ARM loan refi?

Question

If I was to refi to save some money and pay some bills my wife has run up and get a lets say a 5 year ARM with negative amertization, but wanted to sell at the end of that ARM, anything wrong with that? Pro's and Con's?

Been in current residence 6 months on same loan.

Ok, without going for neg amort, what are better options for what I am wanting to do? ARM a good way or not. Or what else is there to do?

Answer 1

Couple of things:
ARMs dont do neg-amort. Those are done with option loans. You need to check if you have a pre-pay penalty. You could end up paying thousands extra due to that if you refi too soon.

Next: if you have only been there for only 6 months, you most likely dont have the equity built up yet (unless you put a huge down payment or your value has shot up) to do a refi & get cash out.

A neg-amort loan is a horible way to do it! If the housing market goes the way it has, you may not be able to sell it for what you bought it for. Whats worse, is you will owe MORE than what you bought it for! Especially since you are looking at a 5 year frame. Thats the negative of the negative amoritization. What could concievably happen is: you bought your house for $250k, with neg- amort, at the end of 5 yrs, you have to sell for at least $260k b/c you owe more now. That is not even factoring in closing costs & fees or the cash out you are planning. Bad idea.

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new info post.

Ok, for what you want to do will greatly depend on a couple of things. You did not mention how much equity you have now, but I dont imagine its much with the short time there. If you can re-fi at a significantly lower rate, an ARM may do it by saving you a bit. But with rates the way they are now, its not that different from 6 months ago, so your savings will be minor, like $100/month. If that! And that is assuming a rate drop of AT LEAST 1 point. The way to save the most would be interest only. Not a good opotion though the way the lenders are in trouble with them now.

Answer 2

A negative amortization loan means that the longer you have the loan, the less equity you'll have, and the more you'll owe.

I can't believe such a loan is even legal. It certainly isn't an intelligent decision. It's basically saying, "Here, let me give you some money," to the lender.

At the end of the term, you'll owe more than you do right now. Do yourself a favor. Don't do this.

Answer 3

So you want to spend 5 years decreasing the amount of equity that you have in your house and then sell it? What happens if the housing market continues to struggle for 5 years and your house decreases in value during that time? You didn't say how much equity you have in your house, but if you've only been there fro 6 months, it's probably not much. i wouldn't be surprised if after 5 years you owed more on your house than it was worth and wound up having to pay the bank to get out of your mortgage.

Terrible idea.