I’m generally against ARM’s since they’re gambles on interest rate volatility, and that’s not what I want to do when the potential loss is my house. 30 year mortgages with no prepayment/refinance penalty are wildly consumer friendly so if your loan officer is offering similar “deals” (relative to the best market rate) I’ll take the 30 year every time.
If you want to go through the risk analysis to make your decision, the case for the ARM would be it saves you about $200/month in interest for as long as you hold the loan, 7 years is longer than most people hold on to their original mortgage (either due to moving houses or refinancing), and interest rates are historically high and expected to decrease, probably presenting an opportunity to refinance either loan within a few years, so why not take the savings. The risk is that interest rates remain elevated enough in the near future you never find an opportunity to refinance, the economy takes a turn for the worse in 7+ years, causing interest rates to rise significantly higher and you’re stuck with a ballooning mortgage payment that becomes unaffordable.
Also note, when loan officers are offering a free refinance they’re likely talking about the origination fee. There will be other bank and legal fees you’re still paying. And many loan officers offer zero origination fees to begin with. Check into the terms of the offer. Also shop around. You should be absolutely abusing your loan officer. You should be talking to so many loan officers you can present a few of them with both real and fake quotes from other loan officers to see how low they’ll actually negotiate on each loan type. You should continue to shop through closing. You’re not locked in to anything until the house is yours.
This is what happened to me. Bought my house in 2014 with 5 percent down, and had PMI. Refi’d in 2020 (really timed that extremely well!) and the PMI came off just because of how much the house had appreciated in that time.
I’d echo just going with the 30 year mortgage with the idea that you can hopefully refi in 5-10 years when the interest rates come down. Yes, you’ll pay closing costs again, but there’s too much downside risk to an ARM. At least with a fixed-rate you know what you are budgeting for. And there are refi loans with closing costs that aren’t terrible. This is especially true if you can refi with the same bank without needing a new appraisal or paying an origination fee (which is what we did). Then you’re just paying the legal fees and recording fees and could potentially only be out a few thousand dollars.
I saved hundreds of dollars a month refinancing my CC debt and am less than a year away from paying it off, if I hadn’t refinanced it would never have been paid off…
There is a bogleheads thread where some guy is like yo college is 80k a year wtf and the response is “tell your kid to get a job during school” lolololol boomersssss
Alright, I need some help from someone who knows about pensions. This is being called a Defined Benefit Account Balance Plan. If a pension is vested after five years, with a 4% annual credit, and you leave the job after five years… Eventually at retirement age, you’d get 20% of your salary in a pension?
That seems almost too good to be true, but assuming I’m right about that, if it has a 5% annual interest credit… Does that run for the entire time or just while you’re in the job? Or would it likely be capped at inflation rate or something?
Seems absolutely wild if it runs the entire time, because even if you leave the job at 30, at 65 after 35 years of compounding 5%, you would have more than 100% of your annual salary as an annual defined benefit payout?
Sounds like a Cash Balance Plan. Based on your numbers, the employer kicks in 4% of your salary each year, and then the balance grows at 5% per year. It doesn’t pay you a percentage of your salary as a defined benefit.
Ok, thanks. The “defined benefit” in the name confused me. So at 65, the amount in there would be annuitized or something? And I guess in this case to value it as compensation, it’s basically a 4% bump in pay? Slightly better since 5% should beat the risk free rate a lot of years.
Or slightly worse since you need to stay for 5 years to realize any benefits. I’m sure their plan is littered with deposits they were able to reclaim when their employees left early. Discount it by the odds you think you’ll stay 5 years, then slightly more because you’re likely underestimating the odds you leave due to life changes or hating the job or getting a new supervisor you can’t work with or whatever, then again for any fees in the plan, and again because you’ll lose more freedom and negotiating leverage the closer you get to year 5 knowing there’s tens of thousands of dollars you’ve “earned” but haven’t actually earned yet. And if you’re comparing to other job opportunities you’ll need to adjust somewhere to get an apples to apples comparison if they offer a similar plan.