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Is an ARM a reasonable choice ?

I need to refi a 30yr FHA (7.5%, bal. $42K) + HELOC (bal. $60K).  I would like to move within 10yr or maybe 5yr ... but have been hoping to do this for 25yr ... maybe it won't really work out.  I mainly need to get payments down from current $1100/mo to maybe $800 or less ; no cash out needed but could be helpful (~$10K)  if it didn't complicate the loan our make it significantly expensive (points + pmnt).
I presume an ARM is useful for a limited time frame, unless you're lucky and rates don't rise.  Is there any way an ARM might be useful in my case since I can't specify a definite time frame on when I'll move ?  What other loan program could be beneficial ?
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December 07 2009 - Carrollton
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Answers (3)

The first question that comes to mind is: What is your estimated value of the property? Since you are paying off a home equity, you need to make sure there is 20% or more in equity.
Also, in your case, I dont see an ARM as a great option. If you dont know FOR SURE when you plan to leave this property, then why take the chance? The savings between an ARM and 30Fixed on roughly 110k is not going to be large enough to warrant the risk.
I would suggest a home equity refinance, which would include both liens, and give you the 10k you request (as long as the prop value is roughly 140k or higher). Then you have a low fixed rate for 30 years, and have no concerns in regards to future mortgage rates.
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January 13 2010

If this property is in Texas then you will need to have 20% equity in the home after the refinance to be able to roll the HELOC into your first loan.  You have two options as I see it.  Either get a new HELOC for the whole amount or you can get a 30 or 15 year fixed loan.  I would look at doing a 30 year fixed and that gives you some payment flexibility.

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December 07 2009
There are 7/1 and 10/1 ARM programs out there, if you want to be sure you'll move by then.  Alternatively, you could take the risk that you won't move by the expiration of a 5/1, or that rates won't rise.  ARM rates are significantly below fixed rates, typically, so a good amount of money can be saved.
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December 07 2009
 
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  • Asked by dgsinclair
  • In Refinance
  • February 18 2009
Mortgage Rates
 
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