Have ARM-what do you think of this offer?

[StressLess]

We are 3 years into a 7/1 ARM, currently at 4.75%. I figured starting in January I'd start throwing some extra money against principal. However, before I start that, I'm considering spending $500 to take advantage of an offer from the bank.

For $500, they will extend your current interest rate for your current term, starting over now. In other words, not an extra 7 years tacked onto the end, but 7 years starting now.

That would buy us an additional 3 years of nice, low, predictable payments at 4.75%. 3 more years of peace of mind. 3 more years to pay extra against principal and work on savings, too.

My instinct is to jump on it. We can spend $500 now to lock in a rate for 3 years, or we can spend $500 in the first couple of months of higher rates after it adjusts. But I'm wondering if it's too good to be true. Why are they even offering this? What are they getting out of it?

Any thoughts?

[safari]

Re: Have ARM-what do you think of this offer?

I've never heard of such offers. Your bank will be losing a lot of money. Make sure you read the fine print and confirm that 4.75% will be the APR and not the payment rate (with a higher APR, resulting in deferred interest). This just sounds too good to be true to tell you the truth.

[tinapbeana]

Re: Have ARM-what do you think of this offer?

My instinct is to jump on it. We can spend $500 now to lock in a rate for 3 years, or we can spend $500 in the first couple of months of higher rates after it adjusts. But I'm wondering if it's too good to be true. Why are they even offering this? What are they getting out of it?

Any thoughts?

well, the bank is getting you to keep your business with them rather than loosing you when you refinance with another company for a lower rate. locking you in for another couple of years at 4.75% is better than losing your business (and therefore your interest) altogether.

IMO, make an appointment to talk with a loan officer at the bank and have them go through the details with you.

[Ima saver]

Re: Have ARM-what do you think of this offer?

It sounds like a good deal to me.

[greedy4chips]

Re: Have ARM-what do you think of this offer?

If you plan on staying in your house for the full 7 years it would be worth it as long as interest rates stay above the 4.75%.

You need to find a mortgage prepayment calculator and see how the extra $500 paid now on your principle will effect each and every payment from now on. For instance $500 extra in principle could save you $1300 on a $200,000 mortgage over the 30 year life.

If the interest rate goes up by 1% for those 3 years you will lose approx. $37/month or $1332. Basically a break even if you stay in your house for 7 more years....most people don't on average.

I have made some huge assumptions in the numbers so you will need to run them yourself. I would however suggest that if and when you do refinance to lock in a rate that you don't increase the length of your mortgage...from 25 years left refinanced back to a 30 year mortgage. Too many people do that because the payment is lower, but the overall cost is huge!!!!

Be sure you understand the offer and if you have any questions get clarification from the bank in writing or post the exact information you need clarifying on and hopefully someone here can help.

[vishenda]

Re: Have ARM-what do you think of this offer?

hello,
You need to use an interest rate calculator, which you can find in tons of places through a Google or Yahoo search. Get one that let's you plug in your current payment and principle and calculate backwards to your interest rate.

When you get a calculator like that, add on 500/36 ($13.89) per month, and find out what the effective interest rate is if you pay the 500 up front. I would do this calculation for you, but I don't know what your current payment is or what your principal amount is. But once you have done that, compare the result with whatever it would cost to refinance now, at 6.3 percent, or whatever the rate is in your area.

Even if the payment is lower with the 500 upfront, remember that refinancing will let you lock that rate in for 30 years, not 3 additional years. If you are going to stay in your house for a long time, it might be worth a few bucks more now. Of course, if you plan on moving in 5-10 years, you would have the opposite situation, and you would want to grab the lowest current rate you can get.

I hope this helps, GOODLUCK!