Is it finally time to refinance my adjustable rate mortgage??

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TommyHolly's picture
TommyHolly
Status: Bronze Member (Offline)
Joined: Nov 9 2010
Posts: 90
Is it finally time to refinance my adjustable rate mortgage??

Hello all,

Since there are some pretty savy people here that follow the markets I figure I would ask you guys this question.  Should I keep my mortgage for now or try and refinance?  I have an adjustable Mortgage that is based on the COFI.  For those that don't know what the COFI is here is a link: http://mortgage-x.com/general/indexes/cofi.asp  Since the largest part of the Cost Of Funds index is interest paid on savings accounts, this index lags market interest rates in both uptrend and downtrend movements. As a result, ARMs tied to this index rise (and fall) more slowly than rates in general.

Currently my rate for the last year has been steady at a very nice 3.95%.  However a few years back it went as high as 9.87% which tacked on almost $15,000 in negative amoritization!!  (Money that got tacked onto my principle.)  I started out with World Savings which got bought by Wachovia which is currently owned by Wells Fargo.  Note: I am not eligible for any of the Fannie-Fredie Mac refinance deals through the Gov....rrrgh.  Wells Fargo has an amazing 5-year Arm with an APR at 3.178% that they are offering currently that seems pretty good to me.

1. Since the COFI is based on the Savings interest rates, where do you guys see those rates headed and why?

2. Should I keep with the current mortgage with the 3.95% rate that I'm currently getting or jump out now that rate to refinance are still relatively low?

3. I have heard normal mortgage interest rates are supposed to be rising signifigantly, what do you guys think?

 

Thanks for your help.  -Tommy

aggrivated's picture
aggrivated
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Posts: 572
Re: Is it finally time to refinance my adjustable rate ...

My personal thoughts.  The more likely it is that the USA's credit rating will get downgraded, the more likely that all borrowing (and soon to follow savings interest rates) will climb.  If you can get between 4% and 5% fixed now, do it.  You will smile later..

TommyHolly's picture
TommyHolly
Status: Bronze Member (Offline)
Joined: Nov 9 2010
Posts: 90
Re: Is it finally time to refinance my adjustable rate ...

Since I am still studing economics I have to ask...

If you are saying the interest rates will rise because of additional borrowing of money, why haven't they already?  Or was your point mainly that if the USA's credit rating gets downgraded, that will make the rates rise??  If so, won't that be a while because even countries like Greece and Ireland have only recently had thier credit rating lowered after years of problems...

MarkM's picture
MarkM
Status: Platinum Member (Offline)
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Posts: 855
Re: Is it finally time to refinance my adjustable rate ...

I would refi to a fixed rate. The ARM has already bitten you once. Why risk that happening again? Is there ANY evidence that rates will remain at these historic lows?

Anything that includes the potential for negative amortization would be a deal breaker for me.

I have never looked at my house as an investment vehicle (your home is the biggest "investment" you will make, what BS). I am pleased with the outcome of that decision.

AquariusLuck1's picture
AquariusLuck1
Status: Member (Offline)
Joined: Dec 29 2010
Posts: 8
Re: Is it finally time to refinance my adjustable rate ...

Hi There,

While I am by no means an "expert," I do have some knowledge of market conditions and where they are trending...

This article may be interesting to read... as the largest housing index showed another down month...

http://www.economist.com/blogs/freeexchange/2010/12/housing_markets_0

I believe that inflation is coming, and you can see that if you look at the 30 year treasury bonds.  You can also see that in gold/silver/commodities in general!  This means that interest rates are going to get higher in the near term...

You are going to want a fixed interest rate because flexibile interest rates are going to be the reason why the housing market declines.  It is not the value of the house that is declining, it is the PRESENT value of the house that is declining.  The present value of the house is determined largely on the length of time left on the contract, how much principle is left to pay, and the interest rate.

A lower interest rate will yield a higher net present value (costs less to burrow) which translate into higher house prices.

A higher interest rate will yield lower net present values (assuming enough time elapses) which translates into lower housing prices.

--

Higher interest rates are coming as inflation is coming very very soon in 2011.  It is already here, it is just hidden really well by the US government.  The previous comment ties into "why the market" hasn't figured it out.  The market still believes that the US dollar will be here in 30 years.  Do you think that a 30-year tresuary bond would hold any value if the buyer thought it would be worth nothing in less than 2 years as I believe!? This is how flash crashes happen... and will happen in 2011.

The good news is that your debt will always fade away with inflation.  If I were you, I would take the lowest fixed rate I could on your house and let inflation eat away the nominal debt you owe :).  Then, with the money you save from this... buy some physical silver and pay your house off in no time!

