7/1 ARM at 5.875%??? Good, bad or ugly? (property tax, credit score, fees, rate)

[mrsengle]

Questions:

1. You have the option of doing interest-only on the 7/1 ARM? Or is this an interest-only loan by itself that you're talking about?

2. If this is an interest-only loan by itself and you're thinking about doing this for a year or two, are you planning on refinancing to the 7/1 ARM?

I think the broker said that I wouldn't have any out-of-pocket costs and that they would even waive the appraiser's fees -- does that make sense?

3. Is the above statement in reference to an interest-only loan? Or to the 7/1 ARM if you pay interest-only for a year or two?

[HDL]

Wisteria,

When I sent you my brief message earlier, I've since had to reconsider because I remembered 2 recent refi's and now agree with Gretchen that $8K is way too high for your loan amount of $245K.

One refi was a conventional cash out refi, lower Fico score, loan amount $417K, 6.125% and 3/4 Origination (it was my GF's loan and I do not recall if it was a 5/1 ARM or not). I believe all the fees added up to ~$7500 with escrow impounds fees in that amount.

The second refi was a Alt A cash out refi loan, 30 yr fixed at 6.75% (due to Alt A) for $300K, same range fico score, 1 pt loan origination fee and the total fees with impounds were around $6500.

So I'm trying to guess if the loan person is maybe having you pay 2 pts Loan Origination for the "lower rate" of 5.875%??? I always 'run' my numbers through a mortgage loan calculator to see if it's worth paying extra fees to get a lower rate (ie for a 6.375% loan, you may pay $1K less in fees).

The 7/1 ARM is a good loan. Interestingly enough though, I was just told by my mortgage guy that due to the recent 'inverted yield curve', 30 yr rates were actually cheaper than the 5/1 or 7/1 ARM (for whatever that info is worth ).

So please double check with several more 'reputable' loan sources, demand GFE's in writing, and then you will be able to make the best decision. Do be careful to choose 'reputable' mortgage companies or they may try to UP their fees at closing .

Best wishes Wisteria

p.s.
I really prefer not to say that you're getting charged too much though, unless I actually see the GFE .

Originally Posted by Gretchen B

$8,000+ in closing costs on a loan balance of $245k and a credit score of 800+ sounds really, really high. Any time you do a cash-out re-fi you'll get hit with either a higher interest rate (than on a new loan) or higher fees. The lender makes their money either on the interest rate or on the fees.

I don't think there's an issue with doing a 7/1 ARM, especially if you're trying to keep your payments as low as possible for several years. Another option might be to borrow a little more to cover the college costs, etc. Sometimes loans for lower amounts have higher fees and rates associated with them than loans for more $$.

If it were me, personally, I'd still check a couple of other lenders and get their rates and fees. Tell them not to pull your credit (since everytime someone does, it "dings" your score), but do have them provide you with a Good Faith Estimate. It's your money, so do some checking. If everybody else is higher, then you're reassured you're getting a good deal. If somebody else can do better, you can always go back to your first choice and ask her to match the better deal. The fees aren't written in stone - they're negotiable.

Hope you get a smokin' deal! With a great credit score like yours, you deserve it!

[FLPL75]

Wisteria
Back in Feb when we thought we were still moving the closing costs on the new house varied by almost $6k between the builder and USAA when I compared costs.
I would make a few calls before commiting to a broker and the $4k broker fee.
Call the bank or credit union you deal with tell them your credit score and see what they say. Also as others have said do not give them the ok to pull your credit.
Even though you say you expect to be out of there in 7 years you never know. I would look to a fixed 30 year rate.
I was talking to my banker the other day and she said that with our kind of credit scores they are quoting between 5.75 & 6 % for a 30 yr
You can also can your current lender and tell them you are looking into a refi and what can they do for you. See if they have a "streamline refi"
With your credit score you are in the "They need me more than I need them" situation.
I personally wouldn't want to pay $4k to a broker when you can go to a credit union and not pay a broker fee or an orgination fee.
karla

[dlh891]

I agree with the others. With your credit score and the amount of equity in your home you can just about call the shots. I would not pay all of those closing costs especially on a refi.

BTW, if you get your credit checked by other lenders within a two week period, it should not move your credit score. It is looked at as shopping around.

[Wisteria]

Boy, thanks -- lots to think about. Karla, thanks about the Credit Union idea -- I totally forgot about them! I think I will call my credit union and see what's up. I have my main accounts with the credit union. I forgot to bring my paperwork to work this morning, but will grab them later.

Yeah, I was surprised my credit rating was so high, considering I'm always living on the edge as a single parent. But I've always been really good at budgeting (I've had to be), and I have a lot of available credit (I have many credit cards I've never used).

The credit union! I only used this broker because she is someone others have used at work, and her husband works here. But I will call around. I didn't realize my credit could go down if others checked -- that doesn't seem right somehow, and don't understand that.

Oh, and that 7/1 ARM is a little lower than the 30 year, and on the 7/1 I can get BOTH principal and interest only payments -- for instance, I can pay the total principal and interest one month, and another month if I am short of cash, I can just pay the interest -- I can do either one -- which seemed like a good option to have. I am constantly juggling bills around to make it, so having that as a backup sounds like a good idea to me.

And those fees do include taxes, insurance, etc. I just don't know when they should or shouldn't charge me, and I'm sure they know I am not knowledgeable about the subject.....

Alrighty, I will pick up my paperwork at lunch and bring it back to enter more info.

Thanks again!

