Author Topic: ARM mortgage reset - What would you do?  (Read 1055 times)

coaster831

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ARM mortgage reset - What would you do?
« on: August 28, 2018, 07:21:07 AM »
Hi all,

I have a 5/5 mortgage through Penfed. The current rate (2.5%) expires April 2019; balance is $350k. The three main options I'm considering are:

1. Sign up for Penfed's rate reset program today. For $250, I can lock in their current 5 yr ARM rate minus 0.0625%. (For today, that would be 3.9375%.) Downside is the new rate is effective from the date I sign up for it, so I lose the remaining 7 months at 2.5%.
2. Wait until closer to my reset date and then sign up for the rate reset program. This gives me a few more months at 2.5%, but leaves me open to rising interest rates until the reset. (This option still has the 0.0625% discount.)
3. Refi into a 30 year fixed with a different lender. Best rate I can find is 4.25%, fees would be around $3.5k (mostly title and county recording fees).

Other quick relevant info: I think we plan to stay here at least 15 years (but who knows), and if the rate jumps too much in another 5 yrs on the ARM we'd be in a position to pay it off, although it would use up most of our taxable-account assets.

I'm leaning towards option 2 right now - I'm generally a fan of keeping a low rate as long as possible - but am interested to hear different perspectives. Thanks!

onlykelsey

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Re: ARM mortgage reset - What would you do?
« Reply #1 on: August 28, 2018, 07:31:07 AM »
Back of the envelope, how long would it take you to recoup the 7 months you pay the higher rate under #1? 

I think #3 seems like the worst option, because you can only spread those fixed costs over five years, so it's gotta be 1 or 2 unless there's some other soft factor.  Does one of them result in a hard credit pull and the others not?  Does one have amazing customer service or discounts for direct deposits?

coaster831

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Re: ARM mortgage reset - What would you do?
« Reply #2 on: August 28, 2018, 07:38:46 AM »
Thanks for the feedback.  Just curious, why would you say the costs of Option 3 can only be spread over 5 years?  Is that under the assumption that I pay the balance off by then?

Holding the current rate as long as I can saves about $2k if I figured it right, but of course that could be negated by a rise in the 5 yr ARM rate between now and then.

Only option 3 results in a hard credit pull.

onlykelsey

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Re: ARM mortgage reset - What would you do?
« Reply #3 on: August 28, 2018, 07:44:37 AM »
Oh, I read too quickly.  #3 is a 30-year option.   I'm no accountant, but, to me it still seems like you should spread the 3.5K over the first five years because you're really making a decision about what to do in the next five years.  Do you want a thirty-year mortgage?

Maybe #2 is your best bet as well, although it's a bit of gamble. It looks like rates actually fell last week, for what that's worth... https://www.bankrate.com/mortgages/analysis/

RWD

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Re: ARM mortgage reset - What would you do?
« Reply #4 on: August 28, 2018, 07:48:34 AM »
Is there a 15-year fixed term option? Might get a lower rate than the ARM reset and provide long term stability.

coaster831

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Re: ARM mortgage reset - What would you do?
« Reply #5 on: August 28, 2018, 07:57:41 AM »
Oh, I read too quickly.  #3 is a 30-year option.   I'm no accountant, but, to me it still seems like you should spread the 3.5K over the first five years because you're really making a decision about what to do in the next five years.  Do you want a thirty-year mortgage?

Maybe #2 is your best bet as well, although it's a bit of gamble. It looks like rates actually fell last week, for what that's worth... https://www.bankrate.com/mortgages/analysis/

I think it's both, since both options are open to me (paying off in 5 years vs. carrying mortgage for 30).  If I were to go with the 30, I'd probably spread it over the same time frame since with a rate that low I'd pay it off as slow as possible.

coaster831

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Re: ARM mortgage reset - What would you do?
« Reply #6 on: August 28, 2018, 08:00:08 AM »
Is there a 15-year fixed term option? Might get a lower rate than the ARM reset and provide long term stability.

Yes, a 15 yr is 3.625, although with much higher payments.  In the past I've favored as long terms as possible to leave more money to invest, but a 15 yr would have us paid off by the time our soon-to-be-born daughter goes to college (hypothetically).

SaucyAussie

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Re: ARM mortgage reset - What would you do?
« Reply #7 on: August 28, 2018, 08:54:43 AM »
I am in the exact same situation as you and looking for options.  If I could find a 15 year at 3.625, I would jump at that but all the 15 year rates I see are above 4%.

I am seeing 10 year products around 3.5%, so that is where I am likely heading.

coaster831

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Re: ARM mortgage reset - What would you do?
« Reply #8 on: August 28, 2018, 09:16:30 AM »
I am in the exact same situation as you and looking for options.  If I could find a 15 year at 3.625, I would jump at that but all the 15 year rates I see are above 4%.

I am seeing 10 year products around 3.5%, so that is where I am likely heading.

Have you looked an online lenders?  That rate I quoted was from loanlock.com, but putting in a Raleigh zip code here shows other results in the mid threes for a 15 year:
https://www.bankrate.com/mortgage.aspx

robartsd

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Re: ARM mortgage reset - What would you do?
« Reply #9 on: August 28, 2018, 09:30:00 AM »
All indication is that rates will keep going up. The economy is good, the Fed raised rates 3 times last year and is on track to do the same this year. I'd expect rates to increase 0.5-0.75% by April. If the economy keeps doing well, rates will likely rise 2.5-3.5% in the next 5 years.

Personally I'd likely be looking to refinance into a fixed rate mortgage at this point instead of an ARM reset. If you do choose to do an ARM reset, you also want to consider that locking in the rate in April would get you 7 more months at that rate at the tail end than you would get with a rate you lock in today.