This last link should provide some backing to what I say.  Also check the website for more information on mortgage rates if you are still curious! It is a great source!

http://www.zerohedge.com/article/486-fannie-30-year-fixed-mortgage-back-7-month-highs

-

Hope this information helps.  Feel free to ask questions or comment,

-

Respectfully,

Scott J

TommyHolly's picture
TommyHolly
Status: Bronze Member (Offline)
Joined: Nov 9 2010
Posts: 90
Re: Is it finally time to refinance my adjustable rate ...

Scott, Why would my debt fade away with inflation? 

My current lender Wells Fargo turned me down 3 times now for the Home Affordable Refinance Program (HARP).  I was pretty pissed off because they gave 2% loans to credit rats who still couldn't afford their mortgage.  They said my credit was too good, I've never missed a payment, and my standing with the former World Savings and Wachovia was too good to justify it...rrrrgh what BS.

Wells Fargo currently has a 5-year ARM at 3.170% APR that I'm thinking about because I can pay extra money and really put a huge dent in the $260,000 I have left.  Compared to the 4.86% 30-year fixed, that's over $250 a month that could be paying down principle.  Would this severely screw me down the road though?  I'm just so pissed off that they wouldn't give me that refinance deal under the HARP program because I'm not a credit rat and pay my bills on time.  I know people that stopped paying on time and intentionally missed payments in an attempt to get accepted.  Besides the house I have no other debt and I'm wondering if things get that bad in the future, just to drop the house and let the bank have it?

I've already been buying large amounts of Silver and Gold bullion.  2 months ago I bought a "Monster Box" of Canadian Mable Leafs and it's already went up in value almost $3,000!! 

So my options are:

- Refinance at 4.86% (actually it's higher at around 5.4%APR, ugh)

- Refinance at 3.170% on a 5-year ARM

- Keep trying to apply for the HARP program and get a  2% loan

- Bankruptcy and simply move or rent but it would take years in the meantime before the bank forecloses...LOL

ckessel's picture
ckessel
Status: Martenson Brigade Member (Offline)
Joined: Nov 12 2008
Posts: 486
dealing with loan officers
TommyHolly wrote:

Scott, Why would my debt fade away with inflation? 

My current lender Wells Fargo turned me down 3 times now for the Home Affordable Refinance Program (HARP).  I was pretty pissed off because they gave 2% loans to credit rats who still couldn't afford their mortgage.  They said my credit was too good, I've never missed a payment, and my standing with the former World Savings and Wachovia was too good to justify it...rrrrgh what BS.

Wells Fargo currently has a 5-year ARM at 3.170% APR that I'm thinking about because I can pay extra money and really put a huge dent in the $260,000 I have left.  Compared to the 4.86% 30-year fixed, that's over $250 a month that could be paying down principle.  Would this severely screw me down the road though?  I'm just so pissed off that they wouldn't give me that refinance deal under the HARP program because I'm not a credit rat and pay my bills on time.  I know people that stopped paying on time and intentionally missed payments in an attempt to get accepted.  Besides the house I have no other debt and I'm wondering if things get that bad in the future, just to drop the house and let the bank have it?

I've already been buying large amounts of Silver and Gold bullion.  2 months ago I bought a "Monster Box" of Canadian Mable Leafs and it's already went up in value almost $3,000!! 

So my options are:

- Refinance at 4.86% (actually it's higher at around 5.4%APR, ugh)

- Refinance at 3.170% on a 5-year ARM

- Keep trying to apply for the HARP program and get a  2% loan

- Bankruptcy and simply move or rent but it would take years in the meantime before the bank forecloses...LOL

Tommy,

You might ask your loan officer if missing a few months payments would help you qualify for the loan you are looking for. He may consider rethinking the decision.

Coop

TommyHolly's picture
TommyHolly
Status: Bronze Member (Offline)
Joined: Nov 9 2010
Posts: 90
Unfortunately that is not an option for me.
ckessel wrote:

Tommy,

You might ask your loan officer if missing a few months payments would help you qualify for the loan you are looking for. He may consider rethinking the decision.

Coop

Thanks for the advice Coop.  I thought about this but that is not an option for me for 2 reasons.  1. I would lose my security clearance  2. As much as I am getting dicriminated against for paying my bills on time and being responsible with a great credit rating...I just can't lower myself to become one of the moochers or looters.

I am still looking into this situation.  A few banks have offered help for military members that qualify but so far that's not me.  Also 3 of my neighbors have foreclosed in the last few months, one who has the exact same house as me, so my porperty value has dropped to the point where I'm unside down.  =(

I heard about some website called Youwalkaway.com so I'll see what that is about?

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