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dwright1542 t1_iydnfyx wrote

Reply to comment by ItFappens in Mortgage decision - 5% 7/6 ARM vs 5.375% 30-yr fixed? by Bojackson63044

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.

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ItFappens t1_iye0kwg wrote

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

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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.

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dwright1542 t1_iye15qo wrote

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.

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ItFappens t1_iye8f25 wrote

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.

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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.

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