Question by Abigail: Should I refinance from an ARM if my rate will increase?
I currently have an ARM mortgage with a rate of 3.125%. I am considering refinancing to a 30 year fixed with a 3.875% rate. Is this a good idea?
The rep said the higher rate is due to the negative equity I have in my house. This would be using the HARP refinance program which is typically makes the rate .75% higher.
Best answer:
Answer by Beverly S
We are doing 3.375% 30 year fixed. Shop around a bit. I would go for a fixed but 3.875 is a bit high right now.
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Yes, as rates are guaranteed to increase. They are at lowest levels in decades.
Current re-fi rates are 3.5% with no points and no fees (APR 3.500%).
Assumptions: single-family, owner-occupied, no secondary financing, loan amount $ 300k, 740+ FICO, LTV < 75% (25% equity). Slightly higher rates or points if you don't meet all assumptions. Anyone offering you a lower rate will be charging fees and/or points. Many mortgage loan originators are dumb or unethical (not telling you the full story, like the first answer).
Rates can only go up from here. When is your arm set to mature?
Why 30 years? Why not 20? Or 15?
I would never do an ARM. I would o anything possible to get out of it.
Sure, rates are low, but they were low last year, the year before that, the year before that, etc….
Consider doing another ARM. You can lock in a lower rate than fixed and lock it in for 10 years (for example). And, even if rates are through the roof 10 years from now the ARM caps out. Do the math for what your balance would be at that time and the max rate. It might be worth the risk.
YES
Unless you’re a gambler
Interest rates are amazingly low right now, and that refi is still a good rate
Without HARP you won’t get any chance to refi, and rates WILL go up
With an ARM, your rates will change, whereas with fixed rate, you will know exactly what you owe
BTW, putting down extra payments of principal has a HUGE impact on the amount of interest you pay over the life of your loan
The HARP loan does not necessarily have a higher interest rate. In order to find the best rate you need to shop around. Remember, look at the fees and costs on the refinance loan, not just the interest rate. (The longer you hold the loan, the less impact the upfront fees have on your APR).
Since interest rates are so low today, most borrowers (about 95% of the conventional loans) are fixed rate loans. Many more borrowers are looking to refinance into 10-year or 15-year mortgages. The interest rate savings on a 15-year mortgage can be substantial. You mention taking a 30-year loan. Is that because you cannot afford a shorter period? You will build up equity much quicker on a 15-year loan.
If you decide to take a ARM loan, consider the risk of the interest rate change in another five years. Will you be able to afford the new payments. Once again, with low interest rates most borrowers who know that they are not selling the house within the five years (on a 5/1 ARM) or have sufficient cash to pay down the loan, take a fixed rate mortgage.
I recommend that you check out BIlls.com article about harp mortgage rates at http://www.bills.com/harp-mortgage-rates/ before getting more quotes.
An ARM rate is risky. financing your home every three years in most cases with today market may not be the best option. Since rates are historically low I would suggest you refinance into a fixed rate term.
My name is Shamere and I am a Mortgage Loan Officer/ Financial Advisor
Call or email me and we can talk more. In order for me to help Ill need to know a little more info.
sgrant@magnoliabank.com
502-400-2845