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Christopher, Other/Just Looking in Bay Street Viaduct A...

i have two years left on an interest only loan at 4.875. I just locked in a 5.5 a few weeks back on a 30 year

Asked by Christopher, Bay Street Viaduct Area, Savannah, GA Fri Dec 14, 2007

fixed, but I had to pay down about $30K to get a non conforming status. Am I doing the right thing. I can still back out. I have no intention on moving for a while. I id have to pay 1pt for the rate.

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I will assume that you meant that you paid or will have to pay $30,000 to lower your loan size to "Conforming". If your loan is over $417,000 then it is a non confomring loan or Jumbo.

If you paid $30,000 to move from a Super Jumbo to Jumbo my math below won't' work as well. (It still works - just not as well)

The calculations below are for example only. I know nothing about you or situation. and will not tell you whether you are doing the right thing or not in this forum.


With a new loan of $417,000 at 5.5% amort ized a borrower would pay $2,368 per month. - principal and interest.

A borrower would also be paying closing costs such as title insurance, escrow fees in addition to the loan fees and the point. I will guess those charges at $8,000 since I am describing an example borrower (not Christopher specifically)

At 4.875% the borrower had been paying $1816 per month for the interst only on a balance of $447,000

So the additional expenditure of funds in the first two years of this loan is about $51,248 (approxiamtely)

If the borrower simply appled these extra funds to his existing $447,000 loan without the refi he would owe approximately $390,000 on the mortgage at the end of two years.
This compares to the refi balance of about $414,000 in two years.

If the borrower had a fixed rate of 6.25% or better available two years from now, he would be better to wait until just before his interest only loan resets before refinancing.

Since we cannot know what refi rates will be available in two years, we cannot make a definite reccommendation.

for example if the "teaser" rate of 4.875 jumps to 8.875% in two years then the additional interest cost that the borrower would have to pay in 2011, 2012, and 2013. would be more than the additional finance charges that he occurs in 2007,2008 and 2009 with the refinance.

If the borrower believes he or the property will not qualify for a loan in two years time, that could also be a factor in his decision.

Personally, I do not expect rates to climp up to 8 or 9% and then stay there for years* for "A" rated borrowers, and I would not reccomend a refinance for a client of mine under these circumstances. - I want to disclaim - Christopher is NOT a client of mine, so I am not making a recommendation to him.

*History shows that this is quite possible. Rates were in this range through most of the Reagan administration.
1 vote Thank Flag Link Fri Dec 14, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
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