Zillow Advice: Refinance - PART 2 - Does it make sense to refinance? http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ Zillow Advice | Zillow Real Estate Since I began poking the ... http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ Since I began poking the question of whether to refinance couple of weeks ago, I've always only considered up to 5 years into the future, till 2015-2016. If I could get another 5-yr ARM at 3% something, I'd do it. My bank, though, won't offer it - they say it wont get approved - HARP loans, they say, are designed to move people away more risky, less stable products.<br/><br/>The reason I thought about to do the refinance was not to reduce my payment or the rate. It was to<br/><br/>a) hedge against potential of drastic hikes of my current loan ARM rate.<br/>b) reduce balance as quickly as I can within as short period of time as I can (15-yr loan could help quickly pay down mortgage).<br/><br/>As many other folks, I either overpaid or simply bought at the peak of the market when I bought my place. And the market values may inch down somewhat more in 2011. I want to be able to sell in 5 years; to do that, and walk away not-empty-handed, I got to reduce what is owed aggressively, which I can do by making a few additional hundred $ per month.<br/><br/>I also contemplated about the following. <br/><br/>1-yr LIBOR partially tracks the Fed Funds rate currently 0-0.25%. Bernake said the low rate will likely stay indefinitely. Just speculating/hypothesizing, but in the world where economies have collapsed, I'm willing to risk it and bet that the Fed will keep its rate low for at least a few more years.<br/><br/>My next ARM adjustment (2.25 margin) in May, 2011 will adjust close to my current rate, 3.125%. So untill 2012, I'm good.<br/><br/>Even if 1-yr LIBOR (currently at 0.78) rises in 18 months, say to 3%. That will mean that my rate will increase to 5.25 - only in 2012. Plus, ?I have a 2% yearly cap.<br/><br/>I'm no expert and can't see into the future, but my best guess that I could average a 4-5% rate from now to 2015-16 by keeping my current loan. Tue, 25 Jan 2011 05:13:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-25T05:13:00Z Take the 15 Year offer http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ Take the 15 Year offer Tue, 25 Jan 2011 04:30:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-25T04:30:00Z Based on this question and ... http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ Based on this question and your new one I can only say one thing. You have to make a decision. You have to live with the consequences. If friends or family give you some advice who will end up paying the bills a few years from now?<br/><br/>I really think the fixed rate is best for you. But after awhile any decision making process comes to the same point. You either have to make a decision and live with it or you decide nothing. Yes, a low ARM rate will save you money this year. It may save you money next year. But after that the fixed rate gives you the security of knowing that your payment will not increase.<br/><br/>Interest rates could rise quickly and sharply. The 105% LTV program could go away. If either of those things happens your options will also disappear. Whatever you choose choose it quickly. The way I see it if you wait past Friday to make a decision you will not be making a decision. That puts you back into the default position of living with your arm. <br/><br/>If you read the replies they basically say the same thing. An arm helps you for a short time then it will almost certainly hurt you financially. You have the information you need to make an informed decision. <br/><br/>You were looking long term when you asked the question. You were looking long term when looking at your numbers. Why start looking at the short term now? Tue, 25 Jan 2011 03:35:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-25T03:35:00Z In addition to what I just ... http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ In addition to what I just mentioned, I did think about renting the place.<br/><br/>My thought was take 30-yr and - rent the place in a year or two most. That way, I will be able to accomplish the following:<br/><br/>a) Have someone pay my current mortgage<br/>b) Buy a new house while prices (hopefully in 12-24 months) are still relatively low and so are the rates (I wish, right!) :)<br/><br/>But, even on the 30yr, I will only be breaking even $1200(total mortgage+condo fee) per month, which is how much 2BR rents are going for. No safety margin (i.e. no profit).