Financing in 90034>Question Details

palmer, Home Buyer in Los Angeles, CA

Is there a way to get my option arm to reset early?

Asked by palmer, Los Angeles, CA Tue Sep 13, 2011

My option arm will reset in 2012, but my agent tells me that if it reset today I would get a great rate, 4.5%. I have 2 more years on a 7 yr arm. Would my bank consider letting it reset early?

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Your agent does not understand an option ARM. I don't know of any neg-am ( which is a sub prime loan) that allowed an interest rate lower than the initial rate written into the note. If you look at the payment options you have, you will see you have a very low rate that negatively amortizes, such as 2%, you will have an interest only payment, a fully amortized 30 year payment and possibly a 15 year payment option. Whatever rate the 30 year is calculated at, is most likely the floor rate. Recasting your option ARM won't help you nor will it lower your payments because it will be re-amortized for the period of time you have left. If you have been in this for 5 years, it will be re-amortized as a 25 year at whatever rate is in the note and I assure you it's higher than 4.5 if written 5 years ago.

I suppose it's possible that there are exceptions to this, but it's highly doubtful. I also doubt that your agent knows anything about how an option ARM was structured so take that advice with a grain of salt.

Note that most lenders are doing modifications for borrowers with neg-am mortgages. Wells Fargo in particular lost a court ruling in California where they are to modify their portfolio of Wacvovia (formerly World Savings) pick-a-pay loans. You should definitely speak with your lender and it won't hurt to ask about the recast, but check your note first to see what the ramifications of that will be. I think you may find it to be a bad idea.
Web Reference: http://WeFixRates.Com
0 votes Thank Flag Link Thu Oct 6, 2011

Those below who say to contact your lender are correct. But if you're not confident doing that, or would have trouble really understanding the answers you might get, give me a call. I'd be happy to walk you through it and interpret the options.

Rob Spinosa
0 votes Thank Flag Link Thu Sep 15, 2011
Option Arms are lender specific. There are no general guidelines. The only correct answer will come from your lender.

Happy funding, Rudi
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0 votes Thank Flag Link Wed Sep 14, 2011

When banks initiate option arms or any other type of "creative financing" they do it based on risk/benefit analysis for the bank (not the borrower) and earnings projections. Also, look at your paperwork, chances are when your option arm resets it does so for a 6 month or 1 year period - not for the balance of the loan. Your better choice would be asking the bank to do a no-doc or low-doc refinance. Many banks are aggressively pursuing these (Chase for one). Being 5 years into your loan already, look at the possibility of refinancing into a shorter term loan (I know Chase is doing 25 year loans for the current clients who are refinancing into fixed rate products). Currently 15 year loans are in the mid-3s and could save you a lot of money if you plan to keep the house for 15 or more years. Of course, if you have equity & verifiable income, you can always shop around for the best rates.

So check with your bank right away and see what they are offering. You might be surprised. Good Luck andn Dare to Dream.

Shel-lee Davis, QSC®
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0 votes Thank Flag Link Wed Sep 14, 2011
Ooops! I gave you the wrong website reference.
0 votes Thank Flag Link Wed Sep 14, 2011
If the LTV is still there and your income to debt ratio, credit and employment is still where it needs to be in today's lending climate I would think you should have little trouble getting a new loan. One thing I would study very carefully, however, is where your is your interest rate now and what would you gain after all the related costs for a new loan were factored into the equation.
0 votes Thank Flag Link Wed Sep 14, 2011
Hi, Palmer. That's a question best answered by your bank. Anything from anyone else is just pure speculation. Good luck!
0 votes Thank Flag Link Wed Sep 14, 2011
Give your bank a call in the morning, express your concerns, tell them you'd love to remain their client & see what you can work out with them.

I know you're enjoying the lower rate from that 7yr arm, but what do you see in your crystal ball for where interest rates will be when your 7yrs is up in 2yrs & you need to get into a fixed loan?

You should really be thinking about that NOW & try to get yourself into a fixed term loan while rates are super low.
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Realtor Since 1996
Main Street Realtors
0 votes Thank Flag Link Tue Sep 13, 2011
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