dwright1542 t1_iydlpdu wrote on November 30, 2022 at 4:48 PM

We have a 5/5 ARM from PenFed, which is 5 years, then reset every 5.

So I was about to say the 7/6 ARM, and then realized it's 7 with a 6 month adjustment. DO NOT DO THAT. Not for that small a savings.

30 year no question.

ItFappens t1_iydmy4w wrote on November 30, 2022 at 4:56 PM

That just means it adjust every six months, so the adjustments could go up or down. If your 5/5 adjusted today it would skyrocket, then be stuck there for 5 years instead of going up and down with the market.

Neither is better or worse at face value, but they will behave differently and each has positives and negatives

dwright1542 t1_iydnfyx wrote on November 30, 2022 at 5:00 PM

Most ARM's have a cap on the change. Our 5/5 is capped at a 2% increase. 5 years is a long time to plan for that and refinance if needed. 6 months is just way too volatile.

ItFappens t1_iye0kwg wrote on November 30, 2022 at 6:23 PM

Your lifetime cap is 2%? Or adjustment cap? Most ARMs have both.

Again, it's about timing. Your rate at adjustment is based on an index plus a margin. Right now most indices are at all time highs due to inflation, so if you adjusted today, you'd be screwed. Whereas a loan that adjusts every six months (again with a cap) would peak, but then start coming down as inflation and the corresponding index start coming down.

dwright1542 t1_iye15qo wrote on November 30, 2022 at 6:27 PM

2% per adjustment, 4% lifetime. So if it adjusted now, it would be 2% over what we have now, which still isn't bad. Point is, 2% change over 5 years gives you time to prepare. What if it adjusts every 6 months up? No thanks. Too risky even for me, and I've never had a fixed mortgage.

ItFappens t1_iye8f25 wrote on November 30, 2022 at 7:13 PM

That makes sense. Most 7/6 ARMs have a 5/1/5 or 2/1/5 adjustment cap. The first number being the max adjustment in the first interval after the fixed period, the second being the max adjustment adjustment at each interval thereafter, the last number being the lifetime cap.

Your risk threshold is a very personal variable, so I'm not saying you're wrong, but just pointing out these two options aren't that much different. I have a 7/6 ARM with 5/2/5 adjustment terms and it doesn't worry me any more than one with yours would.