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5/1 Adj vs Fixed

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  • joshuaking
    replied
    The only time I would get an adjustable rate loan would be if rates were high and were expected to go steadily down.

    I just like knowing that something as important as my mortgage will not possibly go up. Fixed rate for me.

    Leave a comment:


  • Randomsaver
    replied
    I went and applied with 5/1. My hope is after 3 years, I could get a rate at 3.25% or preferably lower as my adjusted rate. Anything higher, and my choice did not pay off (meaning, I would have been better off with the fixed rate now).

    Leave a comment:


  • creditcardfree
    replied
    Good luck, I hope it goes smoothly for you!

    Leave a comment:


  • Randomsaver
    replied
    ^ You're right. $10K is big money and definitely worth the hassle.

    It's actually $11,310.14 of savings (close to my back of envelope estimate ). I was able to make the exact calculation now that I have received my amortization schedules.

    I'd go for it tomorrow.

    Thanks again to all. Btw, I'm sticking to fixed. This is because if I went 5/1 Adjustable and if interest rate increases by 1% after 5 years, I'm breakeven with the fixed. Anything higher and I'm at a loss. The reverse is true though, that any rate increase of less than 1% means I've gained with the 5/1. I just feel there's a bigger tendency to go higher than 1% as this is how banks get their money. As krantcents said, "interest rates will probably never be this low."
    Last edited by Randomsaver; 07-09-2014, 05:59 PM.

    Leave a comment:


  • creditcardfree
    replied
    Seems worth it to me if you will be staying beyond the 8.5 years. Why wouldn't you want to save even $5K? We have an adjustable rate mortgage but it is fixed for the first five years at 2.75%, and then will raise only 1% each of the following five years. We expect to move before the first five years are up, so it was a perfect set up for us.

    Leave a comment:


  • Randomsaver
    replied
    Thanks again for all the replies.

    My current lender for some reason won't email me the amortization schedule and said they will mail it instead. The wait is bad.

    While I wait for that, I made rough estimate of savings if I refinance and it is $10K.

    Is it worth the hassle to refinance if the savings is just $10K spread in 8.5 years?

    Leave a comment:


  • Petunia 100
    replied
    Originally posted by Randomsaver View Post
    Pen Fed site already shows at 3%+ but it's a good try.

    Btw, I've requested for amort schedule of my existing loan. Please comment if I'm doing it wrong but the way for me to know if I'm going to make a good deal refinancing is I add all the interest yet to be paid from the amort schedule and then compare that with the total interest from the new quote I got from another company and see which is less.

    I figured the principal, tax and insurance should not factor since they're about the same. I'm thinking it should be a pure interest cost comparison and whichever is lower is what I should decide on (stick with original or jump with the new one).

    Comments?
    Oh, I'm sorry, I didn't realize their rates have risen.

    The time frame for the two loans is more or less the same, yes? If so, then yes, you can just compare the the total interest as you are doing, but don't forget to add in any closing costs, whether out of pocket or not.

    If one loan were substantially longer/shorter than the other, then the time value of money also comes into play.

    Leave a comment:


  • krantcents
    replied
    Before I can answer your question, how long do you plan to live in the home? If it is beyond the 8.5 years, I would take the fixed rate. Interest rates will probably never be this low.

    Leave a comment:


  • DRILLINDK
    replied
    This article seems as if it would helpful in this situation:



    Should More Consumers Be Selecting Adjustable Rate Mortgages Today?

    http://www.mtgprofessor.com/A%20-%20...king_ARMs.html

    Leave a comment:


  • Randomsaver
    replied
    Pen Fed site already shows at 3%+ but it's a good try.

    Btw, I've requested for amort schedule of my existing loan. Please comment if I'm doing it wrong but the way for me to know if I'm going to make a good deal refinancing is I add all the interest yet to be paid from the amort schedule and then compare that with the total interest from the new quote I got from another company and see which is less.

    I figured the principal, tax and insurance should not factor since they're about the same. I'm thinking it should be a pure interest cost comparison and whichever is lower is what I should decide on (stick with original or jump with the new one).

    Comments?

    Leave a comment:


  • Randomsaver
    replied
    Awesome reponses. I'm excited about the Pen Fed Credit Union. Will look at it. Thanks.

    Leave a comment:


  • Weird Tolkienish Figure
    replied
    Originally posted by Randomsaver View Post
    So I'm exploring refinancing options.

    I got presented these for 8.5 year term:


    Option A. 5/1 Adjustable; 2.79%/2.90% APR

    Option B. Fixed 2.99%/3.025% APR


    Which to take? Does Adjustable even work? At what rate in the future would make it beneficial than Option B? Or is there no way Adjustable is better than Option B? By better I mean cheaper cost of financing. Thanks for inputs.
    When interest rates are high then you might want an adjustable rate mortgage, but now when they're low, get them fixed so you can lock in that low rate.

    Leave a comment:


  • Petunia 100
    replied
    Originally posted by Randomsaver View Post
    Yes paid in 8.5 yr, which saves me 1 yr of payment. Initially am compelled to take 5/1 adj but i'm concerned bank gets it back when I get my post-5yr rate. Their maximum each year post 5yr is capped at 2% per year (6% life of post-5yr). I'm not even sure if that means from 2.79% to 4.79% or from 2.79% to 2.99%.
    It means from 2.79% to 4.79%.

    Have you looked into Pen Fed Credit Union? Anyone can join. They have a no cost refi, fixed for the first 5 years at 1.99%. If you pay off the mortgage before 36 months have passed, they do assess you a pro-rated amount for the closing costs.

    You would have to do the math, or provide more numbers, but considering the lower rate, the small balance you will have 5 years from now, and skipping the closing costs, Pen Fed might save you some money.

    Leave a comment:


  • Randomsaver
    replied
    Originally posted by disneysteve View Post
    Why an 8.5 year term? Will the property be paid off in that time period?

    Personally, I'd take the guarantee of the fixed rate and not have to worry about what rates will be on the adjustable after 5 years.
    Yes paid in 8.5 yr, which saves me 1 yr of payment. Initially am compelled to take 5/1 adj but i'm concerned bank gets it back when I get my post-5yr rate. Their maximum each year post 5yr is capped at 2% per year (6% life of post-5yr). I'm not even sure if that means from 2.79% to 4.79% or from 2.79% to 2.99%.

    Leave a comment:


  • disneysteve
    replied
    Originally posted by Randomsaver View Post
    I got presented these for 8.5 year term:
    Why an 8.5 year term? Will the property be paid off in that time period?

    Personally, I'd take the guarantee of the fixed rate and not have to worry about what rates will be on the adjustable after 5 years.

    Leave a comment:

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