Originally posted by Bill in Dayton:
Gang-
We're 3+ years into a 5/1 ARM 30 yr. mortgage with an interest rate of 6.25%...
Through the terms of our mortgage loan, we're entitled to one loan modification before we hit month 60, when a max of 3 points can be added to our interest rate for the loan.
Its not a question of should we do this, but when?
Currently, our financial institution's 30 year notes are at 4.75%, which is 1.5% lower than our current rate.
Some "expert analysts" feel the 30 yr. interest rates will drop close to 3.5% by the Summer.
This is our first home, so we're new to this. Should we take the 4.75% and run or wait and watch what happens?
Thanks!
"Expert analysts" is an oxymoron.
I personally would never use an ARM to if it was the only way to into a house. Otherwise it can be a great tool If one has to get an ARM to get a home, it is an indicator that one cannot afford a convention 30 year loan and relies on the assumption their income will go up with interest rates. It worked for some but as we can see not for a whole lot others.
My advice would be to lock in 4.5% while you can. If mortgages rates were at 8% in this economy i would wait for the inevitable 3-4% drop. In this case there cannot and will not be much more downside.
If/when you do lock in your loan, DO NOT take another initial 30 year term.
Refinance for whats left of your initial term. Try 25. You will save thousands. That has been Another mistake people make that costs them far more in interest then otherwise. Thats another few years of of paying practically interest only all over again for the first years of a new loan. That adds up even over Three years!! Try a 20 year and make some sacrifices. 15 year even better if you can swing it. Its a forced savings account with interest saved at the forefront and tax free appreciation as a bonus.
Yes your payments will go up but its money in the bank and far more is applied to your principle.But they would have gone up anyway as the rates rise again and they will. A LOT. In order for the government to spend what they are claiming they are going to spend the treasury with have two choices. Sell bonds or print money. People won't buy Government bonds with lower rates then they can get on CDs. Especially in a rising stock market which is an leading economic indicator. Interest rates have to go up.
We all should think long term with financial decisions. The market is juicy right now, Home prices are looking good. If you have any faith in this country and history proves Things will turn around. Those who believe in the gloom and doom they are being fed, are sure to miss opportunity in bad times,
Refinancing is will and should be tougher to get done. Banks are right to tighten credit. If I owned a bank, I would be tightening credit as well. The banks tried loose credit standards.......crazy ARMS, balloons,40 year loans,60 and 72 month basic car loans, and people got sucked in and did not read or understand the loan contracts then close loans without lawyers!All kinds of "hocus pocus" loose lending. People got homes. Now they are losing them. Most of those people would not have been in those homes in the first place if the 20% down tradition held.
Now demanding the long traditional 20% down is considered as credit be tightening too much!!!!Amazing,
I am not a financial expert but I will say we are not participating in the recession using common sense and sacrifice through lessons learn in the 70'late 80's and 2001.
We have become experts in seeing opportunity where everyone sees gloom and that has made all the difference.
[This message has been edited by Kingfrog (edited 01-12-2009).]
[This message has been edited by Kingfrog (edited 01-12-2009).]
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