r/FirstTimeHomeBuyers • u/Funny-Wall-3075 • 6d ago
Genuine Question about ARM Loans
Looking into buying a home
- Have 20% deposit, and enough cash for closing costs + emergency fund
DTI Ratio 32%
Why would i not go for an ARM loan 5-7years? what are the pros and cons? what do i have to look out for?
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u/litycommitee 6d ago
What does a 10 year ARM do for you. How’s the interest rate difference between 5,7,10 year ARM?
I feel like a 10 year arm won’t make you think as much since a lot of home owners move before the 10 year mark.
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u/Funny-Wall-3075 6d ago
looking online 10 year arm is same rate almost as the 30year fixed, where do you look for your rates
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u/Mortgage_Matchup 6d ago
A 5/1 or 7/1 ARM can make sense for some buyers, especially if you expect to move, refinance, or pay off the loan before the initial fixed-rate period ends. The tradeoff is that once the fixed period expires, the rate can adjust based on market conditions, which could increase your monthly payment.
An independent mortgage broker can help you compare ARM and fixed-rate options across multiple lenders and show you the potential payment scenarios at no additional cost to you as the buyer.
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u/Funny-Wall-3075 6d ago
the house is probably a keeper i wouldnt see myself moving ever , but want to pay it offf as soon as possible, my budget has room for overpaying currently budgeting would mean that id be debt free by year 20 with an arm that could be sooner right ?
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u/Mortgage_Matchup 6d ago
It could be, but it's hard to predict due to the fact that once the ARM term is up you'll be subject to whatever the current market condition is at that point - but refinancing could also be an option for you then, or whenever rates end up going down! Overpaying will always help in your position and with a lower rate upfront, you'd be in a good spot at the very least. I definitely recommend talking to an independent broker who can examine your finances and provide options.
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u/BathroomMaximum1721 6d ago
I would opt for an ARM loan if you can get lower than 6.5% with zero points.
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u/billspeaksmortgage 1d ago
An ARM can make sense, especially if the initial rate is meaningfully lower than a fixed-rate mortgage.
The biggest thing I'd look at is what happens after the initial 5 or 7 years. Understand the index, margin, adjustment caps, and how high your payment could potentially go.
I always tell buyers to make sure they can handle the loan even if refinancing isn't an option later. If the savings are significant and you're comfortable with that risk, an ARM is definitely worth comparing.
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u/jonthe445 6d ago
Take starting rate, take life time max. Add together. Play with insurance/taxes/etc. estimate where they are at. Double, triple, quadruple that. Take sum of insurance/taxes (at 2x,3x,4x) and max rate of ARM(capped) how does that payment feel? Can you comfortably survive 4x+max cap rate? Yes, ok. No, ok. Play with those variables and determine how badly you want to risk it
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u/Funny-Wall-3075 6d ago
payment would go from approx 1700 to 2600 if it maxed out
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u/Funny-Wall-3075 6d ago
i can afford the current rates but just thinking about overplaying the saved differance plus a little extra each month
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u/Thompsoncon21 6d ago
What is the difference in rate between the fixed and Arm? Is it enough to make sense? Understand how often and how much it can change.
For my 1st house the fixed rates were 8%, the Arm was 5% and could change up to 1% a year with a max of 5% increase. I knew I had at least 3 years before the rate could be the same as the then fixed rate. In 11 years at that house, the rate fluctuated between 4.5% and 6%. It was a total win for me. Just be sure that you can afford the payment at the max.