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Refi from 30 yr fixed to 7/1 arm

My husband and I are thinking about refinancing and going from a 30 year fixed to a 4.125 7/1 arm. We are in a condo in Chicago and I would be shocked if we were here for 7 more years but also find comfort in our 30 yr just in case we want to keep it as a rental unit if we upgrade or move to the suburbs. It would bring our mortgage down about $300 on a $274,000 loan. Thoughts?
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June 01 2010 - Roscoe Village
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whats your present rate on the present loan

I would try to refi it on a 30 yr fixed  program if you think there is any chance ( even a remote one ) that you will be keeping the property

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June 01 2010
Good advice from Dave Skow regarding a refi.  One other way to quantify the decision--if you were saving $300/month over 7 years, that's about $25k.  Even if you wound up staying 10 years, and the adjustable interest rate increased--and I don't know your current rate--you probably wouldn't wind up paying back that $25k.  So it's hard to imagine you not at least breaking even over time.  If you sell before 7 years, that's a lot of money you've saved.  One other thing--factor in the cost of the refi--if you have to pay a point, appraisal fees, etc.
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June 01 2010
Your location in Roscoe Village muddies the water a bit.  If you're on the Brown Line and an A+ rental down the road, that's a consideration. 

Matthew's concept is correct, the math is off.  The savings are bigger than what you'll get if you just compare payments. 

For example, and I'm just using a 400k loan because I just had a 400k Roscoe Village loan and ran this same comparison, here is what happens (assuming market opens @ 4% on 7/1 and 4.75% on 30 Year):

--Payment savings equal $176/mo or just under 15k over 7 years.
--Actual costs are lower by 20k.  That "extra" 5k is the cumulative interest savings.

I buy stocks, sometimes I buy options.  If you treat the 30 year as an option to retain the home as a rental at a lower rate down the road, you're paying $20k for that option.  Dave's answer makes theoretical sense until you run the numbers.  $20k v. a remote chance is crazier than betting the Cubs to win at any odds.

Email me if you want the actual spreadsheet to put your own loan amounts in.  Just between you, me and cyberspace, I always like to know the numbers, but I still make most financial decisions based on what helps me sleep at night.  Although, with last night's storm, I don't know if anything would have helped :)

My $.02 about your $20k,
Chris
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June 02 2010
 
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Related Discussions
Refi from 30 yr fixed to 7/1 arm
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Latest reply by Chris Richter
June 02 2010 | 3 answers
  • Posted by Bellabear7
  • In Refinance
  • June 01 2010
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