Roy Oppenheim on the Benefits to an Adjustable-Rate Mortgage

Hi. This is Roy Oppenheim, Real Estate attorney, and legal blogger. I want to talk to you today about something that people keep asking me about, and that is, whether one should get a fixed 30-year mortgage or in fact, get an adjustable rate mortgage. And the answer is, It really depends. But, I always analogize it to whether or not, you’re going to go to a buffet, and how many times are you going to go up and get food. And so, if you’re going to go to that buffet, and you’re only going to eat maybe once, maybe get a little bit more desert or something at the end, you probably should be getting an adjustable rate mortgage. Because you’re paying for the full buffet, but you’re never going to use it. It’s the same thing with a 30-year mortgage. How many people do you know actually stay in their house for 30 years? Well, I don’t think I’ve ever met more than one or two people in my entire career that have done so. Most people, in the averages, stay in their home five to seven years. So, in fact, an adjustable rate mortgage, is going to be less expensive, if it’s fixed, for a period of let’s say five to seven years. I’m not talking about an adjustable rate mortgage that’s going to adjust every single year. But I’m talking about an adjustable rate mortgage that’s fixed for either 5, 7, or 10 years. Those mortgages will typically have a lower interest rate then the 30-year fixed mortgage because the bank has to guarantee that they’re going to be accepting your interest rate for 30 years at a fixed interest rate. You’re obviously going to be paying more. You’re going to be paying more for something that you really don’t need. In fact, Alan Greenspan, even though he probably was wrong on almost everything in terms of the economy, made one point. And he had said that most people were wasting their money by getting 30-year mortgages. So, I tend to agree that if you’re only going to stay in your home for 5, 7, maybe 10 years max, that you probably should consider an adjustable rate mortgage under those circumstances. But again, it’s not one-size fits all. So, if you have any questions, call us or speak to your financial adviser. Take care. Roy Oppenheim, from the trenches. Have a good day.