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Mortgage restructure thoughts

Discussion in 'Off-Topic Discussion' started by RoyB, Oct 29, 2009.

  1. Oct 29, 2009 at 2:46 PM
    #1
    RoyB

    RoyB [OP] Well-Known Member

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    My mortgage company (ING) is offering to lock in todays rates for another 5 years. Currently have an ARM that is about to expire in a year or so. ING only offers ARMS, so I am kinda screwed there. I have been trying to get refinanced for almost a year now, keep putting money into the house and the value keeps dropping quicker than I can keep up.

    They will lock it in at 4% (5.8 now) for the price of one mortgage payment ($1700). I will be reducing the payment by 311/month, which is quite a bit. Break even point is 5 months. 1 year pre-payment penalty of 3%, but I dont see the values going up enough in a year to get into a fixed payment.

    Thoughts? Ride it out this may of next year or do it now? Only catch is I think I need to pay the 1700 up front and don't have the ability to roll it into the mortgage. I am already short cash from putting it into the house and am anticipating a slow winter at work.
     
  2. Oct 29, 2009 at 2:54 PM
    #2
    tacomaman06

    tacomaman06 Carolina Alliance: Enforcer

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    getting there....
    id go for the lower rate man..........unless its not gonna be significant enough to do so, or it wont equal back out to the $1700.................otherwise, you'll save a bit of $ in the end with the 4%.
     
  3. Oct 29, 2009 at 3:01 PM
    #3
    RoyB

    RoyB [OP] Well-Known Member

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    i just called and they are going to send me paperwork. I DO have to pay upfront, but one thing that is nice is that it does not go back to a 30 year loan....so the time I have in stays the same. They are just adjusting the rate. That is huge because I dont get all that interest thrown back on top like a fresh loan again.
     
  4. Oct 29, 2009 at 3:02 PM
    #4
    tacomaman06

    tacomaman06 Carolina Alliance: Enforcer

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    getting there....
    sounds like a damned good deal then man...especially if you have the initial $1700 for it.
     
  5. Oct 29, 2009 at 3:20 PM
    #5
    lsocoee

    lsocoee My hair is all natural Moderator

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    Who said it will reduce the payment by $311/month? I'm no finance wizard, but I think that you are calculating your $311/month savings by making your interest 4% over 30 years. You should figure out what you will be paying for the next 5 years. I did some calcs, and if your mortgage is about $1700/ month @ 5.8%, then your new mortgage should be about $1630/month @4.0%. This is a savings of about $70/month. I can't find a good calculator, but you need to convert what $70/month for 5 years @ 4% is worth now. I found something, but I'm not sure of the accuracy. It looked like you will be saving about $1650 of today's dollars, but you have to spend $1700 today. I would say that you shouldn't be doing this, especially if you go into debt by doing this extra payment up front. Then again, I might be completely wrong, so please get someone else to confirm this.

    A mortgage refinance calculator might be a good research tool for you to search for.
     
  6. Oct 29, 2009 at 3:43 PM
    #6
    RoyB

    RoyB [OP] Well-Known Member

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    It's according to their website when I choose the 5 year renewal.


    Old rate:5.875% Payment: $1,727.29
    New rate:4.00$ Payment: $1,416.16

    Savings=311.13

    max increase of 2%/year, 6% total after the 5 years is up.
     
  7. Oct 29, 2009 at 3:57 PM
    #7
    NetMonkey

    NetMonkey Well-Known Member

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    damn.... thats how much it is for an apartment out here; let alone a house :frusty:
     
  8. Oct 29, 2009 at 7:09 PM
    #8
    lsocoee

    lsocoee My hair is all natural Moderator

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    that doesn't make any sense. They're fudging their numbers and applying 4% to the life of the loan. I ran a third party mortgage calculator with these two scenarios.

