To refinance or not to refinance?

Question

I'm currently in a 5 year ARM loan at 5.625%. The 5 years is up next year and the loan begins to become adjustable.
I have about 21% equity in the home currently.
I'm wondering - should I refinance soon to a 15 year loan? We plan on being here another 4-5 years or so. Would it be better to do a 30 year loan and just pay extra principal instead of a 15 and not having the flexibility in case of a financial hardship?
I can get a 15 year loan for 6.7% with 1 point right now. I'm just afraid when the 5 year ARM runs out, it will keep adjusting way up.

Answer 1

You have some great answers already but please allow me to add my two cents. I'm not sure why you would consider a 15 or a 30 year fixed if you know for sure you will only be there for 4-5 years. If you plan on keeping it as a rental property then do a 30 or 40 year fixed loan to help lower the payments to give you the flexibility of making extra payments if you choose to. If your going to sell and move or buy another property then take a 5 year Interest Only loan to keep your payments low. You could also take a Option Arm loan but make sure you understand exactly how it works. Option Arm is a tricky loan and can get you into trouble if you do not understand it. I hope this helps you and gives you a couple of good ideas, however if you need any help or have any additional questions please feel free to email me [e-mail]

Answer 2

Reaper made a couple of good points. Where I got lost is where he said, "when your time is up, you could refi...". I am not too sure why you would want to refi once you are ready to move out unless you are going to keep the home as a 2nd home or a rental.

In all honesty, if you are going to be there for another 4 to 5 years, then you absolutely should look into an interest only loan, or another popular loan type, which is an option ARM.

All creative loan types can in fact be dangerous without the correct planning so make sure that your loan officer is playing a vital part in helping you plan. In other words, make sure that the loan is explained to you in its entirety and that you are satisfied with the explanation. If not....ask more questions.

If you would like to talk more about these or other loan types, you can feel free to contact me personally at timothy.kazee@americanhm .com and we can talk about what is out there that would be within your best interests.

My recommendation, don't go with a fixed rate mortgage, look at something that is going to yield you more money monthly.

Good luck!!!!

Answer 3

it will keep adjusting way up, never down....EVER. regardless of how long you stay there I'd say stick with the 30 fixed. since you're not going to be living there forever, no need to invest into something short term and pay larger monthly dues than necessary. 30's now can get you around 6.5 with the point you're looking for quite easily. depending onyour credit obviously. in reality a 30 can be paid off in about 17-18 years if you were to make an additional 2-3 extra payments a year. saving you at least 100k in finance charges. should you choose you could also get the cash out for personal or savings use and save it for later. up to you really but don't invest into anything short term. if you do then look into something like an interest only loan which will yield you the lowest monthly payment. you could then refinance again once your time there is up and move into something more permanent

Answer 4

If you already have equity in the home, but are only planning to stay for 3-4 years...have you checked into an interest only loan? The key is to what your long term plan is v/s short term. Do you want more affordable payments now? If so an IO program, or another 5 year arm would be best. However, if you think you may stay in the home, definitely refi to a fixed rate.

Answer 5

Hi russrimm,

It will adjust, that is a fact.

How much depends on what your caps are. 2/1/6 2/2/6, etc.

However, If you KNOW that you are only going to stay for another 4-5 years, than I would definitely look at a another 5/1, or 5/25, depending on what your cases may be.

5/1 = Conforming Borrower (good credit)

5/25 = Non-conforming (not so good credit)

If you do go IO (interest only), be careful that you talked to in detail about the pros and cons.

Good Luck,
~Trey

Answer 6

Do you currently have a pp (Pre-payment Penalty) or has that already expired? Sounds like you are leaning toward the 15 year, but you can do the 30 yr - have a lower payment, and pay extra on the principle, as you mentioned, just in case of a financial hardship.. Always remember, if you pay more on the principle - send it separately in a separate check, put on the memo line - "APPLY TO PRINCIPE ONLY" or they may apply it as a regular payment, or send it back to you (have send it done) - because they are not sure what you are doing...

And you are correct, look at your Mortgage & Note that you have from your closing...The rate will go UP.

Answer 7

next year, just refinance to an interest only loan or a negative 1% ARM loan that adjust every year. Keep your disposable income.

Regards