5/1 ARM refinance - after bail out

Asked by Raj, Atlanta, GA Sat Oct 4, 2008

I am in 5/1 ARM 6% APR. I have 2 more years to go. My property value has not dropped. Some body is offering 30 year for 5.875 with 1 point. This was before bail out. I have to decide with 2/3 days. What should I do?

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Deryk Harper, Agent, Alpharetta, GA
Sat Oct 4, 2008
I am curious. Where are you in Atlanta that your property value has not dropped? I have done comps for months all over the north metro area and I find that values have dropped 4-10% everywhere I look. I would love to take my Buyers to an area where values have not dropped.

As far as the loan goes Cameron has a good point about the cost of refinancing. But, like Cameron suggested, that math only works though if the ARM were to stay at 6% or less. If the rate on the ARM were to rise significantly after the 2 year period, which it definitely could, then you could end up in much worse shape financially at that time.

If it were me, and I have become much more conservative over the past couple of years, I would want to lock in to a fixed rate and not have to worry about market fluctuation. Even if I planned on selling near term there is no guarantee that I can get the price I would want, or a qualified Buyer, in the current economy.

I also agree with Elo that you don't want to do this with just any lender at this point. Make sure you do your homework and get references from the lender and examples of recent successful loans they have brokered. Talk to others that have just closed loans with this lender. The may be rushing you because credit and available capital to lend is questionable and may not be available soon or it may just be because they have not had much business and they need a paycheck.

Good luck to you whatever you decide.
Web Reference:  http://www.keyhomefinder.com
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Cameron Piper, Agent, Forest Lake, MN
Sat Oct 4, 2008

First, I don't think that the bailout is going to have any significant affect on the market in the short term. The changes that will come will take time and will be gradual.

Making a couple of basic assumptions:
3% in closing costs
1% in buy down (1 point)
5.875% does not move (which it won't - but there is no other way to analyze the change without looking at your mortgage paperwork)

It will take 42 years to payback what you would spend to get the new rate with the reduction that you will get in payment by having the new rate. So if you are doing this strictly for the lower rate, I wouldn't. That is the financial answer.

I would generally recommend that you do refinance from a security standpoint. Nobody knows what is going to happen to your rate in the adjustment period and the last thing that you want to have happen is to be forced to move because your rate changed and you can't afford your payment any longer.

I wouldn't work with someone who tells me that you have to do something right now or you can't do it. Rates go up and down and unless you locked the rate (which means you are already moving ahead) rates may have already changed. Work with someone who won't put pressure on you to get the deal done. It needs to be what is right for you, not for them.

Cameron Piper
Web Reference:  http://www.campiper.com
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Elo, , Suwanee, GA
Sat Oct 4, 2008
Raj--don't handle serious business with just "somebody." Speak to a REPUTABLE lender, of whom there are still many to be found, for sound, professional financial advice.
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