Quote:
Originally Posted by all4money
mortgage balance is $280K
The loan is set up to adjust every 2 years with a maximum adjustment of 1% up or down. The "new" loan is the exact same loan with the same terms... it's not considered a refinance because they can't get any cash out or redo the loan amount at all. The only thing that changes is the interest rate. It's just a feature that the bank offers so that their clients can adjust the rate more than the 1% for situations like this when the market changes so dramatically. I guess the question will be if the .75% (which is about $2,100) tacked onto the principal balance will be offset by the savings of a 2% rate reduction (from 6.25% to 4.25%), or is that even a consideration if he doesn't plan to be there for many more years...?
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If you can pay $2100 to principal now, would you?
I think this is a bad deal. You pay $2100 to get a lower payment for 2 years.
Then in 2 years the rate adjusts again. Would you then pay $2000 to reset the interest rate again?
4 years later would you pay $1900 to do same thing again.
Good deal for bank, bad deal for you.
My advice would be to pay down the loan or get out of the loan within 10 years. If you move in less than 10, good enough. If you refinance out, good move too.
I might even move the over/under from 10 years to 5 years.