Mortgage WWYD

[atarianna]

Givens: currently in a 5/1 ARM at 3.125%. The rate is able to change May 2016 a max of 1% per year after that but could never go above max of 8.125%.

Our bank currently has a free (no closing costs/origination fee/appraisal fee) refi available with a 5/5 ARM rate of 2.875%, a 15 YR conventional at 3%, or 30 YR conv at 3.75%.

We are making decisions under the assumption that rates will only be going up. We also know this isn't our forever home and we could possibly move prior to the ARM rate reset in 2016.

So do you:

1. Ride it out and see what rates do, it can only increase a max of 1% per year after 2016
2. Refi into a 5/5 for cheaper than you're paying now but run the risk of a significan change in another 5 years
3. Refi into a 15 yr where payments will increase but interest will decrease
4. Refi into 30 yr for more payments/interest long term but locking in the rate
5. Pay off mortgage with current investments (current returns are around 12%)

[krystee]

I would do 3. Actually the idea of no mortgage is so awesome, I'd do the last one, but I know it is not financially prudent, so I'll pick the 15-year fixed at 3%.

[Deleted]

I would do 3 or 4. I am rather risk averse so I like to have the locked rate. Whether I do 3 or 4 is dependent upon how much the payments will increase on each and how this would effect long-term goal or possible savings for another down payment.

[agnes]

How possible are we talking about moving before 2016?

[atarianna]

Aug 21, 2014 21:22:33 GMT -5 agnes said:

How possible are we talking about moving before 2016?

It's hard to say, really. I would say 50/50 chance. My H is forced to move in order to accept a promotion so if that happens it's likely.

[quickstepstar]

Would the monthly payments be comparable?

[gt7301b]

Since the refi is free and there isn't a huge difference between the rates on the 5/5 ARM and the 15 year I'd go with the 15 year.

[imojoebunny]

I would do number 1. 0.25% is not enough to refi over, especially if your time horizon is 2-4 years. After taxes, it is very little money. I also doubt that it is truly no cost, maybe no out of pocket, but not no cost.

If you think you will be there long term or there is a higher possibility you will, I would refi to a 15 year. The truth is, it sounds like you could pay the house off, if you need to.

[msmerymac]

I would do the 15 because 1) it's lower than your current rate, and 2) you'll be putting more towards principle, which will be useful when/if you have to sell.

[atarianna]

Aug 22, 2014 9:11:35 GMT -5 RockNVoll said:

Why will your payments increase if you take the 15-year? That rate is lower than your current ARM. Also curious what bank is offering these rates--they seem better than most that are currently available.

I would probably lock in the 15-year at 3%. The 5/5 is a very close second and if there's a strong chance you'll move before five years is up, I might go with that.

It's PenFed. And the 15 payment is higher since our current is a 30 year, even though the rate is 5/1 variable. So the payment would be higher but most would be going to principle

[monsterz]

If you may be moving in 2 years I would not refinance now.

[aurora]

I would probably do 3 unless the additional payments will be hard on your budget. The rate is just so close to the new ARM that the guarantee would be worth it to me.

[genet313]

With only a 50/50 chance of moving in 2 years, I'd go for #3.   That's an excellent rate to lock in, plus with more flexibility than a 15-year in case anything happens or your budget changes.