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Old 03-20-2018, 07:29 AM
 
490 posts, read 350,777 times
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So on November 2020 my 7/1 ARM starts to adjust. I started out with a 3.125% rate which was really good at the time and still is. When I first decided to go with the ARM I wasn't sure if I was still going to be living in the place after 7 years. It looks like there's a good chance I'll still be there. I was thinking about refinancing to another 7/1 ARM 6 months to 1 year before my current one resets. The 7/1 ARM rate hasn't changed all that much in the last five years at the lender I am with now.

I have been prepaying $115 to the principle of my mortgage each month since I bought my condo almost 5 years ago. This surprisingly shaves almost 7 years off the loan.

My feelings are if I refinance to another ARM I lock in another low rate for at least 7 years then continue to prepay towards principle. If I am still living there after the next 7 years (14 in total now) I could possibly refinance to a 10 year mortgage.

The other option would be to refinance to a 20 year mortgage at current rates. Most likely it would be a full percentage point higher. My payments would be a little higher and I would be paying more in interest.

I figure I have time so I don't want to make a rash decision. Even if I decided to not refinance and let the mortgage adjust the new rate would probably still be a lot lower compared to whatever the 20 year rate would be at the time of adjustment. Rates are pretty much going up at this point.

Let me know your thoughts.
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Old 03-20-2018, 10:51 AM
 
3,282 posts, read 7,120,637 times
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Quote:
Originally Posted by Louisville Slugger View Post
So on November 2020 my 7/1 ARM starts to adjust. I started out with a 3.125% rate which was really good at the time and still is. When I first decided to go with the ARM I wasn't sure if I was still going to be living in the place after 7 years. It looks like there's a good chance I'll still be there. I was thinking about refinancing to another 7/1 ARM 6 months to 1 year before my current one resets. The 7/1 ARM rate hasn't changed all that much in the last five years at the lender I am with now.

I have been prepaying $115 to the principle of my mortgage each month since I bought my condo almost 5 years ago. This surprisingly shaves almost 7 years off the loan.

My feelings are if I refinance to another ARM I lock in another low rate for at least 7 years then continue to prepay towards principle. If I am still living there after the next 7 years (14 in total now) I could possibly refinance to a 10 year mortgage.

This is excellent.

The other option would be to refinance to a 20 year mortgage at current rates. Most likely it would be a full percentage point higher. My payments would be a little higher and I would be paying more in interest.

I figure I have time so I don't want to make a rash decision. Even if I decided to not refinance and let the mortgage adjust the new rate would probably still be a lot lower compared to whatever the 20 year rate would be at the time of adjustment. Rates are pretty much going up at this point.

Let me know your thoughts.
I'm really not a fan of the 20-year. You demonstrate acute understanding, but also responsibility. Although I don't suggest ARM-hopping to clients, you are executing the strategy perfectly, IMO.
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Old 03-20-2018, 12:18 PM
 
490 posts, read 350,777 times
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Quote:
Originally Posted by Pfhtex View Post
I'm really not a fan of the 20-year. You demonstrate acute understanding, but also responsibility. Although I don't suggest ARM-hopping to clients, you are executing the strategy perfectly, IMO.
I thought about doing the 30 year in 2013, but the rates were over a full percentage point higher compared to the 7/1. I also did not have to pay PMI even though I only put 15% down. I was going to put 20%, but when I found out from my lender that wasn't required to avoid PMI I applied the extra 5% to repairs and updating.

I compared the difference in interest I would have paid when I looked at the first 7 years of the ARM and the 30 year. It was over $10,000. I took the gamble knowing there was a chance I still could be living in the same place after 7 years. I decided to take the difference I would have spent if I had gone with the 30 year loan and prepay it towards the principle of the 7/1 ARM. I am basically making a little over 2 extra mortgage payments per year.

I don't know all the costs involved with a refinance, but I can't imagine they would be more than a few thousand. I am sure the lender will need to appraise the property, and then there's all the property documentation fees, lawyer, etc. I pay property taxes directly to the town so that is not included in my mortgage.

I appreciate the feedback.
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Old 03-21-2018, 09:07 AM
 
12,357 posts, read 8,941,069 times
Reputation: 8752
Quote:
Originally Posted by Louisville Slugger View Post
So on November 2020 my 7/1 ARM starts to adjust. I started out with a 3.125% rate which was really good at the time and still is. When I first decided to go with the ARM I wasn't sure if I was still going to be living in the place after 7 years. It looks like there's a good chance I'll still be there. I was thinking about refinancing to another 7/1 ARM 6 months to 1 year before my current one resets. The 7/1 ARM rate hasn't changed all that much in the last five years at the lender I am with now.

I have been prepaying $115 to the principle of my mortgage each month since I bought my condo almost 5 years ago. This surprisingly shaves almost 7 years off the loan.

My feelings are if I refinance to another ARM I lock in another low rate for at least 7 years then continue to prepay towards principle. If I am still living there after the next 7 years (14 in total now) I could possibly refinance to a 10 year mortgage.

The other option would be to refinance to a 20 year mortgage at current rates. Most likely it would be a full percentage point higher. My payments would be a little higher and I would be paying more in interest.

I figure I have time so I don't want to make a rash decision. Even if I decided to not refinance and let the mortgage adjust the new rate would probably still be a lot lower compared to whatever the 20 year rate would be at the time of adjustment. Rates are pretty much going up at this point.

