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Old 11-04-2012, 11:45 PM
 
1 posts, read 1,154 times
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In 2005, my parents got an ARM mortgage on their home, which is now underwater.
They don't speak English very well and are not financially savvy. Now that I am old enough to know what's going on, I'm trying to help them with refinancing.

They're 7 years into their ARM. Their rate is adjusted every year (in April) based on the Treasury Security index (TCM) + 2.75% margin. They have about $200k in principal.

They recently got an offer from their current lender to switch to a 30-year 3.625% fixed loan (no closing fees).

Should they go for the fixed 30-year loan?
They're in their 60's now but I think they would like to live there as long as possible.

I don't know much about mortgage loans and this is a little overwhelming for me.
Any advice would be much appreciated

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Old 11-05-2012, 08:55 AM
 
Location: Austin
7,238 posts, read 19,872,596 times
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I'm confused. You said they're underwater, but have $200k in principle? Are you saying they still OWE $200k? And have a principle payoff of $200k?

Why anyone would continue with an ARM, when rates are so low for a fixed, is beyond me. ARMs are typically for people who aren't going to be in their home long term. They've already been there for 7 years. If they are going to be there longer, switching makes a lot of sense.
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Old 11-05-2012, 10:28 AM
 
240 posts, read 492,037 times
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Quote:
Originally Posted by FalconheadWest View Post
I'm confused. You said they're underwater, but have $200k in principle? Are you saying they still OWE $200k? And have a principle payoff of $200k?

Why anyone would continue with an ARM, when rates are so low for a fixed, is beyond me. ARMs are typically for people who aren't going to be in their home long term. They've already been there for 7 years. If they are going to be there longer, switching makes a lot of sense.
They are probably underwater because the value of the house is less than they owe. When the OP says principle, I would image that is how much they owe at this moment. They probably bought the house for $225, the principle is down to $200, but the value of the house is sitting at $175.


I would switch to the fixed mortgage. ARMs work well for short term situations, but since the parents aren't financially savvy, you should get the most straight forward loan.
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Old 11-07-2012, 09:15 AM
 
1,785 posts, read 3,230,780 times
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I'd be shocked if switching to a 3.625% fixed rate with no closing costs (when your house is possibly underwater) isn't a great deal for them.
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Old 11-07-2012, 09:18 AM
 
Location: NJ
17,579 posts, read 43,151,033 times
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Quote:
Originally Posted by snowdenscold View Post
I'd be shocked if switching to a 3.625% fixed rate with no closing costs (when your house is possibly underwater) isn't a great deal for them.
Agreed. Unless we are missing something (and I can't imagine what that would be) how could this not be a very good idea?
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Old 11-07-2012, 10:12 AM
 
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There is not a loan program currently available that will refinance underwater mortgages that are ARMS.
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