Should I refinance my mortgage interest?

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We have a 1.5 with ARM interest only mortgage at the moment. Did you at 5.25% 3 years ago. We were far interst payments with no payment to the client. But our home price was above 50k at the same time, I suppose, have gone as equity. I expect my income to increase significantly in coming years, but as we get closer to the mark than 5 years, I’m always nervous to get the money we are going sky high, and I was looking at a turnover of 30 year fixed rate loan of 5.8%. We intend to stay in this house for atleast another 3-4 years. Do you think it is wise to refinance at this point?

  1. Reply
    February 10, 2011 at 5:30 pm

    Honestly, no I don’t. You have two years of security left at a rate that is currently pretty hard to find. If you are planning on being in your home only 3-4 more years, then find out what your adjustment cap is. All 5-year ARM’s have an adjustment cap that limits what the loan can adjust to initially, and depending on what that is, you may find it in your best interest to ride it out until you decide to sell. You have to consider the cost to refinance versus the monthly savings you’ll get by refinancing. So, let’s say that you decide to stay in the home for three years. You’re rate is fixed for the next two years, and depending on it’s adjustment cap, let’s say two percent, your rate would be fixed for the third year at 7.25%. Depending on the size of your loan amount, your payment may only increase by $ 100 a month. Let’s say the cost to refinance is $ 2000, it would then take you 20 months to break even on your costs, and if you were only in the home for 12 more months it would not make sense to refinance.

    If you would like further details, or if you would like me to take a look at it, email me directly, I would be more than happy to. Hope this helps.

  2. Reply
    ron d
    February 10, 2011 at 6:08 pm

    How much is it going to cost you to refinance? Rates re still low, but you may be able to hold out.

  3. Reply
    February 10, 2011 at 6:52 pm

    Well, there are a couple things to consider. First, you should determine what your MARGIN (a % determined in advance by your lender) and INDEX (a financial index measuring interest rates, such as LIBOR) are for your current mortgage. This should be located on your monthly statement or closing statement.

    The margin + the index determines what your mortgage rate is. However, be aware that a great many adjustable mortgages are discounted for the INITIAL fixed period i.e. 5 years in your case. This means that your rate can rise significantly even if the market interest rates do not change. So, try adding the margin plus the index. This % is what your mortgage rate would be if it were to adjust today.

    Second, how long is the interest only payment option available? Five years? Longer? If it does not last any longer than the initial fixed rate, your payment will obviously jump up.

    Consider the above and decide what is the most important: a stable payment, but paying some closing costs OR the chance of a high payment, but a lower mortgage balance? Also, be aware that you can arrange for a mortgage with very low closing costs, but a slightly higher rate – this is often beneficial for those who plan on selling in the relatively near future.

    I have a very detailed article on adjustable mortgage margins, caps, indexes, etc. on my website (and no, it is not an “application” or sales site):

    Hope this was helpful, you can contact me with questions.

  4. Reply
    February 10, 2011 at 7:36 pm

    The points & costs you will pay are more important than the rate if you are looking short term. You may be better off waiting. Contact me to discuss in detail.


  5. Reply
    February 10, 2011 at 8:20 pm

    Always worth a look. Get a free quote from these guys ( the banner at the top ). It’s a big name company that’s helped lots of people. I’d give their link here but that’s advertising for them. They helped my wife and I a few years back when we purchased our current home. It never hurts to look around for a better rate. Good luck!

  6. Reply
    February 10, 2011 at 8:22 pm

    In my opinion I would say yes. I am a loan officer and I amazed at how many people never pay their houses off. I think people now tend to think of the monthly mortgage payment a way of life for life. I suppose I am too honest because most loan officers want return refinances every couple of years, but I think it is well worth your time to look into refinancing and getting your home paid at a long term fixed rate. Imagine owning a home free and clear with no payments! So what I would do is shop around now while the rates are still pretty low. You should be able to find something decent still. It just seems (and please take no offense to this as I am being honest) paying interest only on a house makes no sense and your just making your lender rich while you get NOTHING in return. Think about it. Any how that’s my advice as unpopular as it might turn out to be!


    p.s.- Depending on your loan and rarely will loan officers tell you these things. Your minimum payment may be less than your interest causing the rest to accumulate on your principal owed. Just depends on the loan you received.

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