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Profile picture for ohhhdear

Should we refinance or keep the Pay Option Arm ?

We are thinking of refinancing to lock in a low rate. We want to keep the home, probably as in forever. We got a pay option arm back in 2005, which I am still trying to understand. Right now, our rate is tied to the MTA rate and the interest changes monthly. It's still at 3%,, which is wonderful. BUT, I know this rate won't be forever. I am hoping someone can help me decide whether it is in our best interest to refinance or not. Refinancing will cost alot of money upfront because we are underwater and we want 20% equity to  avoid the PMI. If someone is familiar with this pay option arm that Countrywide did, please help me  decide whether to keep this as is or lock in the rate with a refinance. See, if the rate goes up and up, I might not be able to keep up, but if we put a large sum  of money down and lock in the rate, there would be few worries. Thanks for any help.
  • July 09 2013 - US
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Answers (9)

Yeah HARP is not going to be able to help you out on this one.  I would contact a mortgage professional not currently associated with the servicing of the loan and see what can done and then make a sound decision from there.  You are willing to come out of pocket with some cash so someone should be able to help out.  Where are you located.
  • July 09 2013
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Profile picture for ohhhdear
The problem is we do NOT show up in Freddie's database. There fore, HARP is not an option. I've checked it several times.  It is under some type of "private" loan pool. I am not supposed to even know it's with Freddie. 

I wish I could find someone to work with me, because there are 2 of us and I live here, but I am not on the Note. I'm on everything else (mortgage, deed, title, riders, etc). 
  • July 09 2013
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Profile picture for ohhhdear
Bank of America won' touch it. I tried and tried and they refuse. Problem is it is in a private database with Freddie Mac, but I am not supposed to know that. When I did find that out-- they offered a 2% for life, but they retracted it. In fact, we just went thru BOA last month and the lady seemed to think our 3% rate was good and she didn't want to raise the rate. I am NOT kidding. It was like she did not want to refinance. Our credit scores are excellent and we will be putting ANOTHER 20% equity. That's why I am coming here to ask for other opinions. 

They recast the loan every year, I think. I am now paying the payment which would pay off the loan in 30 years, instead of the "minimum payment".  
  • July 09 2013
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If your current loan is Fannie Mae or Freddie Mac it should qualify for a HARP refinance which shouldn't require an appraisal.  If you are looking to stay in your home until the loan is paid off, it is certainly safer to get locked into a fixed rate. 
  • July 09 2013
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I thought Bank of America was doing anything and everything they could to get borrowers out of the "toxic" pay option ARM? Have you spoken to them directly? I've heard of at least half a dozen cases where those loans were modified at no cost and in some cases principal reductions done concurrently. Just one call might not do it, you may have to get a supervisor. More than one of the examples I have seen actually got an attorney involved and the loan was changed out into a fixed very quickly. 
  • July 09 2013
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You need to look at your loan agreement to determine when the recast events occur.    Often this will be every 5 years, or it could be when the loan to value reaches a certain percentage of the initial loan amount.

For many Pay Option loans, when the recast occurs the minimum payment options are removed and you then must make principal and interest payments for the duration of the loan.   This can be dangerous when the loan index begins to rise.   MTA has been a wonderful index to be attached to on adjustable loans for several years now.

You might want to also involve a financial planner who could help you analyze the impact of using your reserves to buy into a fixed rate well above your current rate, compared to using the capital to generate returns that can be used to pay your monthly interest charged plus ideally some principal.

In the end it will come down to your comfort level of including uncertainty in your future, and this decision begins by knowing all components of your existing loan.
  • July 09 2013
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Profile picture for daveskow
another good reason to refinance is that  after  8 years  you are still trying to understand how the loan you have works ....refinance it

what payment option have you been making ?  the minimum one that  creates the balance to increase ?  the interest only payment  which  keeps payment unchanged  or an amortizing  payment ?

  • July 09 2013
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I think you answered your own question when you said you plan to keep it forever and your ARM is going to go up. So the question is how much will it cost to refi the house. Your rate is probably somehow based off the prime interest rate and why it is so low and has been that way for several years. In the near future (next year at the earliest) they may start raising the prime and that loan rate will go up. I doubt it will go up very fast, but up is where it will go in the next couple years. I think many feel the rates now are inflated and unless something major happens they will go down in the 4th quarter of this year before going up again next year sometime. I would look into doing the refi in the fall or winter when the rates drops to under 4 and sleep well for the next 10-20 years with an incredible rate.

That's my guess

tim
  • July 09 2013
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There are ways to manage the mortgage insurance so that you are not paying it on a monthly basis.  Yes the rate is higher but you could conceivably refinance at 95% of the value of your home and keep some of that cash in your pocket.  Right now paying 3% is great but like you said, it will not last forever.  Where are you located.  Important that you talk to a mortgage professional who can put everything down on paper for you to review.
  • July 09 2013
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