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5/1 ARM from 2011

We refinanced our home into a 5/1 adjustable rate FHA ARM January 2011, rate 3.625 and ARM becomes effect Jan 2016. It cannot go up by more than 1 percentage point per year. We currently owe $217k on this loan. We chose the ARM because we expected to sell our house and move within 5 years. We had the house on the market the past 6 months and did not get a buyer. Realtor recommended the price and said to be patient. We couldn't go any lower without bringing money to closing, so very little equity in our home at this point. We are now wondering if we should stay with current ARM loan that will have rates rise in another year (no more than 4.625 in 2016), or if we should refinance into a conventional 25 year fixed rate loan of 4.125% (a year less than what we have remaining on our current loan), but new loan payment about $130 more per month. We would still like to move at some point in they next few years, but we do not know if it will ever be possible without listing at a price that requires us to bring cash to closing. The refinance will add about $5700 onto the balance of our loan (closing costs rolled into loan so no out of pocket costs). The lender offers no risk appraisal if the appraisal doesn't come in high enough to do the loan, we do not pay for it. We tried refi last year and appraisal came in too low to complete the loan (we needed 5% equity). Part of me wants to stick with current low rate and try selling again in the next year, however, I've read that rates are due to go up the second half of 2015, which makes me worried we will miss out on getting into fixed rate loan in the event we cannot sell before end of 2016.
By dawcor374 from IL Nov 30th 2014
Reply

If we only had a crystal ball to see future rates and/or home prices! However, it would be very worthwhile for you to get a side-by-side comparison to determine what the benefits would be if you sold 1-3 years from now and whether even the worst case scenario (rate adjusting) would make a refinance beneficial to you. The closing costs you mentioned seem a tad high. Also, have you thought about renting the home rather than selling right now? Where in Illinois are you located?

Nov 30th 2014

Thanks for your question. There's a few options you can go with. Since there are many variables I'm just going to lay out a few. In 2011 FHA Mortgage Insurance Premiums were much lower than they are today so going the FHA Streamline route might not make sense, however with today's interest rates in the low 3s (3.125% - 3.375%) it might be worth taking a look at just to exhaust that option. On the Conventional since you're planning to sell soon you can go with an additional 5yr or 7yr ARM and also achieve a rate in the low 3s. If you want the piece of mind of a Fixed Rate product you should be able to get a rate in the 3.875% "range" as of this past week. All come in 25yr AMs. I hope that helps and please feel free to contact me if you have any addtl questions or if I can be of any further assistance. Thanks. Sam - silvercreekfinance.com

Nov 30th 2014

Since your home is up for sale now, I would look into a no cost refi. if you do anyting at all.Barclay Butler, Barclay Butler Financial Inc. 224-420-9990.

Nov 30th 2014

The only way to know what would be best for you would be to have a mortgage professional do up several quotes and you can do a side by side comparison. Typically, in your scenario where your looking to sell, you should consider a no cost refi so your not adding to your balance, and look at the 5/1 ARM again.. NO hurry right now since rates are still low, and I expect rates to stay low for at least another year.. I'm a Broker here in Scottsdale AZ and I only lend in Arizona. If you or someone you know is looking for financing options, feel free to contact me or pass along my information. William J. Acres, Lender411's number ONE lender in Arizona. 480-287-5714 WilliamAcres.com

Dec 1st 2014

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