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Old 10-07-2008, 02:20 PM
 
3,381 posts, read 11,813,056 times
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I currently have an 5 yr ARM, which is fixed until 2010, at 5.13%. I have reached the point where I have enough $$ to pay more than the minimum. Is it better to stick with the ARM thru 2010, and then refinance, or refinance now?

I did the rate finder on my lender's website, which stated a 30 yr rate of 6.2% APR, and a 15 yr rate of 5.91% APR. So, the 15 yr rate has a lower APR than the 30, which goes against what I have read (I have read that the 15-yr % is usually higher). Maybe the difference is that I am refinancing instead of getting an initial loan?? Regardless, both are higher than what my ARM is fixed at for now.

I do not plan on staying in my home for more than a couple more years, but it will most likely be beyond the time my ARM starts...well, ARM-ing. Given the uncertainty of where I will be in 2010, should I refinance now? Or wait it out and just start paying extra towards the principal on my ARM?
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Old 10-07-2008, 04:29 PM
 
Location: central, between Pepe's Tacos and Roberto's
2,086 posts, read 6,098,953 times
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What is your plan with the home after a couple of years?

What is the index (can be found in your original loan package)? I assume it will either be the 6 month or 1 year LIBOR.

What is the margin (can also be found in your original loan package in the ARM disclosure)?

How much do you owe on the home?

How much is the home worth?

The answers to these questions will help you to determine cost vs. benefit. Also, 15 year fixed mortgages generally have lower rates than comparable 30 year mortgages, whether purchase or refinance. Of course there are exceptions. A 15 year cash out refinance with a borrower that has a 620 FICO may have a higher rate than a 30 year rate and term refinance with a 760 FICO.
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Old 10-07-2008, 06:40 PM
 
Location: Plano, Texas
1,676 posts, read 6,334,862 times
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The question i have for you is why do you want to pay more to your principle if you are only going to be in the home for a couple more years. By paying extra you save the interest that would accrue at the end of the term, so if selling in a few years, by paying extra you are not saving any interest. Plus, when you sell the home, you are just going to get back the money you paid down on the mortgage. So, for example, lets say you can pay $200 extra toward your principle for lets say 50 months. That means your payoff would be 200*50 or $10,000 less. So, when you sell the home 50 months later you will get that $10,000 back, and remember you are not saving any interest. In my opinion that is not a wise use of your money. Here is a suggestion, lets say for the next 50 months you put $200 per month into your savings account. 50 months later your savings has grown to $10.000 plus the interest the money made you. So, do you want to pay down the principle just to get your money back at a 0 percent rate of return or does it make more sense to put the money into a interest bearing account that pays you?

Next, the rates quoted from your lender are ridulously high. a 30 year mortgage today is about 5.5 to 5.625% and a 15 year is 5.25 to 5.375. since you have a lower rate on the arm(one of the benefits of going with an arm over fixed), i would suggest keep your current mortgage unless you are losing sleep or feel uncomfortable about the rate adjusting. The poster above did ask very important questions that we should know before giving advice but in my opinion i would keep want you have at least for now and when rates get a little lower, which they will, maybe then refi.
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Old 10-07-2008, 06:45 PM
 
Location: Fort Myers, FL
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stick it out for a little while longer. when financing bounces back rates should be low.
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Old 10-08-2008, 08:01 AM
 
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Thanks for the answers. I am 99% sure that I will be taking a pretty big loss on my house when I sell; I don't think there is a way in the world that I can sell it for what I paid for it. So, that increases my worry and makes me want to lower the principal on it as much as possible, so I have less to pay back in a couple years. I do understand the point regarding paying it off now, vs saving the money and trying to make interest of my savings - very good point that I had not thought of.
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Old 10-08-2008, 09:23 AM
 
48,905 posts, read 39,401,698 times
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Quote:
Originally Posted by Pearlbob View Post
I currently have an 5 yr ARM, which is fixed until 2010, at 5.13%. I have reached the point where I have enough $$ to pay more than the minimum. Is it better to stick with the ARM thru 2010, and then refinance, or refinance now?

I did the rate finder on my lender's website, which stated a 30 yr rate of 6.2% APR, and a 15 yr rate of 5.91% APR. So, the 15 yr rate has a lower APR than the 30, which goes against what I have read (I have read that the 15-yr % is usually higher). Maybe the difference is that I am refinancing instead of getting an initial loan?? Regardless, both are higher than what my ARM is fixed at for now.

