| Feedback on 3/3 ARM refinance |
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mike2881
First Time Poster
Cash: $ 0.25
Posts: 1
Joined: 31 Aug 2012
Location: SW Florida
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| Feedback on 3/3 ARM refinance |
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Hi everyone, first time on this forum and hoping to get some feedback on the 3/3 ARM that I'm considering. I know everyone freaks out at the mention of an ARM loan and I understand why. However, from the research I have done this appears to be a good option for me. Here are the 3/3 ARM details that I am considering:
-2.75% interest rate, 2.920% APR
-Initial interest rate remains the same for the first three years. After that the rate can only change once every 3 years.
-Bank will pay up to $2500.00 of closing costs
-If loan is not held for 2 years, $2500 closing costs must be paid back to bank. After 2 year period, loan can be paid or refinanced.
-Rate cap: 1.5% per annual adjustment and 5% over the initial rate for the life of the loan
-Index: 3-year CMT
-Margin: 2.50%
My current mortgage is an FHA 30 year at 5.275%. The original loan amount was $76K and I currently owe $70K. I've had the home and this loan for a little over 3 years. My current mortgage payment is $680 and this loan would bring me down to $530 (includes all escrows). Since I would be financing $70K with this 3/3 ARM, the bank would cover all closing costs.
I'm considering this loan because we plan on staying in the home for the next 2 years so we don't have to pay the closing costs back if we sell the home or refinance again. Then I plan on selling between years 2 and 3. Even if we stay in the house after year 3 when the interest rate increases (max of 1.5%) I'm still at a lower interest rate than what I'm currently at.
Obviously if we planned on staying in this home a long time this loan option would not be a good fit. But with our plan to stay in the house for only 3 more years (+/-) this seems like a great option that would save me $150 per month.
Any feedback is greatly appreciated!
Mike
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Fri Aug 31, 2012 7:11 pm |
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oldguy
Senior Member
Cash: $ 751.85
Posts: 3656
Joined: 21 May 2006
Location: arizona
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quote:
we plan on staying in the home for the next 2 years so we don't have to pay the closing costs back if we sell the home or refinance again. Then I plan on selling between years 2 and 3.
In the 1980's rates did a quick surge from about 7.5% to 17%. Quite a few people had balloon loans, some had reverse amortization teaser loans, so their plans were similar to yours - ie, stay in the loan for a couple years, then refi or sell. But 2 yrs later, you couldn't sell becasue no one wanted a 17% loan (or could even qualify for one) so the price of houses crashed. And the people with balloon loans wee screwed if they didn't have the lump sum - ie, they couldn't refi at 17%. Probably won't happen , of course, but when the dominos start to fall it is amazing how quickly all of the unforeseen consequences jump at you.
(At the time, we had 4 houses, a home & 3 rentals, and we had 6 loans on the 4 houses. We were happy that we had Fixed Rate loans and we kept those houses for 20 more years - except for one balloon loan, I had to sell my truck, lol. )
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Sat Sep 01, 2012 1:41 pm |
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