Which rate should I go with?

Question

Got an accepted contract for a duplex. Thanks to everyone who advised me into duplex and not Single family. I was able to secure 5.5% 5/5 ARM or 6% 30 fixed. Both no points. Which one should I go with?

Joel Miller · Answer

I would lean more toward the fixed rate mortgage if you're planning on holding onto the property.

Vijay Friedman · Answer

@Pat ChirapatsakulBoth are solid options—it really comes down to how long you expect to keep the property. If you think you'll refinance or sell within the first several years, the lower ARM rate could save money. If you value long-term payment stability, the fixed rate may be worth the extra cost. Are you planning to owner-occupy the duplex or hold it as a long-term rental?

Pat Chirapatsakul · Answer

@Wale Lawal thank you Wale. Turns out ARM rate is about the same as fixed so I went with 30 fixed. Closing tomorrow.  Very excited..!!

Wale Lawal · Answer

@Pat Chirapatsakul

Congratulations! Now that’s a big step forward. For myself, if cash flow at the duplex isn’t an issue, then I would definitely go for the 5/5 ARM and knock out either the principal balance or get a refi before the adjustment period, considering there’s almost a half a percent difference. If not, and you like being able to sleep at night, then the 30-year fixed mortgage wins.

Good luck!

Bill B. · Answer

You forgot to put your location in your bio or post, or a price point. So I’m going to give you an example that might make it obvious.  All assuming you plan to hold for 10= years. If you plan to well in 5 you take the ARM but your probably lose money after mortgage costs and selling costs.

$300k property at 5.5% va 6% costs you $1,500 for the first year and a little less every year after that.  So…

A) In 2-3 - 5  years rates are lower and you refinance. The fixed rate cost you $1,500-$7,500 for certainty your payment is fixed and you refinance either loan in to a new fixed rate loan.  B) Rates don’t go down, maybe even edge up to 6.5 or 7%.  Your arm resets and your payment goes up $250/mo and it’s costing you $3,000/year.  Now you’re praying for rates to crater just so you can break even.

Remember. Rates go down when the economy “crashes”. Whether that means you lose your job, your tenants do, property values go down, or whatever.  I’d take the fixed rate every time. You’re basically buying an insurance policy you hope you don’t need.  I assume you can’t afford the 15 year which should be fixed at least 1/2 percent lower.  Good luck.

Matthew Bernal · Answer

Congrats on getting the duplex under contract that’s a great step, and nice rate options to be comparing.

Between the two, it usually comes down to your hold strategy. If you expect to refinance, sell, or reposition within 5 years, the 5/5 ARM at 5.5% could save money upfront. If this is more of a long-term hold and you value certainty, the 6% fixed removes future rate risk.

Neither is universally better — it depends on your plan for the property. Are you house hacking this duplex or holding it purely as a rental long term?

Allan C. · Answer

Depends on your view of future interest rates. I think they have likely chance to reduce over 5 yrs, so I'd get the ARM.

personally, I've been financing my latest purchases with I/O options. 40 yr term with first 10 yrs fixed IO.  Opportunity cost of extra principal payments is too high for my preference, so I'd rather invest or maintain higher liquidity. Apply that same logic to lower interest rates.

Caleb Brown · Answer

Agree with Joel. Arm loans can be good for certain situations but fixed is usually the better one to go with.

Liang Xu · Answer

It all depends on your strategy and your risk tolerance. If you have plans to do value add and refinance before the 5 years then the ARM makes a lot of sense. Lock in a lower interest rate because you're going to refinance anyway.

For me a mortgage is the biggest expense on a property, all your other expenses like property taxes, insurance, maintenance will go up. But keeping your primary expense of the mortgage steady is huge for predicting what returns on your property bring in the future! I want to take some of the guess work out of what my property will look like in 10 years and having fixed rate debt is the solution.

Which rate should I go with?

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