I do not plan on staying in my home for more than a couple more years, but it will most likely be beyond the time my ARM starts...well, ARM-ing. Given the uncertainty of where I will be in 2010, should I refinance now? Or wait it out and just start paying extra towards the principal on my ARM?
A lot of good advice indicated above. Hmmm....I got a no-cost refinance (express) from my existing lender so that I wouldn't scoot with my loan a couple years ago. Maybe you could just sniff around you lender over the next few years and see if they are ever running any sweet refinancing deals for pretty much the same rate others are offering. If so, it saves you that money down the road.

Also, I was often used to seeing lower rates for a 15 than a 30 year loan when I was looking. Careful about assuming rates will be lower in the future.
6% isn't bad...if not for the refinancing costs....I'd just lock in something fixed now but I'm financially conservative.
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Old 10-08-2008, 09:43 AM
 
Location: central, between Pepe's Tacos and Roberto's
2,086 posts, read 6,098,953 times
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Quote:
Originally Posted by Pearlbob View Post
Thanks for the answers. I am 99% sure that I will be taking a pretty big loss on my house when I sell; I don't think there is a way in the world that I can sell it for what I paid for it. So, that increases my worry and makes me want to lower the principal on it as much as possible, so I have less to pay back in a couple years. I do understand the point regarding paying it off now, vs saving the money and trying to make interest of my savings - very good point that I had not thought of.
Are you currently upside down on the home? If so, forget about refinancing.
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Old 10-08-2008, 10:31 AM
 
Location: Houston
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Usually 15yr mortgage rates are lower than 30yr mortgage rates, although rarely the opposite occurs. Both 15 and 30 are seeing as long term debt and usually the longer the maturity of the debt the more interest the lender is going to ask since there's (default/prepayment/changes in interest rates/etc) risk associated with it. Sometimes the yield curve inverts and the longer the maturity of the debt the lower the interest rate but that's usually not the case when you compare 15yr vs 30yr since both are considered pretty much long term, when the yield curve inverts you'll notice the difference mostly on short-term vs long-term.

I was also a little surprised that ARM's are usually lower than fixed interest rate mortgages since these are usually associated with subprime but it kinda make sense since the lender once the ARM resets won't have to be stuck with a low rate mortgage security in case the rates go up substantially, it will always make at or a spread above the current prime rate.
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Old 10-08-2008, 11:43 AM
 
3,381 posts, read 11,813,056 times
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I do understand, however due to a large downpayment I made initially, my mortgage is relatively small compared to the price of the home, whether the current price is higher or lower than what I paid for it. I think the price of the home is lower than I paid for it due to the market, however my mortgage is a lot lower. If that makes sense So, my thought is that a refinance wouldn't be an issue, since the amount I financed was pretty small (compared to the home price). I dont know if I am right on that or not though.

Thanks again to everyone. Most people I talk to are adamentaly opposed to ARM's, period. So I think I get more worried than I need to be.

Quote:
Originally Posted by Daddys///M3 View Post
Are you currently upside down on the home? If so, forget about refinancing.
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Old 10-08-2008, 12:12 PM
 
Location: central, between Pepe's Tacos and Roberto's
2,086 posts, read 6,098,953 times
Reputation: 952
Quote:
Originally Posted by Pearlbob View Post
I do understand, however due to a large downpayment I made initially, my mortgage is relatively small compared to the price of the home, whether the current price is higher or lower than what I paid for it. I think the price of the home is lower than I paid for it due to the market, however my mortgage is a lot lower. If that makes sense So, my thought is that a refinance wouldn't be an issue, since the amount I financed was pretty small (compared to the home price). I dont know if I am right on that or not though.

Thanks again to everyone. Most people I talk to are adamentaly opposed to ARM's, period. So I think I get more worried than I need to be.
Ok, I misunderstood your post. As an aside, most people that are adamantly opposed to ARMS, although they may have their reasons, are likely not educated enough to know when an ARM can be a great tool. It sounds like, in your case, that it is an excellent option considering your short term goals and your current situation. Let's say hypothetically your ARM adjusted in 2010, and the payment went up $100 a month. Even if you paid that higher payment for a year, you may not break even against the closing costs and the higher rate and payment that would be associated with the refinance. In that case a refi would not make sense at all. It sounds like (and this is an assumption based on the information that has been given as well as the info that has not been given) your best bet is to stay in the ARM. I don't even know that I would throw any extra at the principal. Perhaps you could take the money you would be using to make extra principal payments and invest it somewhere.
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