Ok, I'm trying to decide whether or not to go with a fixed interest rate or a variable interest rate.

Here's the scoop. I'm buying a house that appraises for $4600 more than we're paying for it.

Of course we've been offered a lower interest rate on a variable rate loan. The interest stays the same for three years, and we can refinance anytime. BUT, it can shoot up three percent after those three years.

Going this route will save us money in the short term.

But I'm not sure if I want to gamble on the interest rate for the next two years.

Sure since we have almost 5% of the houses value in equity already it will probably be pretty easy to refinance in a year or two.

But I'm worried that the interest rate might shoot up two percent in the next two years.

What do you guys think? Variable or Fixed?

Go fixed.  Interest rates are rock bottom now so you might as well lock them in.  

Ratters, I forgot to mention one little tid bit. It's a 100% loan, so the interest rate is a bit higher than a conventional loan.

I guess the big question is how high the interest rate will go in the next two years since we'll be able to refinance in a couple of years for a lower interest rate anyway.

Does anyone here think the interest will actually go above 9% in the next couple of years?

Seamusmcoi, I've been in most all aspects of real estate in the last 6 years (rental houses, Lease Options, Land Contracts, rehabbing)I would go with the fixed rate. Things can change in 5 years time. You never know if you'll lose your job in that amount of time and be unable to find a lending institution to give you a refy loan. Interest rates could skyrocket if we get another liberal in office after Bush. Remember the Carter years with 18% house loans.Another thing is to get the 15 year loan instead of the 30. It will save you a boatload of money

Give me an email and I'll hook you up. Get a 97% Loan with a 3%gift from the seller for the down payment. Today's rates were 6.5 or so....fixed!!!!

Interest rates haven't been this low in 30-40 years.  But the thing is, don't be surprised if another 1/4 point is cut at the end of the month.  Greenspan's speech last week was very negative about the economy's recovery.

I think the money you save on the appraised value will at least equal any short-term savings you'll get from the variable rate.  Greenspan can really choke up on the interest rates if he wants to, but it's not as likely he'll bring them down to zero.  

No one can say what interest rates will be in 2 years, all I know is that they're historically low now.  That would put my opinion with the fixed rate.

Go fixed, interest will go down at least a 1/4 point in the next month or so. Bet the farm on that!

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How long are you going to stay in the house?

If you are going to move in 5 years, you may as well go with the variable to get the slightly lower rate (assuming that the rate is locked for that long -- mine was locked for seven, then can vary).

If you are going to die in that house in sixty years, you may as well get a fixed.  The rates might dip a little further, but they don't have any room to go much lower.

Also don't forget, what greenspan does, won't affect morgage rates. The mortgage rates are not tied to the interest rates he is lowering. If it were, intrest rates would have dropped 2 percent for mortgages, but they haven't. They have floated around 7 for the last year. Believe me I have been watching.
Also don't forget loans that don't need down payments. Unless the house is way above 148,000 you could go FHA. If you are a vet don't forget to look up the VA loans. Max you would need is around 3 percent if that.
I also agree to get fixed to start with. If it does drop enough, then refinance anyway. If it doesn't you are still okay. You just miss out on about 2 or 3 grand for the first couple of years. Which is all interest anyway.