The adjustable rate loan I almost signed last month

Last month I was set on this ARM because the rate was 3.9% and I figured I'd move in 5 years anyway. My realtor in Austin kept pushing it until my lender showed me the payment jump scenario if rates spike even 2 points. That math made me flip to a fixed 30 year at 5.1%, and now I sleep way better at night. Has anyone else backed out of a loan type after looking at the worst case numbers?

2 comments

2 Comments

quinn3414d ago

Same thing happened to me with a HELOC a few years back. The teaser rate was stupid low, like 2.9%, and I was already planning the kitchen remodel in my head. But my loan officer printed out a chart showing what my payment would look like if the rate went to 6% or 7%, and it was basically a second mortgage payment. I backed out SO fast and ended up doing a cash out refi at a fixed 4.8% instead. The remodel got delayed a bit, but honestly, knowing my payment can't jump around is worth way more than fancy countertops. Worst case math is the ONLY math that matters with these things.

caseywalker4d ago

That "worst case math is the ONLY math" line is exactly right, @quinn341. I did the same stress test on a 5/1 ARM years ago and the payment jump at year six was over 40% more, which would have wrecked my budget. Take whatever teaser rate they throw at you and run it at max caps, if you can't stomach that number, fix the rate and move on.