They saw in the newspaper that they can get a fixed rate mortgage for 6.65% or a two-year ARM with an initial rate of 5.50%. Which is true about their mortgage choices?
Hector a Maria have been married for almost one year now and are thinking about buying a house. Maria is an executive for a large, multi-national corporation with offices around the world. She has been told by her company that she will be transferred to a new location every three years. Hector is a car salesman and he is willing to move to wherever Maria gets transferred. Together they make $8,000 in gross monthly income and pay 40% in taxes and withholdings every month. Between them they have monthly payment of $400 in student loans and $700 in car loans, and their credit cards payments average $450 per month. They currently lease a luxury condo for $1,400 per month. They travel to Cancun every Christmas. Since they both work a lot of hours, they eat out at restaurants for most meals. They currently have nothing in savings but Hector's grandparents have said they will give them a 20% down payment for the new home.
A) The fixed-rate mortgage has an attractive rate but is more risky for them.
B) The ARM initial rate is lower so their PITI will be lower.
C) Due to Maria's job the ARM would be the better choice.
D) Both B and C are correct.
Answer: D
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