Trying to figure out if/when we should refinance our mortgage

[Anonymous]

We refinanced into a FHA 5-year ARM in 2011. Interest rate is 3.75. We thought there was no way we wouldn't sell the house before 2016, so we didn't worry much about the ARM. As things often go, our plans have changed, and now it looks like we may still be in the house when the rate is scheduled to adjust, in May 2016. The interest rate is capped at a 1% increase per year and a 5% lifetime increase.

We have enough equity in the house now that we could re-fi into a conventional loan and cut out the monthly FHA mortgage insurance payments. But there are the costs associated with re-fi. Also, if we re-fied into a conventional 30 year fixed today, the rate would be more than 3.75, and we still have two more years left at that rate on the ARM. I'm not sure it's worth it to give that up now to hedge against rates going higher, especially since our potential increases are capped at 1% annually. But rates have nowhere to go but up.

Can someone please help me think through whether it makes sense to refi now? I don't really trust most mortgage brokers since they seem to always push you to refi, whether it's in your best interest or not. TIA!

[Anonymous]

How much longer do you think you'll be in the house, OP? Just a year or two after the ARM adjusts? Or longer?

[Anonymous]

I'm not sure. That's really the problem. We might move next year or we might stay 10 more years. It depends on job-related stuff that we can't predict now. Given that uncertainty, what do you think makes sense?

[Anonymous]

Anonymous wrote:I'm not sure. That's really the problem. We might move next year or we might stay 10 more years. It depends on job-related stuff that we can't predict now. Given that uncertainty, what do you think makes sense?

Whats the balance?

[Anonymous]

Anonymous wrote:We refinanced into a FHA 5-year ARM in 2011. Interest rate is 3.75. We thought there was no way we wouldn't sell the house before 2016, so we didn't worry much about the ARM. As things often go, our plans have changed, and now it looks like we may still be in the house when the rate is scheduled to adjust, in May 2016. The interest rate is capped at a 1% increase per year and a 5% lifetime increase.

We have enough equity in the house now that we could re-fi into a conventional loan and cut out the monthly FHA mortgage insurance payments. But there are the costs associated with re-fi. Also, if we re-fied into a conventional 30 year fixed today, the rate would be more than 3.75, and we still have two more years left at that rate on the ARM. I'm not sure it's worth it to give that up now to hedge against rates going higher, especially since our potential increases are capped at 1% annually. But rates have nowhere to go but up.

Can someone please help me think through whether it makes sense to refi now? I don't really trust most mortgage brokers since they seem to always push you to refi, whether it's in your best interest or not. TIA!

Look at the PenFed 15/15 program. I think they pay the closing costs. You could also look at the 5/5 program.

PenFed has great rates, but it can take a while to close. Even if you have to pay them yourself, costs are low.

[Anonymous]

Anonymous wrote:

Anonymous wrote:I'm not sure. That's really the problem. We might move next year or we might stay 10 more years. It depends on job-related stuff that we can't predict now. Given that uncertainty, what do you think makes sense?

Whats the balance?

Current balance is $410k.

Thanks for the PenFed rec, PP. I'll check it out.

[Anonymous]

OP again. I just checked out the PenFed website. We could re-fi into another 5 year ARM and reduce our monthly mortgage payment by $1000 a month. Assuming that we would definitely sell within 5 years so no potential rate hike down the road, is there any reason we shouldn't take that deal? A potential downside is that we'll reduce the amount of our monthly mortgage payment going to principal by resetting the clock at 30 years, right?

[Anonymous]

Also, are origination fees typically negotiable? We could refi into a 10 year ARM with a great rate, but the origination fee is really high.

[Anonymous]

IME, origination fees aren't negotiable bcs. there are tradeoffs between a good rate and upfront costs.

You could also check out Amerisave-- they have "no cost" refinances that work the same way-- they will actually give you money to cover your closing costs, but they will charge you a slightly higher interest rate over the life of the loan.