Let me know your thoughts.
What about refi'ing to a 15 year fixed? Could you comfortably afford the payment?
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Old 03-21-2018, 10:18 AM
 
490 posts, read 350,777 times
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Quote:
Originally Posted by ncole1 View Post
What about refi'ing to a 15 year fixed? Could you comfortably afford the payment?
I thought about that too, but it's pushing it. It's easier to prepay more if my income increases.
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Old 03-26-2018, 02:54 PM
 
Location: Saint John, IN
10,389 posts, read 3,064,354 times
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Quote:
Originally Posted by Pfhtex View Post
I'm really not a fan of the 20-year. You demonstrate acute understanding, but also responsibility. Although I don't suggest ARM-hopping to clients, you are executing the strategy perfectly, IMO.


Why don't you like 20 year loans? Just wondering?


As for the OP I think it makes sense to do a 20 yr loan. Every time you do a loan you are paying closing costs. Rates are still low but climbing. I saw do the 20 yr so you don't need to keep refinancing and then pay more toward the principle when you can to pay off sooner and reduce interest.
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Old 03-26-2018, 07:23 PM
 
Location: Denver CO
18,445 posts, read 9,469,262 times
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Quote:
Originally Posted by CGab View Post
Why don't you like 20 year loans? Just wondering?


As for the OP I think it makes sense to do a 20 yr loan. Every time you do a loan you are paying closing costs. Rates are still low but climbing. I saw do the 20 yr so you don't need to keep refinancing and then pay more toward the principle when you can to pay off sooner and reduce interest.
I'm curious too about the dislike for 20 year loans. I'm 18 months into a 20 year at 3.125 percent. The monthly payment on a 15 year was just a little more than I was happy with in terms of my monthly cash flow so this was a good compromise for me.

To the OP, I agree with CGab. Knowing that life likes to throw curveballs, I'd try to figure out how long you intend to stay there. 7 years from now, who knows what interest rates will be. My first condo, I was paying about 8% and was thrilled to have it as it was below market on a first time buyer program. Between the costs of refinancing and the interest rate risks, if you think you are going to be living there for longer than another 7 years, it could be worth it to lock in the still relatively low rates now.
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Old 03-28-2018, 06:45 AM
 
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Per Feds, Interest rates are expected to go 3 more times this year. So by the time you decide to to an ARM in 6 months to a year, your ARM rate will probably be as high as a fixed rate is today. Fixed rated are already above 4% to mid 4's. Soo... A fixed rate or ARM now is much better than what they're about to be in the very near future
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Old 04-18-2018, 11:37 AM
 
490 posts, read 350,777 times
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Actually I thought about this even more and I think I can swing the 15 year mortgage. I worked out the math and if I locked in today with my current lender my payment would only be about $180 a month more.

I decrease my 401(k) contribution from 15% to 12%. This gives me $1,950 extra per year. I scale back a little on my vacation fund account. $150 per month instead of $200. This gives me an extra $600 per year. I'll have my furniture paid off by the end of the year. This also give me an $600 extra per year.

$3,150 or an extra $262.50 per month. Much more than the $180 mortgage increase. I can always change these numbers later on as my income changes.

Right now my lender offers 3.875% for a 15 year mortgage. 0.750% points costing $975.

Application Fee: $45.00
Points: $975.00
Underwriting/Processing Fee: $450.00
Appraisal Fee: $425.00
Credit Report: $105.00
Flood Certification Fee: $15.50
Hazard Insurance Tracking Fee: $85.00
Plot Plan/Survey: $150.00
Tax Service Fee: $83.00
Third Party Verification Fee: $60.00
Title - Lender's Attorney Fee: $350.00
Title - Settlement Services: $450.00
Title - Title Insurance: $215.25
Government recording charges: $317.00

Closing is going to be around ~$3,700. By going with the 7/1 in 2013 I saved roughly $7,500 in interest up until this point. The cost of refinancing will take a cut out of that, but I prepaid extra towards my principle during the whole time I had my 7/1 mortgage so my ending balance is lower at the time of refinancing.
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Old 04-19-2018, 06:48 AM
 
2,619 posts, read 2,741,569 times
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Quote:
Originally Posted by Louisville Slugger View Post
I decrease my 401(k) contribution from 15% to 12%.
I just want to give you a number to think about:

Over 15 years, that 3% reduction to your contributions will have a trade-off of about 93 earned in market gains for every dollar you didn't invest. Caveat: That's at 8% average market gains. At 5%, you are losing about 50 for every dollar you didn't invest.

I'm not saying to NOT do what you are doing. I just want you to be better equipped with information so you can make a decision.

If you want some hard figures:

Spoiler
If you earn say... 65k, 15% contributions after 15 years (your mortgage duration) is about 150k of contributions and might grow to about 220k (5% market return) or 287k (8% market return).

That same exercise: 65k, 12% contributions after 15 years is about 118k invested and would grow to about 176k (5% rate) or 229k (8% rate).

I just chose 5% and 8% for laughs. In recent history, 3 and 5 year returns are about 8% yearly, so my 8% might be not off the mark, but 5% might be pessimistic.

The point is, if you decide to divert some of your retirement savings so you can fund something like buying a house now, be responsible and try and get that contribution back to 14 or 15% as you get raises.

Last edited by dspguy; 04-19-2018 at 08:04 AM..
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