<br/><br/>What happens if the tenant says HVAC broke or bathroom leaks, or even better: neighbor reports they're being flooded from my apartment. <br/><br/>These were some of things I thought of and chose to go with the 15-yr and in 5 years (preferably) sell the place. <br/><br/>Btw, I also thought about 30-yr with making the difference(between 15 and 30 payment), but figured that with 1% difference in the rate, I better stick with the 15-yr. Mon, 24 Jan 2011 07:07:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-24T07:07:00Z I could be wrong, but the ... http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ I could be wrong, but the base of my decision to take the 15-yr, is the following. When I bought the place in 2005, I definitely overpaid, or simply bought at the peak of the market. Now, having realized this, thanks to the real estate crash and the fallen economy, the only way that I can think of for me to be able not to loose (bring lots of cash) when selling the condo, is to bring down the principal as much as possible - in effect, bring the balance to where it should have been had I bought at a lower price. If I don't do this, then won't make out well or "that well" when I sell. Mon, 24 Jan 2011 06:56:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-24T06:56:00Z You might also ask about ... http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ You might also ask about a 20 or 25 year mortgage. It should be a lower interest rate than a 30 year. It may be cheaper than a 15 so renting could work. The only downside to the 15 year is you would have to sell in a few years time as the kids outgrow the available space if renting would not be possible. This is a case where you should consider the flexibility of renting compared to the interest savings of a lower rate. <br/><br/>You could also consider that if you could rent the condo for most of the payment and buy it for very little a month it might work. Just be sure to learn about ROI, cap rates and so on. I have seen it said that you need a 30% rent above your mortgage to break even with expenses and vacancies with a little profit added.<br/><br/>If you do not want to rent it out having that risk and responsibility the 15 year mortgage plan makes the most sense from what I see. Mon, 24 Jan 2011 06:35:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-24T06:35:00Z Thank you, Dan, for all your ... http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ Thank you, Dan, for all your insights! <br/><br/>I won't be able to rent it as won't break even with $1332+$100(esrow)+$200(condo fee) on the 15-yr loan, though on the 30-yr I could, but, again, it'll just be so much more in interest. I thought about renting it in 2 years, which is when also buying a new house. But I'm not that kind of a person to try to figure all this out, guess the future and manage two homes/payments/unexpected expenses at the same time... Mon, 24 Jan 2011 05:43:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-24T05:43:00Z As long as the 15 year payment ... http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ As long as the 15 year payment is really affordable for you I expect it will be the best way to go. Even if prices are not back up at least this way you should be able to sell it when you are ready in a few years. I would think renting it might be the better option however. That way you could get some income for a very long time especially after the 15 years is over.<br/><br/>I appreciate you replying back and doing your homework on this. The key to making a decision like this is having as much information as possible when making it. I think you are making a good choice here for the long term. Mon, 24 Jan 2011 05:33:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-24T05:33:00Z I've decided to go with 15-yr ... http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ I've decided to go with 15-yr @ 4.375 as supposed to 30-yr @ 5.375.<br/><br/>Played around with amortization schedule, and at $176,800 loan, monthly payment difference is $350, which isn't that big. I'm choosing to aggressively reduce mortgage balance - hoping / betting that home values will increase in several years when I'll be ready to sell. <br/><br/>I just couldn't overcome the fact that I would end up paying so much more in interest with the 30-yr loan and the loan balance ( even in 5 years) would be significantly higher that with the 15-yr.<br/><br/>4.375% sounds so much better to me than 5.375%.&nbsp; Mon, 24 Jan 2011 05:25:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-24T05:25:00Z Rudi or another lender could ... http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ Rudi or another lender could probably give you the best answer. All I can say is to look at the monthly payment. If you can not afford the 15 year payment that rules it out. If you can comfortably afford the 15 year mortgage I would do that. It may not save much cash but having the place paid off in 15 years instead of 30 is a big plus for me. <br/><br/>Besides, you will have more paid off when you do decide to sell. Or maybe with having it about 1/3 paid off you will decide to rent it out and keep the condo as a long term investment. <br/><br/>If you can not comfortably afford the 15 year payment that rules it out. You can check into other lengths like 20 or 25 and see if they work. If you would have to be very tight financially to make the 15 year work go with a longer term. It would make no sense to pay all you can towards a mortgage then lose a transmission in your car making you lose everything because you can not afford to pay for it.<br/><br/>I always figured that the least amount of interest I could pay with the least debt possible was the best way to go. If you do go with the 15 year and pay an extra $100-$300 a month it will really build up your equity. Sun, 23 Jan 2011 00:14:00 GMT http://www.zillow.com/advice-thread/PART-2-Does-it-make-sense-to-refinance/381779/ 2011-01-23T00:14:00Z