Should I refinance my 5/1 arm mortgage due to go variable in 2009?

Question

The 5/1 arm is $90K at 5.85% AND I also have an interest only HELOC of $22K at prime currently at 8.25%. I appreciate any assistance.

Answer 1

Okay, this is the type of question I usually answer. But Joe gave you such a great answer, there's nothing left to tell you...

Good luck!

Answer 2

Heh, you're going to get a lot of opinions on this one, but here's my answer: it depends. ARM is due in 2009 so your purchase was in 2004? If you plan to hold it short-term (up to 5 years), I'd stick with what you have. If longer than 5 years, consider refinancing as soon as you think your credit score and/or financial situation has improved enough to warrant the refi. We can see that the rates have been steady over the past 6 months, and there are no signs of it (yet) going any lower... Rates are going to go up? Maybe. Might as well lock something in now at around 5 or 6% fixed rate before they truly go up. You can always refinance again in later years. My friend did it at least three times over the past 10 years and knocked it down at least one percent each time.

Interest-only HELOC? I'm going to assume it's a 10-year IO HELOC. In 2014, do you still want to have a $22K balance at prime? Probably not. GET RID OF THAT HELOC ASAP - that's kinda preaching to the choir. Every extra penny you can use to pay off that HELOC will help you.

Answer 3

Thing thing to consider is you are not paying anything toward your HELOC except interest, non of your money is paying down the principle.

What is your current value of your home, did you use the full 100 percent of value (LTV)? Do you have a pre-payment pentality? These are all things to consider.

If yoiiu chose to combine the 2 and pay one payment your payment based at a 6 percent rate would be 671.50 P/I (not includeing taxes and homeowners insurance.

Questions to ask yourself? How long are you planning to stay in your home? Are the home values in your area going up or down? Reason I ask this, if you sell in the near future or 5 years down the road, would you have enough equity to get out of your combined mortgage of 112,000?

Interest rates today are very very good, and I can not project what the rate will be in 2009 (wish I could, smiling here). You might want to play it safe and refinance now while the rates are good. Can you afford the higher payment? But remember you would be paying down your debit. YOu could also go a 40 year if you chose to. That is a option for you to consider. Or there are payment options avaibale to you. Pick a payment plans. Where you have a choice to pay iterest only, 30 yr fixed, 15 yr payment, or do a half a payment is what I call it (but on this one becareful of going into the neg am of your home. this one is a great program if you are self-employed and you have a slow month.



Talk with a broker, a broker underwrites for many company's (I underwrite for 150 companies) so I only have to pull credit 1 time, and they look at my credit. A single lender (not a broker) has programs available, but they may not be able to help you and your situation, so you go elsewhere, and than that person pulls your credit (see what I mean.) FHA/VA approved too. If you shop, your credit is pulled and that is considered a soft pull, for a 30 day period. Just like shopping for a auto, it is good for 30 days. If you apply for a credit card, that is considered a "hard" pull and it drags down your credit score. When looking for a home &/or refinancing, please do not apply for a credit card, Department Charge Card, Gasoline Card or make any major purchases, like a auto, etc. This will pull your credit down.

Answer 4

One thing you will want to know is the blended rate (or what is your equivalent % rate for both).

If you are paying 5.85% interest on 90k - the interest portion is 438.75/month - on the 22k, the interest portion, @8.25% is 151.25. So, your blended rate is at or near 6.3%.

Now, you can probably get this rate or near it in todays market, BUT, we need some additional information. What is the value of your home? If you are at a high (>80) LTV when you add these two loans together, your rate that you can get will be impacted.

Further, it is going to cost you some money to refinance. Depending on the state you live in, it could be 2-5% when all is said and done, maybe more - but not much.

Also, how long are you going to live there? Do you have any other bills that you would consider or want to consolidate?

Lot's of good questions. In general I think this would take you several years to make up the closing costs - but you need to get into the specifics of what you can qualify for and THEN see if it still makes sense.

A whole lot of variables here. Contact or get a referral for a trusted mortgage broker and have them work up a breakdown of when you make your money back...

Hope that helps.

Joe...

Answer 5

Where do you think you'll be in 5 years? Your rates are good, and assuming you bought with zero down payment in 2004, you probably have little equity.

So you'd be looking at refinancing to 95% with closing costs. You could get an insured loan with an effective rate close to 7%, including the mortgage insurance. Higher payment, no benefit at all if you think you'll be out of the home by 2011.

I'd just wait and see what the market does over the next couple years, and see what your plans are at that time too.