Mortgage: from 7.11% fixed to 8.63% adjustable. Should I auto.Refinance?

Question

My sister has a mortage for $79,000.00 loan for which he was paying a fixed 7.11% for two years. She was just notified that the new adjustable rate will be 8.63% adjust. (approx. 100.00/month more!). My question is: Should she refinance so that she doesn't pay 100./mo. more? And if it is a good idea to refinance, please explain what the pros and cons of refinancing are, and what she should be looking for. I believe the value of the property is supposed to be $110,000.00 now.
(please tell me what details you might need to better assess the situation so that you can provide resolution options)
Thanks, in advance - She will need to make a decision within the next three or four days - PLEASE HELP!!!!

Thanks for the answers so far. Can you also be more specific as to "what her goal should be?" It it reasonable to request/look for another 7.11 fixed? Also, any negative side to refinancing?

LTV=79K/110
cred.score=low (560)
income=2652/mo (31,824/yr)
(thx!)

Answer 1

yes, she has not been on the current ARM for so long as to hurt her refinancing into a fixed rate at about 6.125 - 6.75.

here's how she will raise, not lower, her mortgage payment: she will use the accumulated equity/appreciation in order to take cash out of the refinance for "home improvements." the higher the mortgage, the higher the payments, correct? so, she should only refinance the amount currently due.

her proposed new lender should be experienced enough to show her how long it will take for her to recapture whatever she must pay to refinance (a half point, a point, etc. or other costs). it is a little complicated, but only the best loan officers are willing to show it to her because most just want an easy deal. since they get paid a commission, why not have them show you what you are getting for the money?

here is the best advice that i can give to your sister: refinance at a lower, fixed rate mortgage on a 30 year amortization schedule, but make extra payments as often as possible, for as much as possible. mark such checks, in the memo line as well as on the back, "principal payment only." it is truly amazing how much $$$ you save over time as well as the time period over which you pay! since she can probably tax deduct points to refinance (she should speak to the tax advisor), at least she can use the irs refund this year to prepay the mortgage! ANY amount, as soon as is possible, ALWAYS helps. the loan officer can show her a 30 year and a 15 year amortization schedule(s) so she can see the difference.

may she be happy in her home.

Answer 2

She needs to refinance asap she should be able to get a fixed mortgage at 5.25% up to 6% maybe just alittle higher. Is she on a arm now? thats what it sounds like, a fixed mortgage the % is locked in. Alot of people got caught up in this, seems low at 1st then they get U. I have refinanced and it when real smooth, did not even need a credit ck. proof of income or anything. Has she ever been late on her mortgage? More than once could cause her to go thru alittle more. Have her start calling mortgae companies asap to refinance. When she refinances the cost will roll over in other words if she owes 79,0000 and refinancing cost 3,0000 she will have her new mortgage at 82,000 but she will still be better off, when U consider the interest saved. Also I know when I refinance I only had to pay 1/2 the mortgage amt for 1 month and then I also received a month with no payment due, and received a check for money owed me, on interest escrow etc. this is all in her favor. The only way a mortgage pmt. can increase on a fixed if is taxes increase, and she has a escrow shortage. With the escrow its best to add $30.00 a month to escrow it helps. I wish her the best all is in her favor. Hope I was of help and explained it well.

Answer 3

The reason most people should (I say should, because a number of people get sold the pipe dream of lower payments by slimy Loan Officers) get into an ARM is so that they can refinance out of them, once their credit improves, into a fixed rate mortgage.

I don't know the situation, so I won't quote you an interest rate that she should be getting, because without knowing all of the details, these quotes you see here are nothing but wasted keystrokes.

Get out of the adjustable now though, because with most adjustable mortgages, 6 months after the first increase, another half a point increase will occur, and again in another 6 months until the loan is at it's fully indexed rate, which could be in the 'teens.

Her "goal" should be to get the lowest interest rate possible, and not worry too much about points. Points are tax deductible, and are not only used to pay the company for doing your loan, but also for buying the rate down.

If you want some options, have more questions, or want some more information, email me or check out our website.

Thanks!
Kevin

[e-mail]

http://aapexfund.com

Answer 4

With a 30 year mortgage a bank has to guess what rates are going to be for the entire term and what yield they're losing on lending that amount of money to you for a longer period of time. With a 5 year ARM they only have to commit for 5 years and then reset the rate to whatever the current market is. Obviously this is easier to do for shorter periods and much more accurate. The rates start a bit lower since they'll be corrected in 5 years when market conditions vary. Like the above people have all stated the ARMs that are out there now are adjusting up by quite a bit. If you are considering that type of loan make sure you can afford the payment at the maximum rate the mortgage allows for in the time you'll be in the house. If not, then it's a very risky loan to sign up for.

Answer 5

Might not be a bad idea to refinance IF she has good credit AND can get a good rate BUT be very careful..there are a LOT of shady characters in the mortgage business these days. KEEP IN MIND that if you do refinance you will land up having to pay FEES to refinance and it could be very costly so be sure you get somebody you can trust..

Check this site out for mortgage help:
http://troubleshooter.com/MortgageHelpCenter/