Is it possible to get a 5/1 ARM loan for 6 months and and then refinance to a normal 30yr fixed Mortgage??

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I want to get a 5/1 ARM interest only loan and keep it for 6 months to a year ( to help me save up more money) and then refinance it to a Normal 30 or 15 year fixed Mortgage. Is this possible? Also what do I have to do to qualify for the 5/1 ARM loan? Do you have to put down a huge down payment or something like that? I have a great credit score, but next to nothing for a down payment.

Hi Folks

I purchased my home in Aug 2005 with a 5/1 ARM loan with Washington Mutual at a 6.35% interest.

As of Oct 2010 this becomes a variable rate and my new internet rate will be 3.57% (Index + Margin). But, Chase says my monthly payments will remain the same (as I’m paying today) because of amortization.

Why is this the case?
Current 5/1 ARM is Principal & Interest

9 Comments
  1. Reply
    DannoREA
    April 29, 2011 at 9:54 pm

    Can you? Sure. The better question is – Should you?

    Many loans of that type are coupled with a stiff prepayment penalty. Make sure you factor this into your cost analysis scenarios.

    There are some loan products that will help you get past a short-term cashflow deficiency, but for the most part, that underwriter wants to see where the money will come from. You want to have 6 months reserve in the bank, a 20% down payment and a good stable job before you go buying in the current market.

    If you are considering this move to make a first time home purchase, I would STRONGLY advise against it. That is, unless you would enjoy being one of the “Holy crap, I’m losingmy home because I can’t afford my mortgage!!! HAAAALP!!” posts on Yahoo Answers.

  2. Reply
    newjerseyguy
    April 29, 2011 at 10:25 pm

    Doesn’t make sense. I would delay any purchase for those six months and save for a down payment.

  3. Reply
    glenn
    April 29, 2011 at 11:05 pm

    Where are you coming up with the down-payment in six months?

    A year ago I bought my new home before I sold my old home. I got a “bridge” loan from the bank to cover me until I sold the previous home.

    If I had never been able to sell my previous home then I would have been in trouble, but the bank said I could have kept it for up to two years.

    One huge advantage was that the up front fees for a bridge loan are extremely small.

  4. Reply
    Extreme
    April 29, 2011 at 11:44 pm

    You can but is it worth it. Basically you would be paying closing cost twice. If you are willing to do that you might as well buy some points and get the loan you want the first time.

  5. Reply
    W S
    April 29, 2011 at 11:59 pm

    good answer danno-also you must calculate all fees including underwriting and closing-you may be best off to wait, fees alone may make this a loosing prop-run the numbers.

  6. Reply
    Julissa
    April 30, 2011 at 12:32 am

    It’s extremely important to understand that with a little time and the right approach getting the absolute best mortgage refinancing is not a huge problem.Companies/businesses that arrange financial products of this natureenter into some research and groundwork on your own because the Internet can equip you with an absolute pot of gold of very helpful data when it is essential that you get the best mortgage refinancing.

  7. Reply
    Landlord
    April 30, 2011 at 1:18 am

    This is a terrible plan. It will cost you a fortune and you are assuming that the house value will not decline at all in 6 months.

    If it declines you will not be able to refinance.

  8. Reply
    Debdeb
    April 30, 2011 at 2:05 am

    Ask them for clarification and an amortization table. Also, this would be a good time to refinance into a fixed rate loan in the upper 4% range. I don’t know the details of you loan, but I can’t think of any reason that would happen.

  9. Reply
    Bob
    April 30, 2011 at 2:20 am

    Without knowing the terms of your contract I can only guess, but if your current loan is Interest Only during the first five years, based on the rates you mentioned your payments would remain close to the same for the next year. If that is the case, your loan is about to begin the “amortization period” like the person from Chase told you. While you were paying interest only the balance remained the same, but your new payments will start reducing the balance now.
    If your loan has a conversion to fixed rate feature this may be a good time to use it and if not, refinancing at current fixed rates is a good idea if you plan to stay in the home for several years.

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