Another Mortgage Question

[lisalulu]

We have a 5yr ARM and when I was looking over the paperwork last week. I noticed a clause in the agreement that gives us the option to convert to a fixed rate. It said that we have to meet 4 conditions. We have to give notice of our intent, we have to do it at a predetermined time (first opportunity is right when our ARM becomes adjustable), fee of $100 and we must be current on our loan.

So I am wondering if anyone has ever heard of this? Anything sound weird about it?

We had been trying to decide whether to move or refinance once the fixed portion expired. But if its so easy to convert it, that would the best solution for us right now.

[msjd123]

Sounds reasonable to me, but I'd want to know for sure how they will calculate what the fixed rate will be. Will it be whatever the adjustable is currently charging? Or that plus a certain markup? I'd want to know that before I made any decisions. If you enjoy your house, though, and don't want to move, I'd definitely consider doing this or refinancing, whichever one offers better terms.

[lisalulu]

Originally Posted by msjd123

Sounds reasonable to me, but I'd want to know for sure how they will calculate what the fixed rate will be. Will it be whatever the adjustable is currently charging? Or that plus a certain markup? I'd want to know that before I made any decisions. If you enjoy your house, though, and don't want to move, I'd definitely consider doing this or refinancing, whichever one offers better terms.

oops! forgot about that. It says the new rate will "be equal to the Federal National Mortgage Association's required net yield" plus .625%. I have no idea what the required net yield is though?

[mightymoo]

When does your ARM convert? What is the current rate?

I think there are a couple things to keep in mind. Fixed rates are still really low. My understanding of ARMs is that at the point of conversion the rate jumps (usually there is a limit as to how much), but I'd make it a point of knowing exactly how high that jump could be. You may find that the rate at that point would be higher than a fixed rate otherwise. If your ARM is significantly lower than the current fixed rates, I would wait until the fixed part ran out, then compare the rate of fixing it with that of refinancing.

FWIW, refinancing is not difficult. Unlike home purchases, where there is a lot of coordination involved in terms of who gets paid what, deeds, etc. The refinancing is solely with the bank you are refinancing with, so its not quite as cumbersome. We just refinanced a few weeks ago - all that was involved was giving them some information on the phone, mailing them some bank statements and then signing the paperwork at our own house.

[caeden&connersmom]

Originally Posted by lisalulu

oops! forgot about that. It says the new rate will "be equal to the Federal National Mortgage Association's required net yield" plus .625%. I have no idea what the required net yield is though?

Checkign Fannies Maes site, your FNMA rate would be around 6.26% plus .625%

Not a bad rate.

http://www.efanniemae.com/sf/refmate...rny/hrny30.jsp

http://www.efanniemae.com/syndicated...ves/cur30.html

[mightymoo]

Originally Posted by caeden&connersmom

Checkign Fannies Maes site, your FNMA rate would be around 6.26% plus .625%

Not a bad rate.

http://www.efanniemae.com/sf/refmate...rny/hrny30.jsp

http://www.efanniemae.com/syndicated...ves/cur30.html

If her rate is to be 6.885% and the loan is converting today, then I would refinance. Current fixed rates are around 6.25-6.3%, with no points. My refi three weeks ago was 6.25% with no closing costs, no points.

Also, if you know you won't be in the house longer than another 5 years, you could consider refinancing to an ARM, though ARM rates aren't significantly lower than fixed rates now a days, it might save you something. But I would only do it if you are sure you won't be there 5 years from now, since fixed rates are still really low.

[lisalulu]

Originally Posted by mightymoo

When does your ARM convert? What is the current rate?

It doesn't convert until July 2008 and our current rate is 4.125% and it can't jump to more than 6.125% in the first year after it converts. WE really thought we would be moving to a bigger space but the housing prices are still so high in the city that we might have stay here a little while longer.

[lisalulu]

Originally Posted by caeden&connersmom

Checkign Fannies Maes site, your FNMA rate would be around 6.26% plus .625%

Not a bad rate.

http://www.efanniemae.com/sf/refmate...rny/hrny30.jsp

http://www.efanniemae.com/syndicated...ves/cur30.html

Thanks for the links!

[lisalulu]

Originally Posted by mightymoo

If her rate is to be 6.885% and the loan is converting today, then I would refinance. Current fixed rates are around 6.25-6.3%, with no points. My refi three weeks ago was 6.25% with no closing costs, no points.

Also, if you know you won't be in the house longer than another 5 years, you could consider refinancing to an ARM, though ARM rates aren't significantly lower than fixed rates now a days, it might save you something. But I would only do it if you are sure you won't be there 5 years from now, since fixed rates are still really low.

6.885 wouldn't be so good. Especially if you add on that we are paying PMI right now and that may roll over if we just converted and not refinanced. Our current lender has a 30yr fixed rate of 6.0% but we would have to pay closing costs, etc.

We were so sure we would be moving in 5 years and then the housing prices just kept getting higher and higher. So now I'm not sure of anything

[mightymoo]

Originally Posted by lisalulu

It doesn't convert until July 2008 and our current rate is 4.125% and it can't jump to more than 6.125% in the first year after it converts. WE really thought we would be moving to a bigger space but the housing prices are still so high in the city that we might have stay here a little while longer.

Okay, I thought it might be that low, since the rates were so good a few years back for arms (we had one around then at a rate like that) - then I would definitely wait and see what the rates are when it converts next year. At that point, if the going rates are lower (doubtful, but anything is possible) then refinance, otherwise yeah go for it.