Home Build is finishing up - Refinance @ 30, or gamble on 10yr fixed ARM?

[ncornilsen]

I'm about to conclude my home build. My builder is a friend, and charges actual t&m. I got lucky with when I bought plywood, etc, and did a ton of work myself. We got it done 3 months early and $60K under budget, with some added stuff!

Here's the choice, now that I'm done building.
-Let my construction loan roll over to a 10year Fixed @ 3.875% for no fees. After 10 years it becomes adjustable, 2% max increase per year. I'm taking my chances that I can re-fi sometime before 10 years to a lower or equal rate. Or maybe I'll sell before that anyway.

-Re-fi loan to a 30yr fixed, either at 4.25% for no points, or buy them down. Closing costs will be typical closing costs.

The balance of the loan is something like 385K and the valuation is about 2X that. (no PMI either way)

If inflation spikes, and rates go up and stay up for the entire next 10 years, I may loose.
If we get into a recession and rates fall, I may be able to re-fi later and improve my rate situation.
I may get struck by a meteor and my heirs can figure all of this out.

What's the mustachian play here?

Thanks!

[sailinlight]

Ten years is a long time, I would keep the low rate and forgo the fees of a refi. After 10 years you will have paid off a chunk of the loan anyway and will likely have a lot more saved so will have more options.

[former player]

What's the mustachian play here?

Thanks!

How much of the loan will you have paid off in 10 years' time?
Would you be in a position to pay it off completely then?  If not, will your personal circumstances (forgetting for the moment the possible economic conditions) enable you to refinance at that time (ie you will be able to demonstrate enough income or capital to satisfy a mortgage company)?

But it looks to me as though 1) continuing with the current loan is cheaper both in fees and interest rate, and 2) a fix for 10 years looks good to me (here in the UK a fix for that long is unknown, we all take on the risk of interest rates changing).

No-one, whether they are running the economy or investing in it, has any idea what the economy will be like in 10 years' time.  I certainly wouldn't spend money now (which is what your refi would be) taking a bet on which way inflation and interest rates would be going in 10 years' time. 


pics in return for advice, please!

[ncornilsen]

What's the mustachian play here?

Thanks!

How much of the loan will you have paid off in 10 years' time?
Would you be in a position to pay it off completely then?  If not, will your personal circumstances (forgetting for the moment the possible economic conditions) enable you to refinance at that time (ie you will be able to demonstrate enough income or capital to satisfy a mortgage company)?

But it looks to me as though 1) continuing with the current loan is cheaper both in fees and interest rate, and 2) a fix for 10 years looks good to me (here in the UK a fix for that long is unknown, we all take on the risk of interest rates changing).

No-one, whether they are running the economy or investing in it, has any idea what the economy will be like in 10 years' time.  I certainly wouldn't spend money now (which is what your refi would be) taking a bet on which way inflation and interest rates would be going in 10 years' time. 


pics in return for advice, please!

I'm leaning heavily to let it ride, thank you!  The pic is from 50ft up in a boom lift after painting the shop & house. The other is the house site, while I was marking out where to build it

[former player]

Niiiice!  Well done.

[jnw]

What if there is a lot of inflation within the next 10 years? It's been going up lately, just 6% since last year.  The ARM could turn out to be pretty nasty?

[ncornilsen]

What if there is a lot of inflation within the next 10 years? It's been going up lately, just 6% since last year.  The ARM could turn out to be pretty nasty?

That's really the big risk here - Inflation persists, the fed jacks up interest rates, and they don't come down between now and when my ARM starts to adjust. I'd be stuck at that higher rate.

On the other hand, as long as my wages inflate as well, inflation would take some of the sting out of it.

[Sibley]

What if there is a lot of inflation within the next 10 years? It's been going up lately, just 6% since last year.  The ARM could turn out to be pretty nasty?

That's really the big risk here - Inflation persists, the fed jacks up interest rates, and they don't come down between now and when my ARM starts to adjust. I'd be stuck at that higher rate.

On the other hand, as long as my wages inflate as well, inflation would take some of the sting out of it.

A lot of people made that gamble, and lost. Be very careful.

[ncornilsen]

What if there is a lot of inflation within the next 10 years? It's been going up lately, just 6% since last year.  The ARM could turn out to be pretty nasty?

That's really the big risk here - Inflation persists, the fed jacks up interest rates, and they don't come down between now and when my ARM starts to adjust. I'd be stuck at that higher rate.

On the other hand, as long as my wages inflate as well, inflation would take some of the sting out of it.

A lot of people made that gamble, and lost. Be very careful.

Oh absolutely. Look at this chart, back to 1974 and see that we're at the bottom. Still. A few years ago I would have happily locked in a 3.875%. in 10 years, things could be rough!

https://fred.stlouisfed.org/graph/?g=NUh

[secondcor521]

Option 3:  Mortgage shop harder.

NFCU is showing a 30 year fixed at 3.705% APR, and 15 year fixed at 3.003% APR right now:

https://www.navyfederal.org/loans-cards/mortgage/mortgage-rates/conventional-fixed-rate-mortgages.html

And there may be even better options if you look around.

ETA:  Maybe your credit score is not high enough for the above?  The two rates you mentioned don't seem very competitive.

[ncornilsen]

Option 3:  Mortgage shop harder.

NFCU is showing a 30 year fixed at 3.705% APR, and 15 year fixed at 3.003% APR right now:

https://www.navyfederal.org/loans-cards/mortgage/mortgage-rates/conventional-fixed-rate-mortgages.html

And there may be even better options if you look around.

ETA:  Maybe your credit score is not high enough for the above?  The two rates you mentioned don't seem very competitive.

No, we have excellent credit. I need to ask another lender; I'm a bit concerned that the loan needs to "season" for 6 months before refinancing. (someone told me this. Might be bullshit)

[sailinlight]

Option 3:  Mortgage shop harder.

NFCU is showing a 30 year fixed at 3.705% APR, and 15 year fixed at 3.003% APR right now:

https://www.navyfederal.org/loans-cards/mortgage/mortgage-rates/conventional-fixed-rate-mortgages.html

And there may be even better options if you look around.

ETA:  Maybe your credit score is not high enough for the above?  The two rates you mentioned don't seem very competitive.

No, we have excellent credit. I need to ask another lender; I'm a bit concerned that the loan needs to "season" for 6 months before refinancing. (someone told me this. Might be bullshit)

That rate is with 1.5% points plus I believe NFCU charges 1% origination fee (maybe that's only on ARMs). In either case I'd still keep the 10 year you have.