Sell me on the benefits of a 5/1 mortgage (1 Viewer)

[ragincajun]

I am looking at building a home. In my finance nerd brain the 15 year fixed would be the way to go however the note would be too much. My finance brain tells me do not build in Neighboorhood ABC, and go do wn to neighborhood XYZ. My wifes brain tells me differently. The biggest reason to build in the "nicer" neighborhood is resale value, as there is a very very good chance at relocation in the next 2-3 years.

Disclaimer:

I would normally stay my butt put, but the street we live on turns out to be a shortcut for a 1k home neighborhood, so its the Indy 500 in front of my house every day. I have had a motorcycle take my mailbox and laid down in my yard, a car with two blown out tires in front of my house for taking the curb to fast. Long story short is I have a 3 year old who wants to go play outside, and I do not feel safe out there with him.

 

[jon_mx]

I am looking at building a home. In my finance nerd brain the 15 year fixed would be the way to go however the note would be too much. My finance brain tells me do not build in Neighboorhood ABC, and go do wn to neighborhood XYZ. My wifes brain tells me differently. The biggest reason to build in the "nicer" neighborhood is resale value, as there is a very very good chance at relocation in the next 2-3 years.

Disclaimer:

I would normally stay my butt put, but the street we live on turns out to be a shortcut for a 1k home neighborhood, so its the Indy 500 in front of my house every day. I have had a motorcycle take my mailbox and laid down in my yard, a car with two blown out tires in front of my house for taking the curb to fast. Long story short is I have a 3 year old who wants to go play outside, and I do not feel safe out there with him.

That answers your question.

 

[moleculo]

why would you build a house if there was a very good chance at relocation in the next 2-3 years? If you want out so bad, rent. or, fence in your back-yard.

 

[culdeus]

A 5/1 is only appropriate if you are pretty damn sure you are only going to be in the house 5 years.

 

[culdeus]

why would you build a house if there was a very good chance at relocation in the next 2-3 years? If you want out so bad, rent. or, fence in your back-yard.

This. Realtor fees and closing fees are stupid high right now

 

[ragincajun]

School will be starting soon. If we stay where we are its private school at 500-1k a month. If we move then its a very very good public school system.

 

[ragincajun]

It sounds like an easy stay put deal but its not so clear cut, of course it may be clear cut......Its just money right

 

[kutta]

I agree with those saying to rent for awhile. If you plan to move in a couple years, why not rent so you aren't tied into something that you might lose money on?

 

[ragincajun]

Pros:

LOVE my house

LOVE my neighbors

Pretty nice pmt. for what we have.

Fun to sit in a lawn chair with my neighbor and a brew and yell at the speeders.

Central of town

Cons:

Traffic as my kid cannot play in the front

Traffic as in motorcycles racking their pipes at 3 am with a 3 year old and 7 week old trying to sleep.

Traffic as in I may go bat guano on someone one day if they tailgate my wife to the driveway.

Public school system is horrible. Would be an extra 500-1k a month in tuition for 1 kid. Double that for 2.

May relocate in a few years, if I like the offer.

 

[ragincajun]

If they would gate the neighboorhood or put up speed bumps then I would pay for private school honestly.

 

[RUSF18]

All fine and good. Just have a plan for what you'd do in 5 years if you haven't relocated by then. Make sure you check on prepayment penalties if/when you sell that quickly too.

 

[DocHolliday]

Rent.

 

[moleculo]

if the note in a 15 is too much, go with a 20 year or consider a 30 year, but make extra payments (or fund a "house early-payoff fund").

I was considering a 5 year ARM on my last house purchase, but decided against it. It was ~1% cheaper than a 30 year fixed, which is good, but the chance that rates jump in the next few years spooked me into a fixed. Here was my train of thought:

1. we are at roughly 4% on 30 year fixed, which is still near all-time low.

2. I'm no economist, but here's what I've been able to piece together: they have been holding rates low to stimulate the economy. To further this along, they have been printing money (quantitative easement). Once the economy picks up and gets moving again, the Fed will be concerned with inflation. The way you combat inflation is to raise rates. In other words, I think it's likely rates go up.

putting the two together, I didn't see any need to go for a 5/1.

 

[moleculo]

If they would gate the neighboorhood or put up speed bumps then I would pay for private school honestly.

pour your own speed bumps.

 

[BassNBrew]

if the note in a 15 is too much, go with a 20 year or consider a 30 year, but make extra payments (or fund a "house early-payoff fund").

I was considering a 5 year ARM on my last house purchase, but decided against it. It was ~1% cheaper than a 30 year fixed, which is good, but the chance that rates jump in the next few years spooked me into a fixed. Here was my train of thought:

1. we are at roughly 4% on 30 year fixed, which is still near all-time low.

2. I'm no economist, but here's what I've been able to piece together: they have been holding rates low to stimulate the economy. To further this along, they have been printing money (quantitative easement). Once the economy picks up and gets moving again, the Fed will be concerned with inflation. The way you combat inflation is to raise rates. In other words, I think it's likely rates go up.

putting the two together, I didn't see any need to go for a 5/1.

Most of my ARMs are resetting in the next year. They will actually be going down below the discounted rate I got at the time. Most people 5-7 years ago said I should have gotten a fixed mortgage.

When I bought my first home I ran the numbers on the worst case scenario. Even with the max increases, if I put the extra savings towards principal, then breakeven point was slightly over 10 years. Not many professional or younger people stay in a home for 10+ years.

 

[Drifter]

why would you build a house if there was a very good chance at relocation in the next 2-3 years? If you want out so bad, rent. or, fence in your back-yard.

This. Realtor fees and closing fees are stupid high right now

?

Realtor fees have been the same pretty much forever. If anything you can get then below the traditional 6% these days

 

[culdeus]

if the note in a 15 is too much, go with a 20 year or consider a 30 year, but make extra payments (or fund a "house early-payoff fund").

I was considering a 5 year ARM on my last house purchase, but decided against it. It was ~1% cheaper than a 30 year fixed, which is good, but the chance that rates jump in the next few years spooked me into a fixed. Here was my train of thought:

1. we are at roughly 4% on 30 year fixed, which is still near all-time low.

2. I'm no economist, but here's what I've been able to piece together: they have been holding rates low to stimulate the economy. To further this along, they have been printing money (quantitative easement). Once the economy picks up and gets moving again, the Fed will be concerned with inflation. The way you combat inflation is to raise rates. In other words, I think it's likely rates go up.

putting the two together, I didn't see any need to go for a 5/1.

Most of my ARMs are resetting in the next year. They will actually be going down below the discounted rate I got at the time. Most people 5-7 years ago said I should have gotten a fixed mortgage.

When I bought my first home I ran the numbers on the worst case scenario. Even with the max increases, if I put the extra savings towards principal, then breakeven point was slightly over 10 years. Not many professional or younger people stay in a home for 10+ years.

i got a 7/1 on my first house in 2001. Everyone said I was nuts but I wasn't planning on staying there much past 7 years. I stayed there 10. The last 3 years saw my interest rates fall to 2.25%. I was paying so little in interest I had to withold more in taxes because the interest benefit wasn't there.

cool story bro I know.

That being said there is nothing to make me think interest rates rise anytime before next summer.