30 Year Vs. 5 Year Arm
We are refinancing our rental property...right now we have a 30 year at 6%---my mortgage broker said he is working with 2 lenders (we are looking for a 30 year at 5.85%--we want to cash out and pay off credit cards). He mentioned to me that because we have not owned to property for 2 years (it will be 2 years in January) the lenders may want to do a 5 year ARM--would this be wise? Right now, our main concern is cashing out --the property was appraised at $238,000 and we owe $148,000 and are looking to cash out $25,000--so the equity is there and we are not maxing it out. I'm not sure if we will still have that house in 5 years .....but ideally a 30 year mortgage is preferred---my thought is that we are only 2 months away from the 2 year mark---just give us the money right? 
Any advice would be appreciated....
thanks
There should not be a requirement saying you have to get the 5 yr ARM. A 5 yr ARM would prob give you a percent or so lower for the 5 years, then it will be adjustable, going up a max of 1%/yr(this is the TYPICAL ARM, they can vary). So if you do not think you will have the property for more than 5 years, why not go with the ARM? It will supply you with more cash flow for the next few years until you sell.
Any advice would be appreciated....
Quote:
On 2004-11-24 12:07, chweber wrote:
We are refinancing our rental property...right now we have a 30 year at 6%---my mortgage broker said he is working with 2 lenders (we are looking for a 30 year at 5.85%--we want to cash out and pay off credit cards). He mentioned to me that because we have not owned to property for 2 years (it will be 2 years in January) the lenders may want to do a 5 year ARM--would this be wise? Right now, our main concern is cashing out --the property was appraised at $238,000 and we owe $148,000 and are looking to cash out $25,000--so the equity is there and we are not maxing it out. I'm not sure if we will still have that house in 5 years .....but ideally a 30 year mortgage is preferred---my thought is that we are only 2 months away from the 2 year mark---just give us the money right?
thanks
So if we went with the ARM (please forgive, me...my husband usually deals with this---but he delegated it to me), in 5 years when we refinance, will our rate *only* go up a percentage point or does it depend where rates are at in 5 years--again with a typical ARM---
I'm sorry--I misread the message---the rate would only go up (max) 1% a YEAR---wow--so then we could be stuck with a much higher rate in 5 years---ugh, I don't know what to do...this is SO much fun!!
So for example, year start Jan 1 2005 your rate will be somewhere in the 4's probably, we'll use 4.5% as an example. Your rate will be 4.5% from Jan 1, 2005 - Jan 1, 2010. At that point in time, the rate will go up in accordance with current market rates(little more complex formula than that but basically) but with a max of 1% a year. So between Jan 1, 2010 and Jan 1, 2011, the MOST your rate could be is 5.5%. In 2011, the most your rate could go up is another percentage, so the MOST it could be in 2011 is 6.5%. If you plan on selling the home in 5-7 years, your best bet would be taking the 5 year ARM. If you plan on holding on to this property for a lot longer, than a 30 yr fixed would be your best bet.
Also with the 5 yr arm, you will not have to Refinance in 5 years, as it is still a 30 yr mortgage. It just has lower rates for that initial 5 years, then it can go up as much as 1% per year for every year following those 5 years, no refinancing involved.
Well I am referring to your brokers statement "the lenders MAY WANT to do a 5-year ARM". To me that sounds very odd. It sounds like your broker is trying to get you to go that route, have you watch interest rates climb in the next few years and then watch you refinance again with him.
This is my personal opinion rates are about as low as they are going to go. Rates will probably only go up from here and most likely won't stay at these low levels.
If you need the cash and can put it to good use at making money I would say go with the ARM. PERSONALLY, I would go with the Fixed at the lower rate.
5-years down the road I still have the same low rates, rates for other 30 year loans may be much higher which makes my property more attractive and gives me more options on how to exit. Also the fixed gives me more options on how long I am going to hold the property.
To me in my personal opinion, you can never beat peice of mind, plus I don't have a refianance date or interest rate hike looming over my head. With a fixed I sell when I want, and more likely how I want.
I just talked to my broker--he said the rate for the ARM would be 5.85%--same as the 30 year??--well, of course I want the 30 year then---is this a game some brokers play?
I would definately take to another broker to get their rates.
I would like to talk to another lender, however, we've already paid the $300 appraisal fee and would hate to have to do that again--money is tight right now--OR could the appraisal transfer to another lender? (probably not, right?)
Depends on who the appriaser is. Did you get a copy of it? Take it to another broker as see if the appraisal will work for them, it should if it was done by an outside reputable company.
Also it shouldn't cost to check rates and let them know the only way you can do this is with no additional money out of pocket. If they can live by those terms and give you a better rate or can match, you may want to go with them and tell you last broker you didn't feel he was watching out for your best interests.
My recommendation would be to not refinance at all. If you decide to go with the 30 year and only save .15% in interest you would never pay off the closing cost of the refi. On a side note doing a year 5 ARM if you are unsure how long you will be there doesn't make much sense either considering the closing cost.. I think the best bet would be to just take out a Home Equity Loan/Line to get the $ you need. With the amount of equity you have in the house you could get a home equity line at 5% interest (tied to prime) or a 15 yr loan for around 6% and you wouldn't have to pay any type of closing costs (plus with Home Equity you still get to deduct the interest)....just my 2 cents
by the way...i just closed on my house nov 1 and got a 5 yr arm for 4.75%...I would laugh at any broker that tried to give me 5.85!
I agree with nic3456. Just take out a 2nd. It sounds like your mortgage broker is money hungry to me.
Our fico is about 10 points too low for a HELOC---we have had 2 lates in the past 2 years (the last one in December of last year) so it has almost been a year with no lates---the joys of being a landlord and getting screwed by our first set of renters---we have great renters now, and also want to put some of the money away for a "cushion" so we are not in that situation again...
10 points shouldn't be too hard to come by in a couple of months or so....was it a broker or bank that told it was too low?....I've had great success with credit unions when your credit score is on the low side. They tend to be A LOT more understanding and have extrememly competitive rates. Check one of your loac credit unions or If you want me to PM you the one i use online i would be happy to....