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We are looking to purchase in the next few weeks and are deciding on mortgage options. We can get a 5/5 ARM with an attractive initial rate of 2.75%. After that it adjusts every 5 years to whatever the market rate is plus some other number, i forget the exact terms.
We know that the fixed rate is the best way to go because it locks in the current 4.375% for the next 30 years, which is one of the lowest ever.
But if the rates dont increase and stay at 4.375 in five years, I can get the ARM and save tons of money for 5 years and then refinance to a fixed rate at that time. But if the market rates go thru the roof, it will be bad because the ARM will adjust accordingly and more and if i refinance then, i would be kicking myself for not locking in the 4.375 five years earlier and must accept something else which is much higher.
So, what is the general consensus of interest rates 5 years later?
"But if the rates dont increase and stay at 4.375 in five years"
Do you really need anyone to opine on this?
That was a scenario that you pointed out. If the interest rate does not increase and I get an ARM now then I could refinance and consider myself lucky for the first five years.
I am looking for opinions on trends. I know what the good and bads are.
We are looking to purchase in the next few weeks and are deciding on mortgage options. We can get a 5/5 ARM with an attractive initial rate of 2.75%. After that it adjusts every 5 years to whatever the market rate is plus some other number, i forget the exact terms.
We know that the fixed rate is the best way to go because it locks in the current 4.375% for the next 30 years, which is one of the lowest ever.
But if the rates dont increase and stay at 4.375 in five years, I can get the ARM and save tons of money for 5 years and then refinance to a fixed rate at that time. But if the market rates go thru the roof, it will be bad because the ARM will adjust accordingly and more and if i refinance then, i would be kicking myself for not locking in the 4.375 five years earlier and must accept something else which is much higher.
So, what is the general consensus of interest rates 5 years later?
We are just off our record lows for mortgage rates. Rates have no where to go but higher.
So let me get this straight.: Refi in 5 years which will cost you 15k +/-
That equals 3k per year, for every year you had your original loan. You only hope rates are below 4.375 at that time to refi. highly doubt it. So, let's assume rates stay the same at 4.375 five years from now so you can refi.
How much money are you really going to save by having a rate of 2.75% ARM for 5 years
THEN to spend 15K +/- to refi at 4.375.
Not worth it. Stick with the fixed rate. If rates go lower (I doubt) like you are hoping for...then refi
We had an ARM when we lived in NY and it was awesome - worked out great for us, especially since when the rate adjusted every year, our new payment was based on the amount we CURRENTLY owed, not the ORIGINAL loan amount. We basically got a free re-fi every year.
That said, I would not take out an ARM now. Rates are only going to go up. Rates will surely be above 4.375% five years from now. Trust me when I tell you, you will NOT want to pay for a re-fi at that time. You will pay a ton in closing costs even if you use the same mortgagor - it's a total ripoff.
Agree with pp - if rates go significantly lower, then you suck it up and pay for the refi.
We are just off our record lows for mortgage rates. Rates have no where to go but higher.
So let me get this straight.: Refi in 5 years which will cost you 15k +/-
That equals 3k per year, for every year you had your original loan. You only hope rates are below 4.375 at that time to refi. highly doubt it. So, let's assume rates stay the same at 4.375 five years from now so you can refi.
How much money are you really going to save by having a rate of 2.75% ARM for 5 years
THEN to spend 15K +/- to refi at 4.375.
Not worth it. Stick with the fixed rate. If rates go lower (I doubt) like you are hoping for...then refi
It's good to know the general consensus is that rates will go up but $15k for a refi?
When our ARM was 5 years old our lender gave us the hard sell on refinancing (this was in 2002) and we were JUST about to sign the paperwork when we got the letter from the bank about how the ARM worked year over year and we said "we are we paying $15K to refi when they will do it for free every year?" and that was that. And yes, it was going to cost us that much to refi which was more than we paid to close in the first place. Totally absurd. Closing costs in NY are a huge ripoff.
I don't know what banks some posters are using but I refinanced last year with BoA and closing costs were no where near 15k.
All depends on your taxes, points, ect....
That's why I put 15K "+/-"
I paid 16K with BOA four years ago. Only because I had to spend 4k more in points (Harp program) because my home value was not there. However, I lowered my rate from 6.875 to 4.875% and lowered my payment over $400 per month.
AND a little hidden fee which NO one tells you: Mortgage Tax!
It's a tax of about 1.05% of your mortgage. iF you refi with the SAME mtg co that tax is waved.
1.05%of 300k is 3K+ just in tax!
So, yes 15K is about right.
All depends on your taxes, points, ect....
That's why I put 15K "+/-"
I paid 16K with BOA four years ago. Only because I had to spend 4k more in points (Harp program) because my home value was not there. However, I lowered my rate from 6.875 to 4.875% and lowered my payment over $400 per month.
AND a little hidden fee which NO one tells you: Mortgage Tax!
It's a tax of about 1.05% of your mortgage. iF you refi with the SAME mtg co that tax is waved.
1.05%of 300k is 3K+ just in tax!
So, yes 15K is about right.
Ahh ok. I went from 4.8 to 3.8, same bank so no mortgage tax. I think I only paid a point I don't remember. It actually went much smoother then my actual mortgage did with BoA.
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