Englishtart

We have been given a couple of options to refinance our mortgage.
First one, is a fixed 30 yr mortgage at 5.35% (current rate is 6.1%)
Second one is fixed for 5 years at 4.0% after that it will be at whatever the rate is then. It's with Wells Fargo, if that makes a difference, they did our original loan.

We have no intention of keeping this house any longer than 5 years, but IF we do get stuck here, we could refinance before the 5 years are up. Is it too risky to take the 5 yr fixed option, the way things are going now? It would save us around $300 a month in payments, which is very tempting, but we are managing ok for now and I don't want to do something stupid to save that money now, if it's gonna come back and bite us in the a** in a couple of years.

Any thoughts?

another bloody yank

As much as you move around, I'd go with the 5yr.

Englishtart

Thanx ABY, it sounds like a good idea, I'm just wary of it because of all the financial crap going on these days.

another bloody yank

I would be too, I've never liked variable rate deals. But I might look into it if I knew I was going to be moving before the fixed rate period ended.

Englishtart

I'm waiting on the paperwork arriving in the post, I will be going through it ALL thoroughly, if I thought we would be here in 5 yrs, I wouldn't touch it with a bargepole, but I am pretty sure the max time frame will be 2 years. I need to be sure that there isn't a 'minimum' time line that we have to keep the house for though, that would be a deal breaker. but not sure if they can do that

effi

Oh geeze, do not go with the variable. People here in AZ (as well as all over the country) got bit in the butt with that one thinking that they would move on before the upgrade became due. Many people here just walked away and left their homes. Go with the fixed 30 yr, that is a great rate.

meauxna

If you're only going to hold it for two years (or even 2-5) does it make sense to refi now? I didn't think you could make up the rate saving in such a short time? (have to add the expense of the new loan)

Duncan Roberts

If you went with the ARM how much would you save in the 5 years compared to how much refinancing would cost? If refinancing will cost more than you save then go with the fixed, if refinancing is less then go with the ARM. If you sell within 5 years you will have the same costs regardless of which one you choose so then it just becomes which one is cheaper. Seems like the ARM would be best for your situation.

Englishtart

From what I can gather, I don't think the refi will cost more than we will save. Something to do with hubby getting disability % from the Va after he retired active duty, I'm not real 'up' on it all, but the mortgage guy thought we were in a really good position to refi now. He mentioned something about the title costing over $2000 to register in this county, but because of his VA %, we don't have to pay that? I will understand it better (hopefuly) when I get all the paperwork The closing will be rolled into the loan too, but not sure if that is a good idea.

Englishtart

I was always told that if you can't get a full1% cut in rate, that it isn't worth doing a refi? we have 6.1 right now, so 5.35 isn't a full 1%.

I asked the guy specifically, if we would lose out if we sold up or did another refi before the 5 yrs were up and he said no.

meauxna

You realize the mortgage guy is a salesman; as long as you keep that in mind when you hear his recommendations. He earns a commission whether this is a 'good' move for you or not.
Nothing against my fellow salesmen, but we are not all created equal.

Just because the closing costs are rolled into the loan does not make them not exist. It is money you are *spending* to get a new loan. You can pencil out how long it will take you to make up that additional expenditure.

As him to prove it on paper.
I have a great mortgage broker that my family and I keep going back to. He's not afraid to tell us when it's not the right time or situation for us.

Englishtart

Thanx Mo, yeah I know he is looking to make some commission, I really don't mind that as long as it works for me Everybody has to make a living right

The closing costs being rolled into the mortgage bother me, I don't really want to 'add' more money to what we owe on the house, just in case values stay at this level for another year or so.

An ideal situation would be that we take the ARM, save $300 a month for the next two years, then sell the house for at least 10% over what we owe. If I could be sure that we would put the 300 in a savings account, that would be even better (but I know us)

Anyone have directions to this ideal World?

meauxna

How many months will it take to make up the closing costs & fees divided by the $300 savings?
How sure are you that you'll sell before the 5 years are up?

I wish I could do this better off the top of my head. I'm short on search time today, but I'm sure someone has written out the way for YOU to see if this pencils out for your situation.

Hopefully one of our brainiacs who *does* keep this at the top of the head will drive by soon.

Sally Redux

Yeah a lot of it depends on what the closing costs will be as to whether it will be worth it.

AdobePinon

All ARMs are not the same. You need to check the fine print. In particular, what is the maximum rate of increase? And decrease?

For example, I once had an ARM that was fixed for 7 years, with a maximum rate increase of 1% per year. In my situation, that would have given me at least 9 years before I hit the same rate as the best 30 year fixed I could get at the time. (And about 11 or 12 years before I really needed to worry.) And by that time, I would have already paid a reasonable share of the principle.

OTOH, I was also offered an even cheaper (initially) ARM fixed for 3 years, but with a maximum rate increase of 1% per month. That would have sucked.

Then there are others that might, for example, increase by a maximum of 2% per year, but only decrease by a maximum of 0.5% per year in better times.

And do check the closing costs too. They might be cheaper on one mortgage versus the other.