My Personal Finance Journey

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Finding the Most Suitable Mortgage

Contributed by mm | January 29, 2014 5:45 AM PST

The moment we started the house hunting in late 2012, we also started the mortgage hunting. Compared with getting the dream house at the right price, getting the right mortgage is at least equally important, if not more, to secure a solid financial foundation of home ownership.

Deciding the most suitable type of mortgage is the first step in this process. Usually, the choice is between fixed rate mortgage (FRM) and adjustable rate mortgage (ARM). There are some other niches like balloon loans or interest-only loans as well.

We used different types of mortgages in our brief homeownership between 2003 and 2005. We bought the house with a 7-year balloon mortgage at the rate of 4.25%, which we later refinanced to a 5/1 ARM with at the rate of 3.50%. (The refinancing experience was documented in this blog here, here, here and here.)

Fortunately, this time we knew from the beginning that the adjustable rate mortgage is more appropriate for us based on family situation. We reached this conclusion based on two factors:

First, we continued to make progress in accumulating wealth and were well on track of amassing $3M by 2020. We will have much more financial muscle to explore different things by then.

Second, our son, then at 11, was 7 years from heading to his college days. We knew the clock is ticking and already started to prepare for the unavoidable of being empty nesters in 2020.

Given such, my wife and I had been discussing about leading an active early retirement life including experiencing different parts of the world, exploring new hobbies and such. We knew that for the house we were looking for, we wouldn't live in it much longer beyond the 2020 Summer Olympics.

The adjustable rate mortgage (ARM) thus became an obvious choice.

Next: my experience of getting an ultra-low mortgage rate.

This Post Has Received 5 Comments. Share Your Opinions Too.


Adam Commented on January 29, 2014

Good to see you back. I would be interested in understanding more about why you have better options at the end of the ARM. I have thought about getting an ARM, but the potential larger payments in 5/7/10 years seems like a potential albatross. If rates go up, you can end up paying a lot more, and if they're already increased, I don't see how refinancing is going to help you. Perhaps you could discuss or link to an article that helped your analysis.


MM Commented on January 29, 2014

Adam, thanks for the comment and question. We chose ARM because we know our timeframe with the house is not going to be much longer than 7 years. Also, there is rate cap after the initial lock period so it won't throw the monthly payment out of wrack. Plus, we have enough assets elsewhere so we can choose to pay off mortgage earlier if necessary.


J Kay Commented on February 8, 2014

MM - can you comment in one of your future blogs around what you have done for college savings. Any 529 accounts? Do you include in your net worth any savings for college?


MM Commented on February 8, 2014

J Kay, that's a good idea. Yes, I'll put it to my "blog idea" list. The short version is I have 529 account for my son and the account is with Nevada Vanguard plan (since there is no state income tax in WA, I can choose a plan without considering the state tax benefits.) Vanguard's NY 528 plan might also be a good pick.


KS Commented on February 20, 2014

Hi MM! Welcome back. How did you determine that you would buy a approx $1M home. I realize that there is all kinds of thumb rules (rule of thirds, 40% of NW etc), but I am sure you have a different perspective.


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