I bought a house approx 16 months ago for 220K, judging by the comps it's probably worth 210-220 range, I owe 168k and I am in a 30 year fixed @ 5.375%. My payments are about $1365/mo(no PMI) w/ everything impounded but have been paying around $250 over the principle every month. I was thinking about going into a 7/1 ARM and continuing to keep paying around $1600 mo. The lender I have been talking to says I am going to have about $3k in total closing costs to get into a 7/1 @ 3.25%. bringing my total payment down to approx $1125/mo meaning I could be adding about $475 to the principle every month instead of $250. Assuming I continue to pay $1600 or more every month, do you think it's a good idea to get into a 7/1 ARM? Or is the future of interest rates in 7 years simply to risky for an attempt like this? These are questions I probably should have asked myself when I first bought my house but at the time ARMs kinda scared me so I went the traditional route.Oh yeah. I would still like the security of having a low payment just in case something unexpected happens. Illness, spouse job loss, etcI plan on staying in the home for the foreseeable future
Lehighton,PA | Mar 29th 2011
by coolluc...
Answer
by cgummer...
This is a great question and one that deserves to be asked by anyone thinking of ARM's. If you are planning to retire, or live in the house for the rest of your life, an ARM is not a good choice. If you are planning on selling your house in a few years, then its a possibility. If you save yourself 200 a month and your closing cost are only 3k then it will take you about a year to recover the closing costs and to be actually saving money. Its very important to think about all the other costs, break even point, opportunity cost ect. You could also be taking that money and place in a high yield account and make more money if you are not planning on paying off the house. IF you had enough money to throw at the mortgage and you COULD pay it off in less than 7yrs, then take an ARM. If not, stay where you are, your rate is decent. If rates drop significantly look at another 30yr fixed. Thanks Mar 29th 2011
by nfratini
You are asking the right questions as far as arms go. This is a tough one to answer being that you are unsure how long you are going to stay in your home. The rates on arms are going to be a good amount better then what you are paying now, but the flip side is noone has any idea of where rates will be 7 years down the road. You have a solid rate on your 30 yr. so unless you are willing to play that risk then you may benefit best from staying put.Nick FratiniAcre Mortgage 610-344-9988 Mar 29th 2011
by fstadler
If you goal is to retire the debt quickly and save money in interest Costs ver the long run Why don''t you look at the 15 year fixed rate. Fixed rate Principal and Interest payment would be $1263.00 on 168k . This doesn't include taxes and insurance. No one has a crystal ball to tell you what rates will be in 7 years. That is why the 7 year ARm product carries a first adjustment rate cap of 5% so if the rates rise over the next 7 years that 3.25 arm could end up at 8.25. Do you want to gamble? Since you are paying extra every month I would go with the 15 yr fixed rate. Mar 29th 2011
by esexton
by rglover
The best answer to your question is YES, you should refinance. The next question is do you go to the 7 year or do a 15 year because you can get lower rates and a faster pay off either way you look at it.15 year is a new payment of $1283. Using a rate of 4.125. This could be a better/less risky solution. The 7 Year option leaves you a balance of about 100K at adjustment time. Index+Margin today says your rate would be .79+2.25=3% however, rates are at a low point and people expect them to go higher in the longer term. Finally, before doing anything, look at what your current debts are because it may make sense to reallocate some of that money to paying those things off first then focusing on the mortgage. Mar 31st 2011 |
|
