Forum Index
»
Real Estate
Would you refinance into an ARM right now or is it too risky?
![[Post New]](/jforum/templates/default/images/icon_minipost_new.gif){kind=icon}
Anonymous
| Please share your thoughts. We're considering a five year ARM with a rate that's under 3%. This isnt our "forever" house, but I'm scared. DH thinks it's a great idea, that we can just try to sell in four years (give ourselves a year to get rid of the house). I'm scared that we won't be able to sell it and that we'll be stuck with a mortage at a high rate. Thoughts? |
Anonymous
| Refinance into a 5/5 ARM (ie the one offered at Pentagon Federal Credit Union). The rate is slightly higher, 3.625%, but it only adjusts once every 5 years and there is a maximum of a 2% rate increase. Even if everything goes to hell, the rate will be 5.625% for years 6-10. What do you think? |
Anonymous
| Do you have to be a member of the credit union to get that? |
Anonymous
This. Not familiar with Pentagon FCU, but check the index that is used. We have an ARM that is indexed to LIBOR (the rate that banks charge each other for borrowing), and the rate has steadily dropped these last few years. The key is a cap on the amount at which the rate can increase. No one expects interest rates to increase dramatically for another year or so. As the above poster points out, 5.635% is still a historically low rate. Even if the rate does increase, I have seen loan calculators that show that you still come out ahead, as the first years of a loan are when you pay the most interest, so that, even if you pay a relatively higher rate later on the lower balance, your total cost over the term of the loan is lower. |
Anonymous
| How much does it cost to close on one of these loans? The loan would be for 730. Thanks. |
Anonymous
Yes you do and they are VERY selective when it's comes to loaning money. Be sure to have an excellent credit rating and low debt, or don't even bother applying (they just turned my sister down for a credit card and she has a credit rating of 750 because they said she had too much cash going out for how much she brings in). |
Anonymous
| We have no cred card debt but a TON of student loan debt. I remember when we first bought that our mortgage broker told us that student loans werent looked at in the same way as other debt. I wonder if this is still the case or if we would be denied. |
Anonymous
It depends on how much the payments are relative to you income. If your income is high, and your payment history is good, it can be a positive. We just bought a new house with a jumbo mortgage and the underwriting process was brutal. Among other things, they wanted to see a year's reserves in accessible cash (retirement funds didn't count). If your loan isn't a jumbo, it probably won't be as hard. |
Anonymous
We closed on a jumbo loan recently and we didn't have to show a year's reserves in cash. In fact, we don't even have near that if you don't count retirement. I didn't find the underwriting process to be any different that it was when we bought our last house 5 years ago (also a jumbo loan) or our house before that 10 years ago. However, we don't have student loans or other debt and the amount we borrowed was pretty small relative to our income. I have a good friend who also just closed on a jumbo loan and they didn't have to show a year's reserves either (they don't have it even counting their retirement). |
Anonymous
|
Sometimes the cap on the percentage change does not apply to the first adjustment so be sure to read the fine print carefully.
Our pen fed mortgage had a 2 percent adjustment cap except for the first adjustment which could have gone all the way up to 12 percent if the libor rate it was tied to had gone up. |
Anonymous
|
Whether it's too risky depends on how soon you'll sell the house. If you're sure you'll sell within five years, then it's silly to pay extra for a 30-year mortgage.
Just remember, though, that plans do change. I own a condo in a different state that I refinanced into an ARM, and at the time I did that, I was sure that I would be selling within five years. Well, I did move out within five years, but I couldn't sell the place. And I can't refinance either, because it's no longer owner-occupied (and I don't have enough equity to refinance as an investor-owned property). So far, I've done very well with the ARM, but I'm just crossing my fingers that the market there comes back before interest rates start going up. |
Anonymous
| We are refinancing into an ARM. It can go up a max of 1% a year once it adjusts, and caps around 8%. Our max payment possible is still jusT the same as what we pay under our current mortgage. ARMs can make sense, you just have to run the numbers under a worst case scenario and see where it gets you. Personally I would not do interest only unless I was an experienced house-flipper and knew I would not end up under water. |
Anonymous
| I am the poster who suggested PFCU. Their website is penfed.org You do have to be a member, but anyone can join (if you don't meet any criteria you can join some support veterans non profit, which they link to and then join). Follow the membership link on their website. The loan applies to conforming and jumbo, with no difference in the rates. The rate cap does apply to the first change (so max 2% increase for years 6-10). It is a no closing cost loan (not no closing cost out of pocket, but true no closing costs. |
Anonymous
| Does anyone have comments in dealing with PenFed through the loan process? I am also interested in their 5/5 Jumbo ARM product, but many of the online reviews refer to lots of difficulties during the process, don't return phone calls, and in general aren't very prompt or communicative. Any thoughts good or bad are appreciated. |
Anonymous
| our workplace FCU offered great terms but likewise terrible communication and promptness issues, but in the end we got a great rate with very fair terms on our 7/1 ARM which was financially the most practical and prudent instrument for us. |