Author Topic: Refi to an ARM?  (Read 1303 times)

SimpleCycle

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Refi to an ARM?
« on: February 25, 2017, 07:21:32 PM »
We live in a condo that we plan to stay in for another 4-5 years.  Because we know that this is not our forever home, we have a 30 year mortgage at 4.125%.

For some reason I thought rates had dropped a bit, but they haven't really.  However, when I was checking refi rates, I see 7/1 ARMs for around 3.125%, with closing costs of around $2k.  A break even calculator tells me we'd break even in 21 months and after that we'd be saving money.

Is this even remotely worth thinking about?  I'm only interested because of the interest savings, and we'd only accrue 2-3 years of savings before we plan on selling.  The risk I see is if the housing market collapses for some reason and we choose to keep the property, we have to deal with the rate adjusting or refi-ing again.

Retire-Canada

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Re: Refi to an ARM?
« Reply #1 on: February 25, 2017, 07:32:37 PM »
I've got an adjustable rate mortgage. I prefer them because the rates are quite a bit lower here [I pay 1.95%]. In theory the rates can rise and they likely will, but the amount they'd have to rise over the 5yrs between renewal periods is such that I don't think it's likely that I'd lose money.

I'm surprised that your adjustable mortgage rate is not lower. The differential is small enough I'm not sure I'd switch. As you note there are a number of risks that could wipe out the benefit and cost you money.

seattlecyclone

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Re: Refi to an ARM?
« Reply #2 on: February 25, 2017, 09:19:59 PM »
If you plan to move out within five years anyway, it's hard to see how you would lose by going with a 7/1 ARM. Even a 5/1 is a relatively safe bet because even if you stick around for an unexpected sixth year and the rate goes up, there's usually a pretty reasonable increment that they can increase the rate by each year, so it's not like you'd be going from 3% to 10% (or whatever) all in one year.

Goldy

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Re: Refi to an ARM?
« Reply #3 on: February 26, 2017, 08:25:25 PM »
I have a 5/1 ARM at 2.5% and in your shoes I would take a look at Aimloan.com to see what they offer.  From my past research they always tend to be the lowest on rates and you can buy up to a point where you don't pay closing costs. 

I'm comfortable with a 5/1 because we could pay the house off if we needed to.  If finances were already tight I wouldn't be too thrilled with the ARM but if you have some wiggle room then go for it.