    290,000
    30 years
    5.875%(this assumes fixed over the course of 30 years)
    Calculated note = ~$1700

    290,000
    30 years
    4.0%(this assumes fixed over the course of 30 years which is not your case)
    Calculated note = ~$1390

    If your interest rate stayed at 4.0%, then you would be saving a bunch of money, but this rate is only good for 5 years. Most of these refinance mortgage calculators don't allow you to set a 5 year term that will then increase, they only allow you to set your old rate and your new rate.

    I'm no expert. I took an econ class in college, but I'm an engineer. I know numbers, but you need to have a professional run the actual numbers to see if it will actually benefit you. Furthermore, if you have an extra $1700 around, you could probably invest now and keep on riding the stock market and make more than a 4% rate of return.
     
  9. Oct 30, 2009 at 1:50 AM
    #9
    RoyB

    RoyB [OP] Well-Known Member

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    Thats how 5 year arms work. The 4% is calculated over the life of the loan. In this case it wouldn't be 30 years, it would only be like 27 years since I have 3 years in already. The loan amount is roughly 280K. So, on a mortgage calc 4%x27 years for a principal of 280,000 it comes out to $1,414....which is pretty dang close to what they calculated for me.

    After the 5 years is up, depending on how the interest rates are, they have the ability to raise the rates if they are up. Thats what the 2% max raise is a year. If the rates shoot sky high, then on the 6th year, they can be a max of 6%, the year after a max of 8%, and it caps off at 10%.

    the good thing is that I will have 8 years in before the rates have a chance to move. 8 years in on a 30 year mortgage is pretty big and I will be paying quite a bit towards my principal at that point and should be able to refi comfortably. If I can afford to put that extra 300/mo towards the mortgage I can pay off the loan in 20 years from today. That turned a 30 year mortgage to a 23 year mortgage. Assuming I wont refi or move in that time frame of course.


    Oh, and I don't have an extra 1700 around. That's all going into my mortgage now. It hurts.
     
  10. Oct 30, 2009 at 1:56 AM
    #10
    RoyB

    RoyB [OP] Well-Known Member

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    That's only one of my mortgages. Add on taxes (just went up again) which is another $475/mo :mad: I am paying close to $2,500 in the end. It's starting to take its toll. Going from 2500 to 2300 will help. that's like getting a 2 dollar an hour raise :D
     
  11. Oct 30, 2009 at 7:22 AM
    #11
    Janster

    Janster Old & Forgetful

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    If the 4% is a FIXED rate - then I'd say, go for it. Don't fall for anything but FIXED rates!

    But - if you're short on cash (they want the $$ up front) you really shouldn't do it. You definately need the money to take care of the house, pay bills, and especially anticipating a slower financial intake for the winter.

    Remember also, Christmas is coming up.
     
  12. Oct 30, 2009 at 7:54 AM
    #12
    RoyB

    RoyB [OP] Well-Known Member

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    The 4% will be fixed for 5 years or 4.1% for 7.
     
  13. Oct 30, 2009 at 8:00 AM
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    Gossamer

    Gossamer Howard Roark

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    if you want an expert, that's me. I've been selling and managing mortgages for the past decade. if you want to talk with me about it, PM me and I'll be more than happy to discuss it...over the phone if necessary. There are many variables that would take up too much time to write. Some of what you've been told is accurate and some is waaaaay off base.
     
  14. Oct 30, 2009 at 8:05 AM
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    nasty ned

    nasty ned Well-Known Member

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    sit tight !!!!!
     
  15. Oct 30, 2009 at 8:34 AM
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    nd

    nd Radical Town. It's a hell of a place!

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    prepayment penalties? i'd stay away from anything with prepayment penalty
     
  16. Oct 30, 2009 at 9:18 AM
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    Janster

    Janster Old & Forgetful

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    And what about the rest of the term? That's not what I would consider a fixed rate. You want fixed for the entire length of the mortgage term.

    Atleast, that's the only way we do it.
     
