I’m about to buy my first house and many people are telling me different things about mortgages. Lenders are pushing the 5 Year ARM or 10 Year ARM. However my dad from the old school is telling me that a 30 fixed is the best because rates are so low anyways.My situation:I’m 25, I make 70K a year roughly 4K per month and I will be taking out a mortgage around 300 thousand dollars. I’m buying in LA buy only planning to live here for about 5-7 more years. I’m thinking that 10 year ARM would be the best option. What are some of your thoughts about fixed vs. ARMs. What is best for me?30 year fixed right now is about 5.74%5 ARM now is about 5.24%10 ARM somewhere in between

Mortgage guy is absolutely right. Even if you are planning to stay there for only 7 years maximum it won't hurt to check out all of your options. You might even want to think about interest only to bring down your payment. Recently in some cases I have found that the 30 year fix or even 40 year fix programs are at lower rates than the ARMs! I would definately do some research on different programs and their rates before you decide.

An adjustable rate mortgage is not always a bad idea. If the borrower is only planning to remain in the house for a couple of years - three to five - then taking advantage of the lower initial interest rate is not a bad idea.

There are many forms of the adjustable rate mortgage to consider, and when researching which is the best for you one of the first things to find out is what kind of interest rate cap the loan has. An interest rate cap is the amount that the interest rate can rise during the period of the loan. The periodic or adjustment cap limits the amount that the interest rate can rise from one adjustment period to the next. The overall or lifetime cap limits the amount that the interest rate can rise during the life of the loan. By law, almost all adjustable rate mortgages must have lifetime caps. Beware the payment cap. It sounds good - your monthly can only go so high - but notice that this does not cap the interest charge. If the interest rate gets so high that it raises your monthly payment beyond a certain dollar amount, then the lender simply adds the interest to your debt. Then, of course, you will be paying interest on your interest. This can lead to owing more on your home than you did when you bought it, which is called negative amortization. Some lenders have a cap on how much negative amortization you are allowed to accumulate, and if you reach that point, the payment cap is no longer in effect and the payment is readjusted to begin repaying the newly accumulated debt.