(This post was originally written on Tuesday, June 19, 2012 – see the intro post for more details…)
Today has been a little bit of a frustrating day, to say the least.
I’ve been going back and forth with the bank on our mortgage all day – it seems that we kind of got a bait & switch, in that they worked so hard to convince us that an adjustable rate mortgage was better for us than a fixed rate when we met with them last week, and now suddenly we don’t qualify for that one anyways and we’re left trying to choose the lesser of two evils between a fixed rate with more down, or the ARM with hella-lots of more down…
So to back up just a bit, when we first started talking about whether or not we could afford to buy a house right now, we were already convinced that we absolutely had to have a fixed rate mortgage because we didn’t want to end up like so many people who found themselves bit by the bubble and out on the streets after they couldn’t afford their mortgage when their payment adjusted 5-years in.
Hell, the house that we’re looking at is technically a foreclosure, and it was last purchased back in 2007, so you do the math!
That said, we kept an open mind when we sat down with the guy at one of our local credit unions, and he actually painted a pretty convincing argument why we might want to go this other route instead. Although they had just discontinued offering FHA loans (which we would’ve needed because their online calculator didn’t make it clear enough what minimum down payments were needed with the various loans), they had a new ARM called a 5/5 that seemed to eliminate some of the problems that came with the traditional 5/1 ARMs…
Essentially, the way those loans work for anyone unfamiliar is this – for the first 5 years, you have one interest rate, and then on year #6, your interest rate adjusts to whatever current rates are at the time plus some modifier. For a 5/1 ARM, it will continue to adjust every single year from year’s 6 – 30 (or whenever you pay off the loan), and so even though the idea is that in 5 years you’ll probably be making more money and all, in reality a lot of folks saw their payments double and could no longer support them.
The difference with this 5/5 ARM was that it only adjusted every 5 years, and the increases were capped at 2% per adjustment and a max of 5% above your initial rate for the life of the loan. The rate that we were looking at was 3.125%, so that would’ve been capped at 8.125%, which is still a sizable jump…
…but it was going to be manageable, and I can say this with great certainty because I spent all of last night going through spreadsheets and crunching numbers and triple-checking that even in the event that we did hit our max interest rate after year #10, we’d still be able to make our monthly payment … admittedly begrudgingly because more would be going to interest rather than principal, but at least we’d still have a house!
Oh yeah, and did I mention that for this 5/5 ARM, the credit union was paying all of the private mortgage insurance, too?!
It sounded like a pretty amazing deal and just about everyone that we talked to, our agent included, said that we’d be nuts not to take advantage of it for the PMI savings alone! So we thought that we were all set, and then I got a call saying that our application had been denied… 😳
They needed to play with the numbers and double-check that we had everything right. Eventually they started getting back more positive results, but they were at a cost of putting down a ridiculous amount of money that we didn’t have and running the loan in my name only, without Sara being involved.
Frankly, I don’t like either of those ideas!
So anyways, after a long line of going back and forth, we’re down to a couple of options…
- the 5/5 ARM that we wanted, with a 3.25% interest rate, only in my name, with 10% down and no PMI
- the 30-year fixed that we originally wanted, with a 3.625% interest rate, in both of our names, with 5% down and PMI of $120/month for 7 years
The problem is, we don’t really have any time to change any of this stuff, so we kind of need to make a decision right now, and it doesn’t help that neither of them ended up being in the neighborhood of what we had planned. That PMI hurts because it feels like we’d just be throwing away $10,000 to interest payments before we’re done, and yet 10% down isn’t exactly an easy pill to swallow either when our planned amount was 3-5%!
I don’t know. We might have one other option … Sara talked earlier on with another mortgage broker who helped answer some of our questions early on, and even was one of the folks who told us that the 5/5 ARM was a great deal, so maybe it’s worth circling back to him to see if there’s anything that he can do for us now that we’ve found that previous offer not to be exactly what it had seemed…
And we need to do it all in a day and a half – no problem!!! 😯