Refi?

[geojen]

Hi All,
Back in Feb, DH and I bought a new home, which needed a new septic. So, the bank wouldn't go through with our 30-year fixed rate we had locked in (5.8%). We were forced to go with a 5/1 ARM at 5.5% until the septic had been replaced, at which point we could refinance. So, the septic is done. We have been comparing refi rates, and the best rate we got back was 6.5%, which is only .5% less then what our rate could reset to in 5 years. This would increase our payment right now by 220 dollars a month in interest.

Our current debt repayment plan would have us debt free except the mortgage in 3 years, at which point we could start putting 1100 dollars a month extra toward the mortgage. By 5 years, we would have 46,000 dollar paid off (including our 12,000 downpayment). This would help to mitigate whatever rate increase we faced.

Our loan officer said that if it were her, she'd wait and watch rates. What do you guys think?

[jIM_Ohio]

5/1 ARM resets once per year, correct? What happens at year 5?

I think I would hold of on refinancing. Look at 15 year fixed rates, as the spread between 30 yr and 15 yr rates appears to be widening, favoring the shorter terms.

[geojen]

5/1 ARM resets once per year, correct? What happens at year 5?

I think I would hold of on refinancing. Look at 15 year fixed rates, as the spread between 30 yr and 15 yr rates appears to be widening, favoring the shorter terms.

At the end of year 5, our rate can reset a maximum of 1.5% in either direction, and every year thereafter, to a maximum rate of 10%.

[jIM_Ohio]

How many years are you into 5/1 ARM? If you can keep 5.5% rate for next 3-5 years, I would think that is a good thing. Pay down other debt and pay down house in mean time. When the rate expires get a 15 yr fixed and rate should be aligned with 7% or so is my best guess.