HI! This is my first post here, I hope someone can help me out.
I'm in the process of applying for a mortgage (in the US), and I'm trying to decide what kind to get. I've already decided on a 30 year, because I'd rather put the extra into stock investing for higher expected returns and more diversification (I'm in my late 20s, so plenty of time).
I can get a 30 year fixed rate for about 4% interest, or a 5:1 ARM for about 3% interest. 3:1 and 7:1 ARMs are also a possibility. I can easily afford the 4% interest, that's no problem, I just want to make sure I'm getting the best deal. I do intend to keep living in this place for a long time, but I can't be certain. There's basically 4 scenarios I can see.
Scenario 1: For whatever reason, I'm forced to move out quickly. Very annoying, since I lose the closing costs, but in this case it doesn't really matter what kind of mortgage I have.
Scenario 2: I live there for about 5 years, then sell the place. In that case, the 5:1 ARM is clearly superior.
Scenario 3: I continue to own the place for the full 30 years, either living there or renting it out. In that case, the fixed rate is probably superior, although how much better it is depends on what happens to interest rates during that time which I have no way of predicting. I'm not opposed to renting it out, but I've never been a landlord before so I have no idea what that's like. It's also just very hard for me to imagine what my life would be like in 30 years time.
I have to admit, part of me wants to go for the ARM just because everyone keeps saying that ARMs are always terrible and I like to be a contrarian. But maybe the conventional wisdom is right about this one. Any thoughts?