My current 7 year ARM is coming to an end. My mortgage broker wants to refi me back on a 5 year ARM on a 30 year term at 6%. My existing bank will adjust the rate to 7.25%. The refi would cost about $12k with buying a point and all the other closing fees. I will also get reset to 30 years and lose $10k of equity (loan amount would go from 230k to 240k). the difference in monthly payment is only $250 to just stick with the current bank at 7.25%. We are also looking to move within the next year or two if not sooner. The refi just isn’t making sense to me anymore…seems like between the closing costs, the loss of $10k in equity and the amortization starting over and almost nothing going to principle…it’s not making sense. Am I correct?
Refinancing might not be worthwhile if you’re planning to move soon. You could consider asking for a customized term, like 23 years, to match your original loan’s timeline. Also, buying points may not be beneficial in a declining interest rate environment, as you might refinance again before breaking even. If the current payment at 7.25% is manageable, sticking with it until you move could be a better option, depending on your comfort with the payments.
@Zev
The payment isn’t an issue, and I’ve asked about adjusting to a 23-year term. Waiting to hear back from the broker.
Delaney said:
@Zev
The payment isn’t an issue, and I’ve asked about adjusting to a 23-year term. Waiting to hear back from the broker.
I’d recommend exploring no-point options for the 23-year term. Still, if moving is definite, refinancing might not be the best financial move.
Long-term, an adjustable-rate mortgage can be unpredictable. If you’re moving soon, paying extra interest now might not make sense. Initially, ARMs can offer lower rates, but they adjust based on the market, which could increase your rate later.
@Ren
ARMs can be beneficial in a declining interest rate market due to potential lower rates.
@Ren
I originally chose an ARM for a more manageable payment. Now financially we’re better positioned. The broker suggested a new ARM for its lower initial rate compared to a fixed 30-year.
Delaney said:
@Ren
I originally chose an ARM for a more manageable payment. Now financially we’re better positioned. The broker suggested a new ARM for its lower initial rate compared to a fixed 30-year.
Why didn’t you switch to a fixed rate when rates were around 3%?
@Kim
We thought we’d have moved by now.
Delaney said:
@Ren
I originally chose an ARM for a more manageable payment. Now financially we’re better positioned. The broker suggested a new ARM for its lower initial rate compared to a fixed 30-year.
It sounds like the broker’s advice benefits them more than it does you, considering your plans to move.
@Reid
I agree. It doesn’t seem to be in your best interest.
@Ren
It seems like you prefer to avoid financial risks, which is prudent.
@Ren
There are safeguards with ARMs, like caps on how much the interest rate can increase.
Your concern about amortization and principle is valid but typical of early loan payments which primarily go towards interest. Refinancing to a lower rate could save you on interest costs in the long run, but if selling soon, upfront refinancing costs may not be justified. Why pay for a point if you’re selling soon? You might want to ask for a higher rate that covers closing costs instead.
The total cost for your loan is significant when you factor in the out-of-pocket expenses and the increase in your loan balance. If you’re unsure about the ARM’s terms post-adjustment, it would be prudent to gather more details before making a decision. Refinancing doesn’t seem beneficial if you’re planning to sell soon due to the high costs involved.
Have you considered other mortgage types, like a 15-year loan, which might offer lower rates? It’s worth comparing these options, especially if you’re in a stronger financial position now.
True said:
Have you considered other mortgage types, like a 15-year loan, which might offer lower rates? It’s worth comparing these options, especially if you’re in a stronger financial position now.
I’ve looked into 15-year loans, but rates at my credit union are currently above 6%. Where are you finding rates at 5%?
@Delaney
That’s from a local credit union, so rates might vary by location.
What are the specific terms for reducing the rate to 6%? Are there lower rate options without points? It’s also worth considering how much you’d get back from closing your escrow account, as that could offset some of your immediate out-of-pocket expenses.
@Luca
Check the maximum rate adjustments allowed on your ARM. This will give you a clearer picture of potential future rate increases, helping you make a more informed decision about whether to refinance now.