Financing in Brooklyn>Question Details

Carissa, Home Buyer in Brooklyn, OH

With a 10/1 ARM, can you refinance before your time is up?

Asked by Carissa, Brooklyn, OH Wed Apr 23, 2008

If we decide on the locked in for 10 years and then adjustable mortgage, can we refinance to a fixed rate or another adjustable 10/1 before those 10 years are up? it's a big savings but scary,....we DO want to stay in that house longer than 10 years, so this isn't necessarily what we want to do, but it woudl save us 34k in payments over the 10 years.

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0 votes Thank Flag Link Tue Mar 3, 2015
There is no restriction on refinancing if you are in a 10 year arm. How much longer do you think you're going to be in the property? Should you do another 10 year arm? A 30 year fixed? Or maybe you should do a 20 or 25 year fixed rate since you have already been there for a period of time?
0 votes Thank Flag Link Tue Feb 24, 2015
If you are planning on staying more than the 10 years and you can get a good rate now, you are likely to be better off with a 30 year fixed. Rates are highly likely to be higher in 5+ years and the rate difference between arms and fixed are really not that much. When they were several points lower years ago, maybe, but with only a point or so difference, the risk is just not warranted if you are planning to stay longer. If you were planning on moving in 7-10 years, then it may be worthwhile, but that's a commitment you really have to keep, IMO. I'm on a 5-7 year retirement plan and a 10/1 arm may be a good option for me if I can pull some equity out to help accelerate debt reduction and prepare for a lower retirement income level.
0 votes Thank Flag Link Tue Feb 24, 2015
The problem I see with that is, what happens in 10 years if the rates are at 8%. Now you will refinance and give back all the money you saved plus you will have to mortgage tax. OUCH!! Get a great rate and fix it for 30 years. Everyone that gambled with the arms end up getting bit in the end. If you would like a rate of 5.5% on a 30 year fix give me a call.
Ryan
888-271-2221 ext 203
0 votes Thank Flag Link Thu Apr 24, 2008
Call your mortgage broker is right. Yes, if you refinance, you pay off the current mortgage with the new one so its considered prepayment. Prepayment penalties are common but usually they're 2 or 3 years even on a longer ARM. Make sure to verify this. We have a 7/1 ARM with a 2 year prepayment penalty. We knew we'd stay for 2 years but not likely 7 so we went for this.

One thing you want to consider in the ARM vs fixed is rates. Many of my posts in other thread have stated my belief that rates will go down in the near term and I do believe this, the gov't has cut the prime rate which has not been reflected in mortgage rates yet. While the correlation is not 1, its high between these rates. But even with a 2 year prepayment penalty, its impossible to forecast that long into the future. So if you're credit is so-so and you're taking an ARM to get a better rate now, and WILL pay everything on time to improve your credit score, then its probably a risk worth taking because even if rates go up, if you improve your credit score, your rate could still be less. I'm mentioning this because I believe you've posted in the past about your credit being so-so and worried about getting a mortgage.

So in summary, if you need ot work on your credit score anyway, I think the ARM isn't a bad idea assuming you do improve your credit score. If not, rates are still good, although not at historic lows so it may be worth locking in now.

Zack
0 votes Thank Flag Link Wed Apr 23, 2008
Carissa,

It sounds like you are getting pretty sound advice from your mortgage broker already. Some statistics say the average household keeps the same mortgage for no longer than 7 years for a variety of reasons. People sacrifice their current loans for better interest rates, cashing out for home improvement or other monetary needs such as health care or investment strategies.

Gail is correct in asking your mortgage broker about a pre-payment penalty. I would also consider whether or not you are being charged origination fees for this loan and calculate the total cost of the transaction. $34k is a large savings, but you need to know how long the break-even period is in comparison to other options. If you need assistance working through these numbers please don't hesitate to contact me.
Web Reference: http://www.guardhill.com
0 votes Thank Flag Link Wed Apr 23, 2008
Is that because getting another mortgage (refinancing) is the same as paying it off and starting wtih another one? thanks!
0 votes Thank Flag Link Wed Apr 23, 2008
Call your mortgage company and see if you have prepayment penalty with this offer.
Web Reference: http://GailGladstone.com
0 votes Thank Flag Link Wed Apr 23, 2008
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