Zillow Advice: Refinance - Our ARM will become an adjustable loan soon. What should we do?

As the personal injury attorneys ...

Mon, 22 Jun 2009 13:54:00 GMT

As the personal injury attorneys say, Know Your Rights! It's a very smart idea to make an additional principal payment every time you make your mortgage payment -- you build it into your family budget and you will adjust OK -- just like contributing to a retirement or education plan (or taking out another credit card, ugh). If you pay by check, follow Clay's instruction below -- also, most of the online automatic payment programs provide a separate line for this, if you pay that way. There is NO need to pay an upfront or annual fee for this, those are just add-on revenue-generating programs for the mortgage servicers.

If you're not comfortable doing time-value-of-money math, any decent loan officer or financial planner can help you target how much you want to drop your balance, and calculate what increase in payment will get you there. If you post the current balance on your loan I'm sure you'll get an answer here, the rest of the info needed to calculate it is in your original post. -JIM

You can pay down principal ...

Mon, 22 Jun 2009 12:58:00 GMT

You can pay down principal every month if you wish. If you do, the following months payment will be lower. ..... If you have a prepayment penalty you cannot pay down your loan more than 20% a year or you will accelerate the prepayment premium. ..... Best wishes, Rudi

stinaac, you can pay extra ...

Mon, 22 Jun 2009 12:54:00 GMT

stinaac, you can pay extra principal anytime you want. Send a seperate check along with the regular payment stating the extra check is for principal reduction. Martin's idea to ask for a loan modification is a great one, try it, it would be free.

At what points can we put ...

Mon, 22 Jun 2009 12:46:00 GMT

At what points can we put down more principal - thus reduce our interest payments? Only before it readjusts or only after each 12 month period? Can we put more down inbetween the 12 month period? Thanks!

You've got a decent ARM -- ...

Mon, 22 Jun 2009 00:59:00 GMT

You've got a decent ARM -- for now, probably the next couple of years anyway. A lot of the horror stories involve loans with 5% to 6% margins above LIBOR and big first-time adjustments. Those folks are looking at rates going a lot higher than yours.
What you need to look out for is a recovering economy where the Fed stops trying to keep interest rates low. LIBOR was running 5.0 to 5.5% during 2006, and in more inflationary times was north of 8.0% (Link)
So Roberto is spot-on, if you are unable or decide not to refi into a fixed loan (still not a bad idea if you think you'll hold the property), try to pay down principal so when rates head back up the impact on you is less severe. Good luck to you!

Several of our investors ...

Mon, 22 Jun 2009 00:56:00 GMT

Several of our investors have had their loan payments adjust to lower interest rates. Wait and see what you can get where you are before paying the re-financing fees.

Wow, this is great news! ...

Mon, 22 Jun 2009 00:12:00 GMT

Wow, this is great news! I automatically thought we HAD to refinance because of all of the horror stories you hear about loans readjusting. Our current lender did not tell us these options. He didn't even tell us we would have to pay a higher interest rate when refinancing since this is considered an "investment property". Unfortunately we have to wait until mid February, since that is when our 5 year arm will readjust. Hopefully the LIBOR will still be low at that time. Thank you again for all of the great advice! BTW, what will our approximate principal monthly payments be? We have a loan of $403,000 and it will be the beginning of the 6th year. Thanks again!

libor rateone year libor ...

Sun, 21 Jun 2009 23:55:00 GMT

libor rate

one year libor looks like it is about 1.7 or so, your rate is going to adjust downward to about 4.5 percent. I'd seriously consider keeping this loan, unless you are darn sure you are staying in the home forever. save money/ pay extra to principle for the worst case scenario, that a few years from now rates move up alot.

Okay, so here's the info. ...

Sun, 21 Jun 2009 23:22:00 GMT

Okay, so here's the info. Please explain this to me - I'm confused. Should we stay put or refinance? I never thought of staying put but this would be a great option! Here it is: The index will be based on an Index (one year London Interbank offered rate (LIBOR)). Before each change date the note holder will add 2 3/4 percentage points to the current index until the next change date. The interest reate will not be greater than 10.750% or less than 2.750%. Thereafter, my interest rate will never be increased or decreased on any single change date by more than two percentage points from the rate of interest I have been paying for the preceding 12 months. Is this on okay deal or a raw deal? What do you think we should do? Thanks so much for all of the great advice!

stin,Sit tight and hope for ...

Sun, 21 Jun 2009 16:59:00 GMT

stin,

Sit tight and hope for the best... INV mortgages are the same rates, however the closing costs and point add-ons for the same rate will make you want to reach for an air-sickness bag. good news... LIBOR is OK as we speak.. so good year, bad year, OK year over the next 3 years would be averaged as 3 OK years (see Clay's quick math). Anyway, refinancing might have a potential 6% in costs (INV loans are very pricey even if your credit walks on water) and much worse if you scores are at 739 and below (see air sick bag comment) :)... If you are concerned with your ARM... contact your service as they are concerned with it as well.... You never know, they might "modify" the terms Free of Charge without you having to be in default. A friend of mine was offered it (had 3 year ARM and moved out as well) was offered a FREE MOD... The circumstances for this were lender related.... INDYMAC was trying to save their ship by converting any and all ARM loans to fixed prior to Sheila Bear and the upcoming FDIC raid to take over their collapsed bank. never hurts to ask. Good luck to you.