Bingo. Just pay it down faster.
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The clock resets but as mentioned you can pay extra to shorten it back to original time frame. If you keep making the original payment amount, then youāll payoff even quicker than the original mortgage.
The conforming limit is nation wide. Then high cost areas have a higher conforming limit specific to them. That higher limit is super conforming. Jumbo mortgages are above the super conforming limit.
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Some lenders will refinance to 24 years, 16, etc if you go back through the same servicer.
No-cost no-fees refis?
Donāt they have something called ārecastā? Have a lower rate for the rest of the term.
I had to pay for 1 appraisal (other was waived) and title work was cheap, since I bought one a year ago and refinanced the other a year ago. I ended up with a small lender credit overall, so I paid about $1k in total fees.
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I thought recasting kept loan terms like amortization and rate the same but recalculate the monthly payment due to some principal paydown.
you can recast with interest rate change as well. my understanding is that paperwork is simpler then a refinance. never done it thoā
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A recast keeps the rate but changes the amortization.
A modification keeps the amortization on path, but changes the rate.
During the GFC a modification meant a change in all loan terms - rate, balance, amortization due to borrower or collateral distress, but are rarely done today.
Thanks for reading,
LbJW
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The article is weird, just say go for fixed rate 30 years instead of ARM.
A client of mine sent me a scenario that has itās pluses and minuses so Iām throwing it out for comments. Iāve seen these scenarios in the 2006-2007 mortgage market and several lenders are rolling out these again. What is listed below are not the actual numbers from the clinent, but a reasonable analog to what was pitched by the lender. Iāve seen the same thing offered on an owner occupied refinance as well by a āname brand bankā but the numbers really donāt work.
Letās see what the crowd thinks!
Non-Owner refinancing is difficult to accomplish given how hard pricing is hit with add ons by the Agencies. Letās assume a couple of things:
- The present value of the property is $800,000
- The original loan balance is now paid down to 565,000
- The original loan type was a 10/1 ARM at a rate of 3.750 .
- There are 5 years left on the fixed portion of the ARM.
- The current payment is $2,778 (P+I only)
- In 5 years the new payment could be anywhere. A reasonable assumption could be a $2,950 payment to the cap (8.75) at $4,100
The owner believes that within 5 years rates will be considerably higher than where they are today. Even though 5 years are left on the loan, refinancing is being considered. At present, the offers on the table are as follows:
A) A 25 year term fixed rate refinance at 4.25 at zero closing costs (other than prepaids) Payment is $3,060 - remember, this is Non-owner, not owner occupied so those low rates being talked about just arenāt there in this case.
B) A 25 year term fixed rate refinance at 3.250 at a new loan balance of $585,000 (+20k in points and fees). Payment is $2,826
In all 3 scenarios (keep the loan, refinance at no cost, refinance by adding fees) each of the loans will pay off in 25 years. The owner believes strongly that they will retain the property for at least 15-20 years.
Which choice might be is the wisest? Leaving the loan as is, yet stay awake at night fearing for the future? Is it best to keep your costs low and refi for peace of mind? Is it best to pay a higher fee today for the possibility of a lower rate in the future once the ARM adjusts?
What would you do?
Thanks for reading.
- Any possibility of owner moving back in in the future?
- What is the rate like for starting a new 10/1 ARM? 10 years are a long time.
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Comparing A vs B, the break even time is 7 years. The maximum payback is only 50k in future money over 25 years. I would choose A and hope to refinance to lower rate whenever it happens. He can use 20k to pay down principal now or invest in stocks or another house.
I would choose A over the current loan since this borrower seems to be risk averse. 0.5% is worthwhile to get 25 year fixed vs 5/20.
Conclusion: A would be my pick.
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One surprise is that interest rate reduction of 1% only resulted in a 11% monthly payment reduction, 4.25% to 3.25%. Amortization really helps to reduce interest rate shock.
Start rate for Non-Owner ARM loans are often equal to or higher than a fixed rate. Investors donāt want to buy these loans due to their high failure percentage vs fixed loans.