Cash out refinance to pay off ARM?

[Elementary]

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!

[Jluke]

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?

[Elementary]

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.

[disneysteve]

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

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.

[Elementary]

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.

[bjl584]

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.

[Elementary]

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.

[Elementary]

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!

[disneysteve]

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?

[Elementary]

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.

[TexasHusker]

It usually doesn’t pay to take out a mortgage loan to pay off a mortgage loan. The fees are often atrocious.