Should I refinance my loan to a fixed rate?

Question

I have a 488,000 options arms loan that has 2 years left before I refi without pre-payment penalty. As of now the pre-payment penalty is 15,000. Got a quote from my loan agent at 6.125% for a 30-year fixed, no pionts and no cost. Estimate out of pocket $3500. I plan to roll the 15,0000 into the refi. Should I bite the bullet and just refi. I estimate that I can save $600 from what I pay right now and be able to recoupe the amount in 31 months. I plan to stay in the house for another 5-7 years. Rates look low right now. what should I do? Also, anything other questions I should raise with my loan agent. Got into bad option arm loan and now I am hesitant and want to get everything defined before I sign.

Finances are in effect too because I am getting married in 5 months and money is getting tight.

just talked to my agent the $3500 is broken up in 2900 for the first month mortgage and 600 out of pocket.

Answer 1

First off I want to congratulate you on second guessing a loan that you're not comfortable in. A lot of people are in your situation with option ARMs and I commend you for doing something about it.

A few posters have recommended staying in your ARM because the rates will stay low. This would be great advice if we were gauranteed low rates, but were not.

I called the guy to have the crystal ball installed in my desk and would you believe he never showed up?

At the end of the day what you have to think about is what makes life bearable for you. Will you be able to sleep well at night knowing that your interest rate will be recalculated monthly? Is it okay with you that you have no way of predicting how much interest you'll be putting back into your loan balance?

A thirty year fixed is a great option if your very open ended in your outlook. However, if you KNOW that your only going to be there for five years then a five year fixed might be an option for you to consider as well.

The thing that concerns me is that your not comfortable enough with your current agent to ask him or her these questions directly. If you feel more comfortable going to the web, then that may be a good indication that your not working with the right person.

If you want some more help you can shoot me an email and I can review everything for you to make sure your getting a good deal.

Answer 2

I have a couple of questions for you- first, you aren't considering using the same loan agent that reamed you with your option arm, are you? Unless your credit is really bad, the only reason for a three year prepay (and I'll bet that's what you have) is that the loan agent makes a ton of money on the deal. It's called yield spread premium- ask him about it. Second, since you have an option arm why don't you make the interest-only payment for the remaining two years and put whatever you can toward principle? That's gotta be lower than 6.125%. Third, if this 30 year fixed refi is no points and no cost, what the #@%& is the $3500 for? Your agent sounds like a real gem, and you sound like you've got the word "sucker" tatooed on your forehead (no offense intended). If you are only going to stay 5-7 years, what do you want a 30 year fixed for? I obviously don't know your whole story, but if I were you I'd wait out the prepayment period, then get a 5 year ARM. What I really don't understand how you can save $600 a month with this new deal. Your fully amortized payment would be $3056 monthly. How can you be paying $3656 now? Exercise your options- that's what option arms are for. Best of luck to you and your bride-to-be.

Answer 3

Sit on it. Rates are low, and do not look like their going up soon so your arm is not going up. since you got it last year, it is probably close to what your new rate would be. You may as well stay with it for now. At least stay stable until after your wedding, believe me there will be more expenses than you see now. You can refinance later if rates start shooting up. If you happen to make it 2 years before that happens, you just saved 15 grand. If it makes you feel better, pay the fully amortized payment until then to see what your payments will be like.

Answer 4

I would ask them if you are internally refinancing with the same company, if they will waive the prepayment penalty. I work for a mortgage co. and if the customer refinances with us, then we waive the prepayment penalty. That is a good interest rate and especially if it is fixed. Just remember, if you escrow, your taxes and ins. , your payment may still go up if your taxes or insurance go up.$15,000.00 is a lot though for a prepayment penalty, see if they will waive it. Good luck

Answer 5

You have run the numbers and the payback is there. I don't think rates are coming down much but I don't think that you will see a huge upturn in rates in the short term. I am not a fan of ARMs so I would refi now.

Answer 6

Since you are planning to be there another 5-7 do it. The only other advice that you should take is make extra payments on it so when you decide to move you have a lot of equity, thus making it a lot easier to move up to a bigger better home (maybe on the beach).

Answer 7

I've just refinanced for 5 years fixed rate after much advice so I would recommend the same thing.

Answer 8

Sounds like you should change companies. I can recommend 3 different loan officers for you to choose from.

Answer 9

I believe I would go for the fixed rate, check with your accountant, the penalty may be a deductible in this case., Ask if they (IRS) consider this prepaid interest.

Not Sure

Answer 10

I would check with eloan first, because they are running a promotion where they waive the lenders fees. An extra 3500 bucks cant hurt!! If you use this link http://www.tkqlhce.com/click-2177451-10427742 they will waive the lender fees.