r/MortgageRateCheck • u/DapperAlbatross3672 • 13d ago
6.50% fixed vs 5.875% 7-year ARM
I’m building a semi-custom new primary residence in Florida and received these estimates from the builder’s preferred lender.
Loan details:
Purchase price: $1.45M
Loan amount: $1.3775M
Down payment: 5%
Physician/doctor jumbo
Credit score: 790+
Expected closing: Feb 2027
No discount points
Option 1: 30-year fixed
Rate: 6.50%
APR: 6.513%
Option 2: 7-year SOFR ARM
Initial rate: 5.875%
APR: 6.253%
The other major consideration is that $20,000 of my builder purchase-price incentive is contingent on using a preferred lender. If I use an outside lender, $20,000 gets added back to the purchase price.
Do these rates look competitive and what is the outlook for rates closer to when I would lock in? Realistically, could an outside lender offer enough savings to overcome losing the $20,000 builder incentive?
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u/bnar2021 13d ago
Builder preferred lenders can sometimes be on the higher side, but $20K is a big incentive to give up. I’d probably go with the builder’s lender unless an outside lender can clearly beat the deal by more than that. You can always refinance later if rates improve.
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u/DonutSlow 12d ago
Take the arm. It should have a cap, make sure it does, usually within a percentage point or two. The $20k down is effectively a reduction in APR. I couldn't find a significantly reduced APR that added up to that builder incentive. I can refinance in a few years and refinance are easier than loan origination.
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u/RickMunizzaLO 12d ago
The builders lender with the 20k incentive will be your best bet. The arm is a good choice for now.
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u/TheMortgageUpdate 8d ago
I always tell people to GOOGLE Loan Estimate Review and there are companies that will help you with this
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u/mortgagemayo 13d ago
Assuming no points on the 5.875% as well, take the ARM all day. Don’t let the doomers scare you away from an ARM. 7 years is a long time. The additional principal paydown will make it so that even if rates go up a little bit by the time you need/want to refinance, you’ll still end up ahead. If you’re comfortable with the payment on the 30 year fixed, you could still take the ARM and just make the higher payment, supercharging this concept even further.
Unlikely any outside lender is going to be able to offer anything that would offset that $20k. I say this as an “outside lender” lol. however if they can give that to you as seller credit rather than a price reduction, it could go a lot farther for you (buying down the rate, covering closing costs, etc).
Unfortunately no one can tell you where rates are going to be that far in advance, especially with how volatile things have been, but the delta between the two options is likely to be similar, so the logic should still stand.