  17. Oct 30, 2009 at 10:24 AM
    #17
    Gossamer

    Gossamer Howard Roark

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    depending on what the margin and index is on his particular loan, what it's based on (treasury, LIBOR, etc.), when it adjusts, what the market is like WHEN it adjusts, etc., will determine whether or not it's smart for him to take a lower rate now or wait to see what happens.

    there are a ton of people whose ARM loans are adjusting and are dropping to the "floor" rate as written in their notes. ING may be trying to avoid having your rate drop when it adjusts next year by offering you a rate now...it's a risk tactic deployed by a capital markets group within the comany. Conversely, they may be doing you a favor by giving you a rate that is lower than what you'll get if you take the chance.

    In the end, I go with "bird in the hand" theory in this case. You clearly want to save money and you can do this by taking their offer. If you can't swing the $1700 then the point is moot. And, please don't let anyone tell you what type of loan to get based on what "they" do because mortgages are as different as the people who have them. Anyone who tells you differently shouldn't be giving that advice.

    I happen to work with ING and they are a reputable lender...i doubt they are trying to do anything more than give you a strong option...and considering you have tried to refi and haven't had any luck, this may be a good way to buy yourself an extra 4.5 years before an adjustment. OR, roll the dice and hope the senate passes to extend the homebuyer credit with additional provisions...that will most likely keep the treasuries in check, thus keep rates at their current levels.

    Or, you can pm me and we can discuss further. Up to you.
     
  18. Oct 30, 2009 at 3:05 PM
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    RoyB

    RoyB [OP] Well-Known Member

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    its an ARM aka Ajustable Rate Mortgage. It is locked in for 5 years and then is adjustable after that. The benefit is that you get a lower rate than a 30 year fixed. It's bad because the rates could go sky high....or they could stay where they are. My home equity is almost nothing since rates are so low. they tried to get me to pay more to lock it in....i said why bother, rates are so low right now.

    I don't have enough equity in the house for a 30 year fixed RIGHT NOW. I've tried.
    for a year. I have to have at least 5 months into it just to break even anyways.

    I know what you are saying about them protecting themselves by offering what would be a (to them) higher rate now than if it were to drop when my loan adjusts. I only have 3 years in and 2 more to go though. Once it hits 4%, where is it gonna go? 3%? 2%? Is that even possible? I don't qualify for any gov. programs because I make too much money and my mortgage isnt owned by fannie or mac.

    I don't see rates going down much further....and I def. dont see house values going up any time soon either (to help a refi). By the time I have to worry about this again I will have an extra 100K in equity in just the money I put into the mortgage. If the economy is just as bad in 3 years, maybe they will offer something like this again. Or, if the house values go up, I will gain more equity and be able to refi at a lower rate/less years. At any rate, even if I decide to refi after the 1 year, I will still be ahead $2000 in the end (up front cost-savings).
     
  19. Oct 30, 2009 at 4:00 PM
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    Evil Monkey

    Evil Monkey There's an evil monkey in my truck

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    It actually does make sense. You pay interest based on the outstanding balance at the time of the payment. It doesn't matter what the interest rate will be when the ARM adjusts. When the ARM does adjust, the payment is recalculated based on the remaining time to pay off the loan and the new interest rate. So say that the 30 year loan was paid on for 5 years before the ARM adjusted. It would be like you refinanced a new loan for 25 years at the new rate for the outstanding principle due. If the interest rate is higher, the payment has to go up to make the balance 0 at the end of 25 years.

    As for whether or not it makes sense, if those numbers are correct, a $1700 investment now will save him $310 per month. Over a 5 year period, that's $18600. That's over 10x return in 5 years (about a 220% return, not 4%).
     
  20. Oct 30, 2009 at 6:37 PM
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    lsocoee

    lsocoee My hair is all natural Moderator

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    thanks for clarifying. i had no idea it worked like that. I'm glad some knowledgeable folks jumped in.
     
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