San Diego Housing Bubble News and Analysis

I should have an accepted offer in the next few days.
Purchase Price will be $875,000.

I have 2 financing options. Both on a 75% loan.

Option 1 - 30 yr fixed at 5.75%
Option 2 - 5/1 fixed at 4.87% 40 yr amortization

I was examining option 2, because less dollars are going to pay down the loan the next 5 years. After putting 25% down, I would rather diversify the monthly dollars.

My issue is what the rate will adjust to. It is my feeling that once rates start to move up, they are not coming back. I would be kicking myself for not fixing the loan. Any improvements to the house could be done with a HELOC and some cash.

The monthly PITI payment on option 1 is 18% of income, so the cheaper payment is not necesarry for the purchase.

Any thoughts on the situation? Is their a strategy I am not thinking about. I should probably just fix the loan and put it to sleep.