Should I pay $500 to fix my mortgage rate for five more years?
I currently have a mortgage that recently went from a fixed rate (for the first five years of the loan) to a variable rate (to be assessed annually for the rest of the 30 year mortgage). The loan goes variable for the first time this month. Original interest rate = 4.375%. New rate for this coming year = 5.0%. The bank has offered to fix the rate for 5 more years at 6% for a fee of $ 500 (we pick up where we left off–not reestablishing 360 more payments, no closing costs, etc.) Is this a good deal?
Two more pieces of information: The interest rate cannot increase by more than 2% this year and next year. And it cannot go up by more than 6% over the life of the loan (in other words, it will never be more than 10.375%, and if it ever did, I would obviously refinance.)
But how ’bout this $ 500 deal? Is it worth it?