Mortgage type question?

5/1 ARM with no prepayment penalty. 30 year loan with the rate fixed for the first 5 years. Rates range from the low 5% range for a conforming loan to the high 5% range on a jumbo loan

Goldrush, you should really reconsider buying a home to live in for only 2-4 years. That timeframe is awfully short based on what it would cost you to get in and out of an apartment in the city. Mr. countrywide will never tell you this because he wants to sell you a 5/1 ARM, but it would be a good idea to consider a longer term rental for that timeframe.

Well said, JuiceMan.

"Mr. countrywide" is just answering the question with regards to what product would make the most sense based off of his question. I personally sold my apartment last year, am currently renting and don't plan on purchasing back in Manhattan until we see a substantial correction from today's levels. FYI, unlike others I am not disclosing contact information but I do enjoy reading the message boards on here from time to time.

can someone tell me the reasoning behind the better to rent argument... i currently pay $2300 for rent of a 1 bedroom... i can afford to pay a monthly mortgage of 3000-3500... so why shouldn't i?... just feel like everytime a cut a rent check, just throwing money away... any help would be greatly appreciated!!

Goldrush, let's split the difference and say a $3250 mortgage. At a 6.5% interest rate (good for a jumbo), with 20% down that's a $645k home purchase. Over the course of 4 years the amount of principal paid each month ranges from $466-601, so in the best case your mortgage interest alone is still a few hundred $ more than your current rent. Add in maintenance, probably $800 or so given the size that price will buy you, and you're spending around 50% more each month. Yes, there are tax deductions on mortgage interest and the monthly tax (condo) or tax portion of the meintenance (co-op), but you also lose the opportunity cost of investing the $129k down payment. Then add in closing costs at time of purchase (high in a condo, extrememly high in new construction) and broker fee and transfer taxes at time of sale and you're going to get clobbered. In 2003 this may have made sense because appreciation was through the roof. Right now you stand a good chance of selling at a lower (or at least no higher) price than you paid in your time frame.

Tenemental: I have been reading posts here for a while and am quite familiar with the "buy now" folks and the "never ever buy" folks (Steve) and I have to congratulate you. In all the post that I have read, the above is the most concise, rational and dispassionate argument against buying for the short term owner that I have seen. If you are like me, and are looking for a long term home (20 year span or more), then you simply cannot and should not try to time the market. When the right place comes along, for the right price, you take it (and we will, even in this market). For the short term, you are spot on.

gotcha... thanks!!!

leasinglawyer, thank you very much, though I do realize a mistake I made. At the high 5% rate that countrywide gives for the 5/1 ARM appropriate to this timeline (now I'm using 5.825%), it can be a $690k purchase and an additional $110 or so a month will go to principal. Of course it may be a slightly bigger apt, with the maintenance a bit higher and a little more opportunity cost lost to the higher DP. The fundamental problem hasn't changed. Also, if the market (or at least this buyer's part of it) really takes a hit, the buyer may feel a need to extend the timeline but is now at the mercy of the reset or a refi.

Goldrush, my pleasure.

fair enough Mr. countrywide, my mistake.