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    Cash out refinance to pay off ARM?

    I'm really hoping this forum can help me figure out a question I've been wrestling with.

    I have a mortgage on my primary residence:
    Fixed rate @ 3.375%
    Balance $340k
    Home value $700k

    I have a second mortgage on some land:
    Adjustable rate @ 4.125%
    Balance $105k
    Land value $150k

    The rate on the ARM is increasing to 5.625% in May, and over its life could increase to over 10%. I knew this up front, of course, but didn't expect such a big jump so soon.

    Today I spoke with the servicing company on my first (fixed rate) mortgage about the possibility of doing a cash-out refinance to combine these two loans into one at a fixed rate. They gave me the following options:

    1. 15 year @ 3.875% (1 pt) - closing costs $9.3k
    2. 30 year @ 4.250% (1.5 pts) - closing costs $11.8k
    3. 30 year @3.875% (4 pts) - closing costs $23.7k

    I'm hesitant to give up the lower interest rate on the loan that represents 3/4 of my total mortgage debt, but I'm also worried that the ARM will keep increasing and I can't figure out the best way to compare these options. What would you do if you were me?

    Thanks so much for any advice!

    #2
    If I went through with something like this, I don't think I would be paying any points.

    why do you have to combine the two?

    how many years are left on your primary home's mortgage/when did the loan start?

    can you get a HEL** to pay off the land? is that different than what you plan to do?
    Last edited by Jluke; 03-06-2018, 07:42 AM. Reason: **used the wrong term; not HELOC

    Comment


      #3
      Originally posted by Jluke View Post
      If I went through with something like this, I don't think I would be paying any points.

      why do you have to combine the two?

      how many years are left on your primary home's mortgage/when did the loan start?

      can you get a HELOC to pay off the land? is that different than what you plan to do?
      Thanks for the reply.

      I have 18 years left on my primary mortgage (was originally 30yr).

      I suppose I could do a HELOC but I'm unfamiliar so would have to do some homework.

      Comment


        #4
        Originally posted by Jluke View Post
        can you get a HELOC to pay off the land? is that different than what you plan to do?
        Originally posted by Elementary View Post
        I suppose I could do a HELOC but I'm unfamiliar so would have to do some homework.
        I wouldn't do a HELOC since that is just another name for an adjustable rate mortgage. You'll have the same problem with rising interest rates.

        What you could do is a HEL - Home Equity LOAN. That is a fixed rate loan.
        Steve

        * Despite the high cost of living, it remains very popular.
        * Why should I pay for my daughter's education when she already knows everything?
        * There are no shortcuts to anywhere worth going.

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          #5
          Originally posted by disneysteve View Post
          I wouldn't do a HELOC since that is just another name for an adjustable rate mortgage. You'll have the same problem with rising interest rates.

          What you could do is a HEL - Home Equity LOAN. That is a fixed rate loan.
          Thanks!

          I looked into this and rates for 15 or 20 year loans seem to be in the 6% range. Might be better off just taking my chances with the ARM. Or going through with the refi.

          Comment


            #6
            What is the purpose of the land?
            Are you earning money from holding it via some sort of a lease?
            If not, then you may want to consider selling it.
            Brian

            Comment


              #7
              Originally posted by bjl584 View Post
              What is the purpose of the land?
              Are you earning money from holding it via some sort of a lease?
              If not, then you may want to consider selling it.
              I bought it because I want to build a vacation home on it. Got it at a great price in a fantastic location. I'm not considering selling it.

              Comment


                #8
                Just coming back to say a different company offered me a no-cost cash out refi that keeps my monthly payment essentially flat. Glad I kept looking!

                Comment


                  #9
                  Originally posted by Elementary View Post
                  Just coming back to say a different company offered me a no-cost cash out refi that keeps my monthly payment essentially flat. Glad I kept looking!
                  That's great. It is always a good idea to get a few quotes before making a major financial move like this. What rate are they offering?
                  Steve

                  * Despite the high cost of living, it remains very popular.
                  * Why should I pay for my daughter's education when she already knows everything?
                  * There are no shortcuts to anywhere worth going.

                  Comment


                    #10
                    Originally posted by disneysteve View Post
                    That's great. It is always a good idea to get a few quotes before making a major financial move like this. What rate are they offering?
                    It's a 20-year at 4.125% with all costs covered. You're right it's always a good idea to shop around. Unfortunately, this means I have two new inquiries on my credit report instead of one, but I think I can live with that.

                    Comment


                      #11
                      It usually doesn’t pay to take out a mortgage loan to pay off a mortgage loan. The fees are often atrocious.
                      How can you have any pudding if you don't eat your meat?

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