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August 3, 2009
Yet another refinance question.
Here's a query for all the monday morning quarterbacks out there. In light of the recent exciting news of the recession being over and house prices jumping back up (it must be true, I heard it on Bloomberg Radio AND NPR), we're wondering if we should refinance or not. Timeline is now(ish), like in the next 8-12 weeks. The house is a 2-family used as 1 in Victorian Flatbush and we're about 80% complete on a renovation, mostly finish work and appliances remain. We are strongly considering moving to a new home within the next 5 years but right now, we need a few bucks to finish our renovation. Value of the house is ~$1m and if we were to suck out a bit of cash with the re-fi, we'd be looking at a re-fi amount of ~$485k. Credit is good, income is fine and completely verifiable so our situation is not subprime in the least. Current mortgage is a 30 yr fixed at 5.8%. Because we're seriously looking at moving in the next 5 years, we're wondering if it makes any sense to go for a 5/1 interest only ARM. From what I'm reading, the inflation rate is expected to remain low for the next few months but then it's likely to jump so in theory mortgage rates will follow that pattern thusly making this a good time to shoot for a low payment mortgage.
What are we not considering here? We are accepting of the risk that we won't be able to sell the house for its value before the expiration date runs out on this utopian dream of low payments and cash in pocket. However, barring any catastrophic economic events, how stupid are we to buck the accepted wisdom of long-term mortgage and move to a short term deal? And as a bonus, do any of you wish to hazard a guess about what's going to happen to interest rates in the next 8-12 weeks or even the next 3-6 months?
All constructive opinions encouraged. Thanks in advance.
Comments
What you are not considering are the significant costs of getting a refi done. Talk to a mortgage broker and see how much in fees, taxes, new assessment, etc. this will cost. I don't think you'll get much of a break on the rate from your current 5.8%, so the real issue is whether getting the extra dough out of the place is worth the new costs. Closing costs on a refi can run past $10K very quickly and could be double or triple that. If you are going to sell in 5 years anyway, it may not be worth the expense. If you need the dough now, it might be.
Posted by: slopenick at August 3, 2009 2:05 PM
why not just get a equity line of credit if idea is to just finish job and sell within 5 years. Althought variable rate based on Prime (which is veryvery low) - no closing costs , pay back as you choose, and rate at least for awhile is much cheaper than refi.
Posted by: Petebklyn at August 3, 2009 2:12 PM
RE: re-fi closing costs were estimated by our broker at $6k. The taxes are on the cash pulled out only, not on the entire amount. Ammortizing that amount would be under $100 month assuming we run the entire 60 months.
RE: HELOC. We have looked into that. However, it would be ideal for us to not increase our monthly expenses. Part of this exercise would be to lower the monthly costs or at least not see them increase. Our thinking was that we would re-fi into a 5/1 to lower our expenses and receive a cash bonus at signing. However, if we could find a HELOC with deferred repayments.....
Thanks to both of you for your considered answers.
Posted by: fauxvic at August 3, 2009 4:07 PM
Actually check this out:
http://www.us.hsbc.com/1/2/3/personal/home-loans/mortgage/mortgage-rates/nat-rates
Rates are still good and you can get a lower rate with a 30 year fixed than with a 5/1 and you'd be building up equity; forget that "interest only " product.
A few weeks ago you could have gotten 4.5%; rule of thumb is refinance for anything 1/2% point or greater. In this market 5.8% is high; go for the 5.25 or better.
Posted by: argentina at August 3, 2009 10:17 PM
Your broker is a lying sack of **** about the closing costs. Guaranteed. They will drag you along for a few months, get you desperate, then slap on a lot of charges at the end because they know you are desperate to close. Get all estimated charges and fees in ADVANCE IN WRITING.
P.S. I'd avoid the interest only.
Posted by: hoffster at August 3, 2009 10:48 PM
Closing costs could be extremely small. Mine were.
Conforming amounts have risen from $450 or so to 800 for a 2-fam so what was a jumbo mortgage may now be much, much lower.
Absolutely nothing wrong with interest only. Just pay extra each month (or save the difference) and treat it like a 30 year fixed. Only problem is interest only with balloon that you can't afford. Very different situation.
Good luck!
Posted by: Johnny at August 4, 2009 2:45 PM
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