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7/1 ARM or 30 YR FIXED

I am about 5 years into a $375,000 30 Yr fixed mortgage @ 4.5%, and I am considering either a 7/1 ARM @ 2.9% (no points) or a 30 Yr fixed @ 3.75% ($10k in points).  Pretty concerned about what rates will look like in 6-7 years, even though the cash-out could be 75k on the 7/1 ARM, versus only a $45K cash-out on the 30 Yr fixed.  Would like the additional cash-out for more home improvement stuff.  What would you do?
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June 16 2013 - San Carlos
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How major are your home improvements?  Taking cash out of your home will result in a higher rate because it would be considered a cash out refinance.  If there is not much improvements that you need to do, then a rate and term refinance would be wise.  An arm product is about preference and with your rate being at 4.5% you will for sure benefit from a refinance.  

Not knowing what you value is, it would be hard to determine if a HELOC is appropriate for your improvements.  It is hard to predict where rates will be in 7 years, as for now go with what you will feel comfortable.  
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June 17 2013
I feel that for $10k in closing/points, the 30 Year rate should be in the area of 3.375%. Also, there is a way to close your refinance, then do a loan for home improvements, and then wipe out half of the home improvement loan withing a year. Please feel free to contact me through my profile to discuss.
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June 17 2013
If you are planning on staying at your home for awhile (much longer than 7 years) I would probably go with the fixed rate.  The 7/1 ARM likely can increase 5%, meaning that your rate could be 7.9% down the road (you should find out through your lender what the cap is).  I would also consider shopping around, 10,000 in points seems pretty high.
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June 16 2013
 
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