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.

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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