You have an option on an ARM that has a two-year adjustment interval,4% margin,2% periodic rate cap and a 6% lifetime cap.The current initial rate is 5.35%.You can also get a 30-year,fixed-rate mortgage for 6.65%.You plan on staying in this home for at least 10 years.What would be your best choice?
A)Probably the ARM loan since your PITI would be lower.
B)Probably the ARM loan since your PITI would be lower and the market rates of interest could get lower.
C)Probably the fixed-rate loan because your PITI will be lower.
D)Probably the fixed-rate loan because it is easier to budget for and it is less risky for you.

Question

Quizplus · Accepted Answer

The fixed-rate loan is the best choice for someone planning to stay in the home for at least 10 years as it offers stability and predictability in monthly payments. The ARM may start off with a lower interest rate and lower monthly payments, but the possibility of the rate increasing after two years and the potential for reaching the lifetime cap of 6% makes it a riskier choice. Additionally, the 30-year fixed-rate loan has a rate that is only 1.3% higher than the initial rate of the ARM, making it a reasonable choice for someone who wants to avoid the uncertainty of an adjustable rate.

You Have an Option on an ARM That Has a Two-Year