I’d go with Giraffe and Mama Zappa - assume he’s lying (that line about THEM paying all the fees made my eyebrow shoot up), and see if there’s a way to spin this to your own benefit. There might actually be some benefit for you in a refinance, but don’t take this deal, since he’s blowing smoke up your ass and insulting your intelligence. I can see a deal where you get right to the closing, and see $4000 worth of refinance fees, and he simply lies and says that he never said they would cover them. Or you get it in writing, and his supervisor tells you that he had no authority to make that promise. One rule you can rarely go wrong with - what’s good for the bank is rarely good for you, and vice versa. If they’re calling YOU up and offering this, I’d treat it like a booby-trap.
Don’t forget about the second financial collapse that is pencilled in for 2012 - maybe sit tight with a fixed rate mortgage until we’re out of that.
Same here. Went from a 30-year 5.50% fixed to a 15-year 4.125% fixed, five years into my 30-year. I make regular principal payments. I’m ahead of schedule from my original plan to pay off the 30-year rate in 15 years. With the refinance, I’ve accelerated my original plan where I will pay off current loan in eight years (or 13 years based on the original 30-year loan timetable).
Whatever you decide** read the fine print**. Whatever the mortgage rep says means nothing; what is in the written contract means everything. When I refinanced I was told the changeover means I can skip one payment. I’m not doing that. Skipping the first payment during the changeover is a sales tactic where the bank recoups some of their expenses it cost them to refinance you. It’s too good to be true over the total cost of the loan. Lenders never give you anything for free anymore.
FWIW, ARMs are not the way to go, especially when indications are inflation is going up. You will lose.
congodwarf, others have already covered the dangers of ARMs. What you may want to inquire about is whether your lender has a no-financed fixed option available.
We recently refinanced our 30-year mortgage through the same lender at no cost. Our new rate (4.5) is above the market rate, but it would likely take more years than we will be in the house to recoup closing costs on a competitive loan. As it is, at only the cost of a signature we’re saving a bit over $100 a month.
In our case, I believe the lender’s motivation is to keep diligent, low-risk borrowers by offering an attractive alternative to refinancing through someone else. It sounds like you’re in the same group, maybe your lender has a similar program.
Where you are now is not relevant to whether you will want to refinance in year 7. At that time the relevant factor will be what the prevailing rates are then and whether it will benefit you to refinance at those rates. All a comparison with your 2010 payments will tell you is whether you made a good decision or not.
My biggest concern would be, where will rates be in 2017.
I had an adjustable rate mortgage years ago. It worked for us, because we knew we would only be in that condo for a few years. We were in for just over 6 ears, and the bank raised the interest rate by the maximum allowed amount at the 5 and 6 year marks, even though that put our rates at higher than what was being offered for a new mortgage/refinance… The mortgage terms were written so that there was lots of space for the bank to raise our rate by the full 1% every year for 5 years.
So lets say that you have a similar experience.
2011 - 2016 - new mortgage, rate = 3.75
2017 - rate = 4.75
2018 - rate = 5.75
2019 - rate = 6.75
2020 - rate = 7.75
2021 and onward - rate =8.75
But wait, you say, we can just refinance in 2018. But what if the rates for a refinance have gone up (personally, I don’t really think they can go down)? What if a standard 15- or 30-year fixed rate is now at 6%? 8%?
You will have had a couple of good years when your rate was below that, but you will spend maybe 15-20 years at the higher rate.
You need to find yourself an on-line mortgage calculator with amortization schedule and run a whole bunch of scenarios for the life of the loan.
Don’t look too closely or get attracted to any particular monthly payment but rather what the total cost of the loan will be, P&I + closing/refi costs.
Run a schedule with the 3.25-3.75 rate and see what you have left in principal after 5 years. Run another schedule with the remaining principal and the upped 4.25-4.75 rate and see where that leaves you after another year, then run another with the 5.25-5.75 rate and so on. Again don’t get caught up in any of the monthly payments but rather what the total cost will be when the loan is finally paid off.
Now compare this to a straight up fixed rate to get an idea of which one will cost you less in the long run.
Also note:
The reason a lot of people are being foreclosed on right now is beacuse of AR mortgages. They took the teaser rates (which they could afford) and were told when posing the question “What happens when my rate goes up and I can’t afford my payments anymore?” to “Just refinance to a lower rate!”
Well, we saw what happend with that. Their home value suddenly dropped, their rates (payments) went up, and the “Just refinace!” solution became “sorry, no new loan for you.”
FWIW, I’ve had my mortgage sold three times. The only option I ever had was to refinance after the fact - I didn’t have any say in it being sold.
Maybe he is claiming that the ARM is less desirable to other companies, so they won’t want to buy it…but still is profitable for them? I don’t know. I’ve always played it safe with fixed loans, and don’t have any real experience in the ARM world.
I don’t think he is referring to the mortgage being resold. It is more likely that the salesman is recognizing that a customer currently paying a relatively high rate is likely to refinance somewhere, so he is trying to get in first before his customer looks elsewhere.