Another Option ARM Question
I just refinanced to the WaMu 1-month MTA (moving treasury average) option ARM product. I am wondering about whether it is better to continue to pay as though I have a 30-yr fixed, or to keep the savings and invest it (e.g. in notes).
My new mortgage note is for 182K, but 1000 was credited at closing so balance is about 181K. The index plus margin will equal 4.35% for my first regular payment which is about $656. My old 30-yr fixed payment was 1152.56 (that was on 180K loan with 28 yrs 2 mo. remaining. ) So, my savings right now will be about $500/mo.
I know the interest rate will not remain the same but I want to get some kind of comparison going. I know how much I would have owed after 7 years on the old loan (namely, about 163K). But how much would I owe after 7 years with the new loan if I pay $500 toward principle each month? That is, making the simplifying assumptions that I owe 181K now and the interest rate will stay about the same?
I'd love to get a spreadsheet that calculates this if anybody has one. And any comments about whether it is better to keep control of the money and invest it are welcome.
good question. I just did the indymac 12 MAT loan last month (which is similar to the WAMU one) and my first payment is coming up and I am wondering the same thing.
christine
It depends on what you are trying to accomplish. Are you wanting to reduce your principal quickly or are you wanting to use the savings to invest elsewhere? It really depends on what you want to do.
I hope this isn't vague but it really depends on what your focus is.
I hope this helps.
Based on your info, the $656 payment is your interest only/poss neg am payment, you will not be paying anything towards principle if you pay this amount. Your 30yr amor. payment would be around $901/mo. and 15yr would be $1370/mo Your min. payment will stay the same for the 1st year but your interest only, 15 & 30yr payments will adjust monthly depending on how you pay the prev month and how much, if any, the interest rate goes up or down.
To answer some of your questions, assuming that your interest doesn't change, which is highly unlikely, but if it doesn't, in 7yrs at current interest rate w/ pymnts of $1150/mo., your balance would be $132,500. However, like I stated above, it is highly unlikely that the rate will be the same or near the same w/i 7yrs. An option arm is not a loan program you want to stay in for more than 5yrs, 2-3yrs would be optimum.
Thanks, this is starting to clarify things. Just posting the question as precisely as I could helped me. I was thinking, if the balance in 7 years at that $1150 payment would be only $132,500, then I would be $30,000 better off than under the front-loaded 30yr loan. But now I see that if the interest rate goes up 2 points to 6.35, which I think is a fair assumption, then the interest-only payment on the original balance is $958 and only $200 would go to principal. The principle would be a lot less however, if it took a while to get that 2 point increase. The lifetime cap is 10.35. I was planning on holding the property 5-7 years. I guess if interest rates went wild I would have to sell it earlier. But I think it rates go up drastically the rental market will be good too and would cover a lot of the increase. It seems like the safest thing is to pay down that principle a lot while rates are low.
I thought of buying other property with the savings or trying to get 10% on a mortgage note. But now it looks like the savings will disappear if rates go up more than 2 points or so.
Am I getting closer to thinking like a sensible investor? I have until now been conservative, with all fixed rate loans on my 4 properties.