Should I Refinance Into A Cash Flow ARM For My Personal Residence?
In the next 5 years, i will have paid off $14,500 of my principal with my existing loan. How much will I save in monthly payments with a cash flow ARM for the next 5 years?
Credit is average and I have a 30 yr fixed 6.75% loan for $235,000 on a property appraised in August, 2003 at $295,000.
I do want to move in the next 3-5 years.
With the numbers you give, I estimate your current P&I payment each month should be about $1524.
If your credit is good, you have no lates on your mortage, and you've been in the house for about 1 year - you should be able to get an 80% LTV Rate-Term 5/1 ARM with no cashout for around 4.75% (maybe a little better).
At 4.75% on $235,000 your P&I would be about $1226 a month, you would have paid $19,979 in principal. The BIG win is if you can also apply the difference in payments directly to principal each month. You would pay down an additional $17,880 in principal over 60 months.
Looks like a win to me.
[addsig]
A "cash flow arm" is not your typical 3/1 or 5/1 arm, it is a neg am product. Typically start rate is around 1.95% w/ yearly caps around 7-9%.
Based on your scenario, if you went w/ a "cash flow arm" w/ start rate of 1.95%, your payments would be around $865/mo. for the 1st year. Your payments would increase about 7-9% each following year. As you can see, you will be saving alot of money each month from your current payments, however, the 1.95% is not the actual interest rate. Actual interest rate will be around 4.5+%, so your payments are not covering all the interest payments, the left over interest is deferred back to your mortgage causing your actual mortgage balance to increase.
A "cash flow arm" is a good product if you plan on selling or refinancing in 1-2yrs and just need the cash flow now, and/or if you pay at least 2 p&i pymnts each year to offset the potential neg am.
Watch the prepay penalities on those negative amortization products. Some of them can run for several years making it nearly impossible to get out of the loan without suffering a loss.
You could get into and interest-only program similar to what everyone else has suggested. The main difference here is that your monthly payments pay for only the interest and none of the prinicipal. This avoids tacking on unpaid interest on to your loan amount. The payment would be slightly higher than a neg am mortgage. To free up the equity to use for investment refinance into an interest only 1st and open up a HELOC 2nd.
But watch out for those prepayment penalties. Make sure you're not stuck on a loan that is going to tie you up longer than you want.
id say go with a 6month libor loan
based on yoru credit you can get about a 3.25% rate interest only
that would make your interest only payment $636.46 per month thats a very big savings, take that and pay off everything you can!
cars, bills, wipe your slate clean!
then, once you have done that take the savings and apply twards your principle,
let the value of your home go up for you
let it do the work
on all my homes i have those loans
interest only, i pay less than i get from my renters = profit every month for me
i deduct the interest
keep the profit , + writeoffs
and the home value goes up for me each year
i make my profit when i sell the house!
good luck
send me a question if you need help i do loans for a living so i can help you
take care
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