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Old 08-14-2012, 06:50 PM
 
108 posts, read 254,127 times
Reputation: 55

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I closed my house my house 4 months ago @ 4% fixed rate. Now that the rates are still lower, I'm looking into refinancing my house. There is no significant difference for 30 years rate, but 10 year arm seems attractive (3.25%). I'll be paying around 2200 in closing costs for a profit of $125/m for 10 years. Is it risky switching to an arm from fixed rate? Is it really worth taking this chance? I'm unable to decide since there is no guarantee that I'll stay in the same house for more than 10 years. But if I do, it'll be a headache refinancing it later.

Advise please?
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Old 08-15-2012, 06:04 AM
 
Location: Texas Hill Country
2,393 posts, read 9,082,803 times
Reputation: 799
We had an arm for one of our earlier houses and I hated it. I would stay with fixed. Its a good rate and you already know that it will be hard to switch back later..why do it? Not a great savings per month.
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Old 08-15-2012, 07:17 AM
 
Location: Round Rock, TX
1,306 posts, read 3,766,457 times
Reputation: 753
I'm right now getting my house re-fi'd down to 4% (down from 6%), but I'm not paying ANY closing costs or fees at all. I'm fine with that. You should be too - unless you don't mind shelling out all those closing costs, etc to save an extra $50/mo.
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Old 08-15-2012, 12:28 PM
 
Location: New York
2,251 posts, read 4,637,292 times
Reputation: 1612
Quote:
Originally Posted by Bubchub68 View Post
I closed my house my house 4 months ago @ 4% fixed rate. Now that the rates are still lower, I'm looking into refinancing my house. There is no significant difference for 30 years rate, but 10 year arm seems attractive (3.25%). I'll be paying around 2200 in closing costs for a profit of $125/m for 10 years. Is it risky switching to an arm from fixed rate? Is it really worth taking this chance? I'm unable to decide since there is no guarantee that I'll stay in the same house for more than 10 years. But if I do, it'll be a headache refinancing it later.

Advise please?
After a purchase, most lenders will want to see at least 12 months of on-time payments before you could refinance. They you would want to do a streamline (in-house) refinance, staying with the same lender. That way you eliminate your closing costs. Hopefully you haven't been speaking to a loan officer, who filled your mind of unreachable savings.

10 year arm seems attractive, my experience with loans having ten year terms, are interest only. Meaning nothing is going into your principle. So in ten years you still owe what the original balance was.

You can reduce your interest rate by yourself. Take one payment and divide by 12, add the 1/12th extra into your normal payment. Doing so reduces your term to 23.5 years, reduces your net effective interest rate 2% lower than what it is now, the best is you get reported as being more responsible and the credit score goes really high. With high credit scores you pay less in everything.

No body can predict where to interests rates will be in the future. Years ago for a Financial class did a thesis regarding mortgages. I studied many sources how mortgage rates are structured. For example the Fed makes rate adjustments twice a year (exception an election year) - on May 15th and Nov 15th, they do so to control to control inflation.

It is known when economies are bad, interest rates or low. When economies or booming interest rates are high. Looking back at history through the 1930's, there has been many up's and down's in our economy. Looking at a parallel comparison, towards to end of a presidency there has been recessions. The first few years of a new presidency, economy's are booming.

Using this analogy - in my opinion interest rates will raise slightly in next year. I predict loan officers will be pushing refinances because it's the end of the world..... "the interest rates are going up!!!!" After the 15th the fed adjusts the rate maybe 0.25% at the most. Spending many years working with mortgages - every May and Nov like clock work, started to see the same thing happen as it did the year before.

With most adjustable interest rate loans, the $125 can raise as low or as high as 2% for the year. The monthly savings your predicitng now. Could turn into +125, or +250 more per month in the short term future.

My recommendation is to stay with you are because your in a fixed rate.

Good Luck
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Old 08-15-2012, 01:11 PM
 
1,785 posts, read 3,241,833 times
Reputation: 1280
Quote:
Originally Posted by Modification Specialist View Post

You can reduce your interest rate by yourself. Take one payment and divide by 12, add the 1/12th extra into your normal payment. Doing so reduces your term to 23.5 years
His rate would have to be over 7% for that process to reduce his term to 23.5 years. At 4% it's closer 26 years.
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Old 08-15-2012, 08:21 PM
 
108 posts, read 254,127 times
Reputation: 55
Thanks Modification Specialist!
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Old 08-23-2012, 12:28 PM
 
1,785 posts, read 3,241,833 times
Reputation: 1280
Quote:
Originally Posted by Modification Specialist
You can reduce your interest rate by yourself. Take one payment and divide by 12, add the 1/12th extra into your normal payment. Doing so reduces your term to 23.5 years
Quote:
Originally Posted by snowdenscold View Post
His rate would have to be over 7% for that process to reduce his term to 23.5 years. At 4% it's closer 26 years.
For fun I decided to run some numbers. I took the monthly payment and applied an extra one at the end of each year.*

Interest Rate | Time saved on Mortgage

1% | 2 y 7 mo
2% | 3 y
3% | 3 y 5 mo
4% | 4 y
5% | 4 y 7 mo
6% | 5 y 3 mo
7% | 6 y
8% | 6 y 11 mo
9% | 7 y 9 mo
10% | 8 y 8 mo



* You could also do the extra 1/12th of a payment each month, but it's pretty negligible. There's no difference at 1%, and about 3 months benefit at 10%.
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Old 08-29-2012, 10:08 AM
 
Location: New York
5 posts, read 9,080 times
Reputation: 11
Historically: ARMS have outperformed Fixed Rate
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