Author Topic: ARM mortgage question  (Read 1670 times)

FastStache

  • Bristles
  • ***
  • Posts: 257
ARM mortgage question
« on: May 06, 2014, 07:24:41 PM »
Let's say you open a 7/1 ARM mortgage. You pay off an extra 20K during the first 7 years. Does the loan re-amoritize the remaining amount out for 23 years? Does this vary per bank?


Insanity

  • Handlebar Stache
  • *****
  • Posts: 1026
Re: ARM mortgage question
« Reply #1 on: May 06, 2014, 07:31:17 PM »
You should be re-financing after the 7 years, but I don't believe they re-amortize the amount. 

I've never let mine go passed the arm expiration to find out (though I might this time since my 5 year arm comes due next year and being self-employed for only one year and the single earner for the last 3 have made re-fi'ing tougher)


arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28262
  • Age: -999
  • Location: Seattle, WA
Re: ARM mortgage question
« Reply #2 on: May 06, 2014, 10:07:06 PM »
Let's say you open a 7/1 ARM mortgage. You pay off an extra 20K during the first 7 years. Does the loan re-amoritize the remaining amount out for 23 years? Does this vary per bank?

Not typically, no.

Some banks will "re-cast" your loan, and reamortize it to a lower payment.  Some banks will do this once free of charge, some will charge you a modest fee, etc.  Check with your lender/servicer.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

Poorman

  • Bristles
  • ***
  • Posts: 260
  • Age: 42
  • Location: Orange County, CA
Re: ARM mortgage question
« Reply #3 on: May 07, 2014, 01:13:47 PM »
When the ARM change happens the loan will automatically re-cast using the lower principal amount.  So the payment will decrease assuming your rate doesn't change.  Unlike a fixed rate loan where making extra principal payments shortens your loan term, with an ARM your term stays the same but your payment amount is lowered.

See if this link works for you and read the section called "What is a Recast of My Mortgage?"

http://books.google.com/books?id=yi4FmtaJ9qkC&pg=PA175&lpg=PA175&dq=when+you+prepay+arm+mortgage+does+the+balance+reamortize&source=bl&ots=ubyUJH_qIL&sig=K_nWIO6kYO-ySb7dSs_AoNNpbDA&hl=en&sa=X&ei=7oFqU4mwLY3aoAS8yIGoCA&ved=0CFkQ6AEwBA#v=onepage&q=when%20you%20prepay%20arm%20mortgage%20does%20the%20balance%20reamortize&f=false