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Comparing a fixed rate refi vs an ARM on my rental property in Austin... the numbers surprised me
I sat down last week and ran the numbers on refinancing my duplex in Austin. On one side I had a 30 year fixed at 6.8% with zero points, monthly payment around $1,450. On the other side I looked at a 5/1 ARM starting at 5.9% for the first 5 years, payment around $1,320. I figured the ARM would obviously be better since I might sell in 3-4 years anyway. But when I factored in closing costs of $4,200 and the cap on how high the rate can adjust, the fixed rate actually came out ahead by about $2,800 over 5 years if rates jump even just 2%. Has anyone else run this comparison recently and found the fixed rate winning out?
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adam1863mo ago
Same trap everywhere. Nobody bets on boring and wins.
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lisab323mo ago
Yeah the part where you said "the fixed rate actually came out ahead by about $2,800" really got me thinking. It seems like EVERY time I look at the "obvious" money saving choice lately, the numbers are flipped when you actually add up all the hidden costs and worst case scenarios. I see the same thing with car loans and even phone plans - that teaser rate always looks great until you read the fine print and realize you're betting on things staying perfect. In my experience the safe boring option usually wins in the long run, even if it costs a little more up front. Sometimes the cheapest way is just paying a bit more for the peace of mind that your payment won't blow up on you.
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white.keith3mo ago
Wait you said the fixed rate came out $2,800 AHEAD over 5 years? That's a HUGE difference for a scenario where most people just grab the ARM and call it a day. I have to admit I always figured the ARM would save you money unless you got totally clobbered on the rate jump, but your numbers show the fixed rate winning even in a pretty normal rate increase. That's honestly making me rethink my whole strategy on my own rental here in Dallas.
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