i have an adjustable rate mortgage at 9.25%, that isn't due for another year.?

Question

if i refinance now , at a lower interest rate, on a fixed rate mortgage, .......would it be wise to pay the prepayment penalty versus the interest i would be paying for the next year? the way i figure it, i paid $8,000 in interest in 2006. my penalty for early pay off would be about $4,000, and they would roll it in to the loan.

Answer 1

If you have an accountant I would advise speaking to him. I would think it would be in your best interest. From what I know, I do believe that a portion of your prepayment penalty is also tax deductible. Also make sure you are not getting taken to the "bank" on what the Mortgage Broker is charging you to do the loan (his fee), are you going to have PMI (mortgage insurance) on the new loan) and are you buying the new rate down.

Answer 2

I'm a bit surprised to hear that you have a 9.25% rate on an adjustable mortgage. that sounds very high for an ARM -- I'm guessing your credit wasnt so hot at the time of the loan, and that you have gotten your act together since then and can now get something at the market 30year rate at around 6.5%. If you've fixed your credit, then give yourself a big pat on the back.

My back-of-the-envelope calculations show me that you would only save around $2000 this year in interest if you were to do the refi which is less than the prepayment penalty of $4000 and you would also need to pay about $1000 in closing costs on the new loan.

So, over the next year, this is clearly a loss. However, I would be inclined to refinance anyway for a few reasons reasons. First, with a 9.25% ARM with prepayment penalties it sounds like you borrowed from a predatory lender. I would want to do business with a different lender who was giving me a more competitive rate if I could. Second, the prepayment penalty and closing costs on the new loan will probably have to be paid a year from now anyway, so you might as well bite the bullet now. Third, there is some chance that interest rates will go up in the future, so I would want to lock in the low current rates.

Answer 3

$4,000 isn't a huge prepayment penalty, and if you can secure a lower rate with little hassle, it would be wise to do so.

Also keep in mind what you plan to do with the new loan. Don't refinance again if you plan to sell the home in a year or two. If you plan on sticking around for a while, it would be wise to pay the prepayment penalty and get into a lower-rate fixed loan.

Do the math to see what the perceived savings would be for the next year, factoring in your intended stay at your current residence. It doesn't always make sense to pay off the prepay if you're planning to sell in the near future.

Learn more at http://www.thetruthaboutmortgage.com

Answer 4

Thats extremely high. You should try to see about refinancing. The credit check wont cost you anything. Try contacting these people, http://www.bestnodocloans.com

They are really good in getting people out of bad situations.

Answer 5

yes it would defintly be wize i have been doing mortgage loans for about 8 years now and specialize in sub prime alt a loan types why dont you shoot me an email and i can explain why it would be better for yourself

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Answer 6

yeah thats a high rate...drop me a line sometime if your interested in lowering it.

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