this topic:
An adjustable rate mortgage is asking for trouble. We have historically low interest rates. There's only one direction they are going to adjust, up. Home prices are modest. Buy something nice that you can actually afford, and don't ask the guy selling you the loan what affordable means.
The banking industry and their customers have apparently learned nothing since 2008, this is stupifying.
edit: OP, Please don't see this rant as an attack on you. I have no idea what your personal finances are and what you can afford. You may be completely responsible, have half down and looking to pay off the other half inside of five years. If you are looking to do that I commend you fine sir. This rant is directed at the dead heads in the banking industry that continue to offer irresponsible credit options.
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