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Cash out refinance - 5/1 ARM, 7 or 10/1 ARM?

I currently have a rate of 5.375 on a 15 year fixed that I have 60% equity in the condo. My credit score is 689.  I want to do a cash out refinance in my name (i bought the condo as a single lady and my income will be going down next year when I quit my job to be home with the baby so I won't qualify then)  We will use that money for a downpayment on a house in the next year or two (my husband has the better credit score and income so he will buy the house in his name) and then rent our condo for a few years until the market bounces back (unless we find a good renter and maybe keep it as an investment for a few more years) .  I don't know whether to get a 5 year ARM for 4.5% or a 10 year ARM for 5.0% (or maybe plan on keeping it as a rental property  and get a 30 year fixed for 5.25%.  I know this isn't the best financial plan but I know we won't be able to save enough for the downpayment and we really need to lower our monthly payments by a couple hundred dollars right now.  Which refinance should we do?  ARe these good rates with my credit score?  The loan amount is for 106,000.

Thanks for your help!   
  • May 04 2010 - Nashville
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Answers (6)

You should be able to do this at no problem. Even though it is a condo and you are looking to get cash out, it is do able.

I am not sure a 7 or 10 year ARM is a good product especially at only 4.5% because you could qualify for a 30 year fixed around 4.75%. 
  • May 12 2010
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You should be able to get 7 year arm @4.5%.  You also will get getting two months of deferred payments, whether its fixed or an arm and received some escrow money back after the fact.  Either way dropping from 15 to 30 year term will save you money.  The 5.25% fixed on a 106,000 loan is only about $50 per month difference from the arms, and allows you not to have to stress over variable rate scenarios down the line.

Let me know if this helps.
  • May 08 2010
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The primary negatives for condos for loan qualification are:
1. Owner Occupied / Renter percentages
2. Amount of HOA dues in arrears
3. Litigation
4. Loan-to-Value
5. High GSE Loan Adjustment Fees

Happy funding, Rudi

  • May 05 2010
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Profile picture for koko1973
Why are there negatives for it being a condo?
  • May 05 2010
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Profile picture for koko1973
Thanks!  I only owe 60,000 on a 160,000 condo so I was only hoping to cash out 40,000 that will put me well under the 80% ratio.  The quotes I put ddown are the rates I can get - I just don't know which one I should take?
  • May 05 2010
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Profile picture for Liberty Mortgage

There are many negative factors that you must consider prior to your refiancing to a cash out-  1st and foremost is the loan to value-  Since you indicate your current equity is 60%, I will assume you will want to go to an 80% Cash Out Refi to get yourself a decent amount of money.  That being said the Fannie Mae has many hits due to credit score, LTV, type of loan and unit being a condo.
The approximate PAR rate (you will need to pay points) for a 30 year fixed will be 5.625%.
The 5 Year Interest Only ARM will be around 5.00% with Points as well.
The 7 Year Interest Only ARM will be around 5.25% with Points as well.
The 10 Year Interest Only ARM will be around 5.50% with Points as well.

  • May 05 2010
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