refinance 5 year ARM now with 3 years remaining ? (loan officer, fixed rates, interest rate)

[nc99]

I have 5 year ARM with rate of 2.99( with max rate 5.5 after 5th year)....its been two years since refinanced, with the interest rates rising, should I refinance or stick with this for the remaining 3 years ? I think even if the rates were 6% and above, I would not go above 5.5%, right ? Any advise ?

[Modification Specialist]

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Just checking - are you reading your loan documents currently? An ARM, short for "adjustable rate mortgage". My experience with 5/25 ARM's - the interest is a fix low rate for the first five years. After the fifth year the loan becomes adjustable as much as 2% per year. The most popular reason for getting an ARM compared to a fixed rate mortgage. People are expecting to move before the rate changes.

Understand if you have a jumbo loan, a small difference in the interest rate, can have a big impact how much you will pay. Having a smaller conventional loan, if there is not a big difference with the interest rate, it can result in a small impact on what you pay.

If the interest rate is indeed fixed at 5.5% after your loan recasts. By refinancing what you would pay in closing costs added to your loan, any savings with a smaller interest rate, will be eaten up by the lost equity.

Only two years into your loan you have to look at the amortization of your mortgage. You're paying almost all interest with very little going to your principle. The first five years on mortgages, more goes to interest than what is paid to your loan balance. Right now you've paid very little to your principle.

Recommend you stay where you are for now- in three years as you get closer to your recast date, then start comparing your options. Getting into a new loan, you're starting all over again with a larger balance to me doesn't seem like a wise move....

Think about this - send more then to required payment now. At your current rate of 2.99% sending extra, your money is stronger because you are being charged a lower rate and less interest is added to your loan. When the rate goes up sending extra, your money is weaker because interest is charged adding to the loan.

Good Luck.

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[nc99]

Thanks for the detailed response, With 15 year fixed rates around 3.5%, I was thinking better refinance and just forget about interest rates climbing up! You were right, after 5 years my rates can go up every year. My worries are what if in 2015, the rates are 10% ??

[Modification Specialist]

Originally Posted by nc99

Thanks for the detailed response, With 15 year fixed rates around 3.5%, I was thinking better refinance and just forget about interest rates climbing up! You were right, after 5 years my rates can go up every year. My worries are what if in 2015, the rates are 10% ??

If I anyone could predict the future, they'd be one of the wealthy people of earth. It is a fact rates due change. In the state of the economy, our county cannot afford rates as they were in the late 90's and 00's.

Looking back at history, every time we had a Republican president, mortgage rates were high. Contrary with democratic presidents, interest rates have been lower.

Except during election years, twice a year the fed adjusts rates as needed to control inflation in our country. June 15 and November 15. One month before - like the midget on fantasy island yelling "the plane, the plane"... Every May and Oct loan officers all over the country start yelling like it's the end of the world "the rates, the rates" "the rate are going up. Only days after rates settle back to what they were....

I ask myself do people remember the same thing the year before? Maybe this I've been in the mortgage field too long....lol!!!


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[nc99]

wow!!! good advice, i am like a any other guy who worries about mortgage rate going up! I am going to do more research and see how the rates have fluctuated over the years...thanks for feedback!

[nc99]

Originally Posted by nc99

wow!!! good advice, i am like a any other guy who worries about mortgage rate going up! I am going to do more research and see how the rates have fluctuated over the years...thanks for feedback!

rates since 1971...just to get some idea....

Primary Mortgage Market Survey Archives - 30 Year Fixed Rate Mortgages - Freddie Mac