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phillyjared1 · Joined: 27 Jul 2008 Posts: 1 1.41 Dollars($)

I am in the 4th year of a 10-yr interest-only loan ARM @ 6%. I have about $180K in equity and $399K left on the loan. With the interest rates rising I was considering locking in a historically low rate NOW rather than wait till my ARM comes closer to being due. I am able right now to lock in a 6.375% rate, which will increase my payment from $2600 to about $3100/month. Is this insanity? We plan on being in the house for at least another 6 years. Thanks!

brian1 · Posted: Sun Jul 27, 2008 9:10 pm Post subject:

LOL I have seen this question somwhere before.
I would hold out untila time when you can bot fix and lower the rate. You have 6 years to do that. Had you caought it a month or two ago you may have been able to and it will likely come around again.
Brian

chrisburns · Posted: Mon Jul 28, 2008 6:02 pm Post subject:

An option you should look at is using some of your equity to buy down the interest rate.

You can buy down the rate to something that would save you money and quickly pay for itself while at the same time providing the security of a 30 year fixed loan.

michael_ueltschey · Joined: 11 Jul 2008 Posts: 15 6.47 Dollars($)

Phillyjared1,

I do not recommend buying down the rate. Sorry Chris I just disagree. Rates tend to be lowest in the Winter months Nov-Feb. So I would find somone to keep an eye on it for you. In a refi you always want to keep cost as low as possible. So you can recoup the cost faster making the refi a wise investment.

Yes, like you mentioned it does matter how long you plan on being in the home to determine if a refi makes financial sense. Are you in a position where you can take on $500.00/month extra? Are you out of debt outside of your home or do you have car payments and credit card debt?

These are all questions I would ask to see if there are ways to improve cash flow while also getting out of an I/O ARM.

Posted: Mon Jul 28, 2008 7:41 pm Post subject:

No one can predict what this unstable market will bring in the fall or tomorrow for that matter. Historical data is irrelevant in the mortgage sector we are experiencing today. The market is volatile and rates are as well.

We are just now coming off the highest rates we have seen all year... and most market analysts could not have predicted that they would have risen so high so quickly.

The bottom line is that the decision will have to be left up to the original poster.

I wholeheartedly agree that they should sit down with a mortgage professional and go over in detail their situations, their goals, and their needs. This is the only way a true recommendation can be made. But if you want options I still hold that considering a rate buydown now can save you money over time.

Caron

Hi,

I'd agree with Michael in the sense that it makes sense to refinance when you can keep the cost low. But at the same time, I don't think one should rely too much on rate trends. No doubt, a rate trend gives you an idea but you cannot form your decision based solely on the rate trend. These days markets keep changing without following a particular trend. So yes, I do believe that one should sit down and analyze his situation prior to taking any financial decision. It's the individual situation that matters the most. If you are financially sound and creditworthy borrower, you'll find plenty of options available in the market.

Good luck

michael_ueltschey · Joined: 11 Jul 2008 Posts: 15 6.47 Dollars($)

Good points. The current economic environment is scary and unpredictable. I stick to my recommendation due to the fact that your loan won't adjust for another 6 years. My point is fear drives people to do things.

You are considering increasing your monthly payment considerably in a bad economy with prices rising. Most people are feeling the crunch right now due to gas, etc... The rate is not as important as the total monthly debt you have versus income. .375% in rate will not make a huge difference.

The best strategy is to get out of all debt outside of your home. And then establish a sizable emergency fund. And then work on retirement saving. And lastly work on paying off your home.

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Refinancing an interest-only loan