[Gretchen B]

Wisteria - just a quick side-note, here. Your accruals (taxes, ins, int, etc) will be the highest between the 1st and 15th. Closing the loan closer to the end of the month will drop your accruals substantially. I think you mentioned, though, that $4,000 was the loan fees. That's the number you want to zero in on when you visit with other lenders. It's important to look at both the interest rate and the upfront mortgage fees.

I agree, it stinks that every time someone makes a credit inquiry it drops your score. It should only happen when you do something (take out a new loan or have a late-pay, etc). It doesn't seem fair.

Best wishes to you!

[olecapt]

I think that untrue in a narrow time frame for a transaction such as a refi. You can get five or six quotes with no impact in a short time frame. Spread over time and such it can have an impact...but not close together.

[FLPL75]

Originally Posted by Wisteria

I only used this broker because she is someone others have used at work, and her husband works here. But I will call around.

I can understand using someone that might be a friend but the $4k broker fee well lol if you want to just give away $4k I am sure you will find lots of volunteers
I am not a fan of interest only no matter how they are structured. When you go into the Credit Union have them "run the numbers" on different loans.

Call me "old fashion" but after 30 years in the credit/mortgage/foreclosure industry I like sure things

karla

[Wisteria]

I still don't have the paperwork with me, however, I did take Karla's suggestion and called the Credit Union (and they did not pull my scores! ).

Anyway, the Credit Union doesn't have broker fees, but the rest of the fees were pretty similar, which made me feel better about it. And they do not offer a 7/1 ARM, which is probably the best deal for me in my situation. I already know I will never pay this house off, which is okay, because it's in California, and I should still have (*fingers crossed*) enough equity for when I do retire. I may actually sell before the 7 years are up, but I want to be sure I have enough room to wiggle here.

The Credit Union quoted me rates that were actually higher monthly payments than what I have been quoted by the broker. The CU said that their 30 year is 6.125%. Closing costs were pretty much the same. Also, the way I understand the broker (I'm pretty confused at this point) is that my first payment is somehow "later," and I get back a thousand dollars.....?? .... I have no idea what she's really talking about, but I think I heard something like that.

Maybe I ought to just go through and question her some more. Why do some banks/credit unions have a 7/1 and some don't? The credit union has a 3 and a 5 year, but no 7, which actually fits into my time frame better. I will never get this house paid for, and that's fine with me, because in the meantime I still (in partnership with the bank!) own it, and can have my pets, and garden and paint and stuff the way I want and don't have to worry about rent being raised, or HOA fees. But I know it'll never be mine alone.

So, that is the update. Maybe I'm just learning to look at these things more closely and was surprised....I guess if I have a broker, I have to have broker fees.....

That's what happens when you get a degree in Social Work --- you don't learn about finances!!

Oh, and by the way, for those of you who are surprised at my high credit rating, I'll give a tip. My credit was absolutely ruined by my ex, and I had to work diligently for over a decade to rebuild it. So, I did a "Suzie Orman." I watched her show and one time someone in the audience asked what they should do because they had all these credit cards they never used and had them for years -- should they just cut them up?? And she said, emphatically, "NO!" She explained that if they're not used, then it gives you more available credit to draw from, and it will actually raise your scores not lower them. Since I'm not the kind of person who uses credit cards to go shopping with, or just frivolous spending, I thought, "I should get some more credit cards!" So, I applied for a few more, used them maybe once for about a $15 charge, made photo copies of them, and that's it. Never used them again. I have two cards I use regularly -- one just for internet purchases, and the other as a backup and for emergencies (car repairs, etc.). So....I guess it worked!

Also, I am really good at budgeting and I don't try to keep up with the Jones's or the Smith's or anyone else. I live simply and humbly -- but I do own a home in California! Not many people can say that on my salary!

Okay, thanks everyone -- I will keep checking. I will get the rest of the paperwork later, and see exactly what's what. Maybe I'm not getting such a bad deal after all. I hope not.

Later....

[HDL]

and explain all this in one phone call ???

I don't work in the business, but consider myself 'fairly' knowledgeable with Real Estate and Loans. That said, it's much easier for me to explain in person or on the phone than in an email (but that's just me )!

The first payment on the new mortgage is normally 'later' because as Gretchen mentions in her post above, it depends on the time of month when the loan is closing/funding. Say your close is the 11th of May. Well then your FIRST new mortgage payment will likely be July 1st. Oh "happy day" everyone says because it appears to the novice that you do not have to pay in June when in fact some of the fees that you mention in your $8K are that June amount of interest . That is why many people think the fees quoted are high, because they take into account this fact (this is why I stated above that unless we actually see the GFE, it's not really fair to say they are too high, even though they appear to be ).

Once this new loan closes, if you had an escrow account on your old loan, any monies in it are refunded back to you within a month or so. That is probably why your broker mentions getting back a thousand dollars. And just like retail stores that carry various sundries etc, the same with banks and credit unions. They all don't carry the same products (i.e. 7/1 ARMs).

Best of luck Wisteria

Originally Posted by Wisteria

The Credit Union quoted me rates that were actually higher monthly payments than what I have been quoted by the broker. The CU said that their 30 year is 6.125%. Closing costs were pretty much the same. Also, the way I understand the broker (I'm pretty confused at this point) is that my first payment is somehow "later," and I get back a thousand dollars.....?? .... I have no idea what she's really talking about, but I think I heard something like that.

Maybe I ought to just go through and question her some more. Why do some banks/credit unions have a 7/1 and some don't? The credit union has a 3 and a 5 year, but no 7, which actually fits into my time frame better. I will never get this house paid for, and that's fine with me, because in the meantime I still (in partnership with the bank!) own it, and can have my pets, and garden and paint and stuff the way I want and don't have to worry about rent being raised, or HOA fees. But I know it'll never be mine alone.