Posted: Tue Jun 17, 2008 8:37 am Post subject: Refinancing ARM .. should I pay points/ closing costs.
Hi
We would really appreciate some insights on what would be a wise decision to do for our scenario.
We have a 5 year ARM ready to reset in December for a condominium currently valued at 390,000. Balance Loan amount is 250,000 .
We took the ARM 5 years ago expecting to move within these 5 years into a bigger Single family home. But we couldn't and we are forced to refinance now.
We are not sure how long we will stay in this Condo , probably not more than three years. But it all depends on whether we could afford to buy another home even at that time. Or if we could rent this house out and still move ?
That almost makes another ARM tempting ... because we'd like to continue Saving for the next home down payment. But I am trying to convince myself that a Safe bet in this volatile market would be to refinance to a Fixed.
Now, we could easily pay off the closing costs and if needed additional 1 or 2 points to lower the Rate of Interest.
Will it be better in our scenario to pay points/ closing costs or not ?
We lie in the 25% tax bracket , have young growing children, and are in our 30s.
The maximum investing we do is in CDs.
And the children's college fund is yet to be started.
it is clearly better to avoid the payment of any additional sums wherever possible. i think that buying your rate down with a point or more is not a good move, particularly on a refinance. you can still deduct the payment of points on your income taxes, but only amortized over the life of the loan (i.e. the point divided by the term of your loan).
i tend to agree with you that refinancing to another arm is not a bad idea. you'll be able to reap the benefit of a lower rate for another 3- or 5-year period, depending on which way you go. you might want to look into a refinance with an fha loan, as the rate caps are going to be more favorable than with a conforming loan; and potential pricing adjustments are much more benign with fha than conforming as well. _________________ George M. Akerley
Senior Loan Officer
Freedom Mortgage Corporation
37 Jerome Avenue
Bloomfield, CT 06002
860-286-0444
George hit it on the head. You need to take a look at the costs vs the reward. If you were planning on being in the home long term then by all means paying up front and getting a lower rate will pay off. It can be 2-5 years before you recover the difference. After you reach that point you then save money and come out ahead. It would be a waste of resources to do that now if you plan on moving ion a few years. Make sure and look at both a 5 yr arm and a 30 yr fixed. It may not be as big a difference as you think.
Good Luck
Brian _________________ Licensed Broker 50 states http://www.aimwithfocus.com
Need quick advise email or PM Glad to help
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