I know this subject has been brought up many times before but I couldn’t find my answer…
Mr Zazie and I have a fixed rate mortgage at 6.25% right now (30 years). I called a mortgage company to see what they could offer.
We can’t get any lower as far as fixed rate goes… However, we got … the mean looking adjustable rate!
We could get an adjustable rate of 4.875 fixed for 2 years that would lower our monthly payment by 150 dollars and pay off a couple of credit cards for the amount of 3000 dollars.
We could also get 4.75, fixed for 1 year, lowering the payment by 200 bucks, still paying off the credit cards.
We are free to refinance anytime if we choose to do so, after we accept the adjustable rate plan. Meaning, I could always get back to a fixed rate, with no closing costs (as I’d stay with the same mortgage company).
So everything looks good… too good… I know the rates could go up (I know they will, can’t get any lower!) but if I am safe for a year or two (depending on which one I choose) what is the chance that the rates will go so high that it screws us of the good 6.25 % we have now??
Oh, another point was made that with those credit cards paid off, and the car payment over in around 8 months, our credit score will go up and they could get us a better (than 6.25%) fixed rate, if we decide to go back to fixed. No guarantees of course but it makes sense.
I need some good advice from all of you people!
Has anybody refinanced from a fixed to an adjustable and regretted it? if so, why?
Well in my humble opinion (hint, hint): no. Rates are at an all-time low. Unless you are planning to sell before the rate balloons, lock it in fixed while you can.
Oops sorry about this Opinion thread…
Mod, please move me if I’m in the way.
Thanks Attrayant. I understand what you are saying, but I am as low as I can go as far as fixed is concerned and I want to lower my monthl payment… By the time my credit is good enough for lower than 6.25% It probably won’t be around anymore!
Ohhhhhhhh, I don’t know! The option is so tempting!
All right, I talked to a friend and he got me thinking that this wasn’t worth it as to get back only the closing costs we’d have to have that low rate for at least 2 years, and I know 2 years is too much of a risk as the rate are bound to go up.
All right, I guess I made up my own mind! Posting this help me thinking it through tho, thanks!!
The UK and the US are mirror images mortgage-wise. Over here, 70% of people have a variable rate and only a few % have a 10 year+ fixed rate, while those numbers are reversed over your side.
This is due to our “short-termism”, which does not actually save money in the long run, and indeed means that some customers are subsidising others to a massive extent, and is often blamed for the characteristic volatility of the UK market. Long termism allows much more accurate planning and avoids any scary repossession risks if rates rise.
Since interest rates are incredibly low right now, fixing it at this rate for the longest possible time would seem prudent.
Ditto to ftg’s post. You should not assume you will still be able to get 6.25% in two years. Your credit is obviously not very good. Rates are an all-time low, it’s virtually guaranteed they won’t go lower. IMO, you should stick with what you have.
If credit cards are a serious problem, you should consider a home equity loan. You can pay off your debt at the home equity loan rate, which will undoubtedly be much lower, and tax deductible besides.
Okay, at what point is it worthy to jump ship off a fixed rate?
I did, (for a 5yr arm @ 3.875%) and I save $300.00 a month in payments which, if I pay half of my monthly savings back toward principal for those 5 yrs, will shave about $14,000.00 extra off the loan.
Of course I have to pay to refi back out of it if the rates go up, which I’m guessing they will.
If I payed ALL (which I don’t) my monthly savings back toward principal in those 5yrs, it would shave off around $22,000.00
I guess it’s somewhat of a gamble when the refi costs are factored in.
My mortgage Co said about he same thing, we went to another and got a much lower fixed rate.
I think the scam is that your mortgage Co will tell you that you can get a lower rate through them, and since they know you and you have a history w/ them it will be easy and fees will be waved. When you actually want to do this they come up with a line like ‘due to your _____, you are not elegiable for this rate, we will offer you this though’. So now you feel like you would be ineligable for any lower rate and don’t check other to refinance. Your current mortgage Co gets to keep you at your present rate (or that slightly better rate).
We were told by our mortgage company that we don’t make enough to qualify for any better rates and they couldn’t offer anything. We could have actually bought out the mortgage outright. When we went to another company they offered lend us up to 2x the current mortgage at the advertized rate. When the 1st mortgage company got wind of this they called us and tried to make us an offer to stay w/ them, I hung up the phone.
I wouldn’t recommend going this route without VERY careful consideration. Yes, you get a lower interest rate with a home equity loan than with your credit cards, and yes, the interest is tax-deductible - but you’re putting your house up as collateral on the loan. Get into trouble and miss a few credit card payments, and all that will happen is you’ll hurt your credit rating. Miss a few payments on the home equity loan, and you’ll lose your house. Someone who has significant credit card debt is by definition in a financially precarious position; can they be SURE they’ll be able to manage both the regular mortgage payment and the home equity loan, and not go on to rack up even more credit card debt once they’ve used the loan to pay the card off (which would make taking out the home equity loan pointless)?
Risking your house to pay off a credit card can be a dangerous move to make!
FYI, this credit card should have been paid off a while ago, unfortunatly, my husband got laid off and was unemployed for long months… I am not worried about it too much now, I know we’ll pay it off as soon as we can.
We actually have pretty good credit, nothing late, nothing unpaid ever. But of course we have student loans and one car payment for another 6 months, those type of stuff.
I am NOT going with the adjustable rate, I now understand better how it works and I won’t take that risk.
I agree with artemis on the equity loan to pay off the credit card. I thought about it as it looks tempting, but I won’t risk my house for that. I used to think we were safe with our jobs, until my husband got laid off …! I am not taking anything for granted anymore. There is no such thing as job stability !
It sounds like you really need to refinance your credit card debt at a lower rate. Many credit card offers let you roll your balance over to a new account and pay little or no interest for a limited time. Or just plain shop for a lower credit card rate. If you have the equity in your house I’d instead consider an equity line of credit account. These are available with a variable rate that likely is lower than your first mortgage. You could then pay a much lower rate on your credit card debt. Once you pay off the cc debt keep the equity line with a zero balance as a safety net in case you both lose your jobs. If you are both out of work they aren’t going to open such an account at that time.
