Refinance now, or this summer?

[PatchyMama]

Yes, I will admit we are another family with an ARM(not interest only tho). We originally bought our house in 2001 with a 30 year fixed. In 2005 we refinanced because rates were great and we wanted to take out some money to do some repairs. At that time the market here was HOT and our house had doubled in value.

We did a refinance through a friend. We were under the impression it was a fixed rate loan, until we went to signing and saw the paperwork... it had changed and was now an 3 year ARM. At that point, we knew that in 3 years we would either sell, or decide to stay and refinance with a fixed rate. We didn't really think it would be a problem - obviously short sighted thinking on our part.

Fast forward to now, our ARM is set to reset in August. We have no plans of moving anytime soon, we enjoy it here and besides the fact, that market sucks. Even with the low house prices of vegas right now, we still have 15-20% equity in the home based on the current sales around us. Our current ARM is at 6.7 %, set to reset in August.

This is not really a problem of us not being able to afford our house, we can at this point. I don't know that we could afford our payment if it went up $300 or more, but I am thinking it should not get to that point unless for some reason we are not approved for a loan.

Anyway, our plan is to refinance with a 30 year fixed or possibly a 15 year fixed. It seems that interest rates on fixed loans right now are hovering right above 5%, which would actually put us with a lower payment if my thinking is correct.

We would just go ahead and refinance now, other than we would have to pay a prepayment penalty of about $1700 to do so before august. My instinct says to wait out the refinance and try to do it about the time our loan is set to adjust to save us that prepayment fee. However, I admit to being slightly scared that interest rates will go up by then OR housing prices will drop even more drastically -therefore eating away at our equity percentage (which I believe affects your interest rate?)

Any thoughts or advice from you all knowing mamas?

ETA- additionally any thoughts on refinancing through USAA? I admit to being a bit overwhelmed and intimidated when it comes to all the companies out there offering mortgages - especially after the last experience with our "Friend"

[claras_mom]

We're in the process of refinancing; the interest rate is locked in at 5% on a 15 year fixed. I think you should weigh the prepayment penalty against the interest savings--if it comes out close to even, do it now. Interest rates are all over the place right now; no telling what they'll be in six months.

Dh and I found a mortgage broker through talking with our accountant--she had a couple of recommendations and dh talked to them both before deciding. You could also talk to the realtor you worked with when you bought your house--my experience with realtors is that good ones have a lot of knowledge of brokers, contractors, etc. and it's in their best interest to give good recommendations. After all, if you *did* sell, you'd probably want someone to represent you. Oh, and our neighbor--who is a loan broker--recommends checking out credit unions, as they often have good rates and customer service.

Above all, make it really clear what you consider acceptable and don't sign on to a loan you don't want. I didn't even want to sign paperwork with the *suggestion* of what we didn't want, which was probably a PITA to the mortgage guy doing the refinance (it was all boilerplate preliminary stuff), but better safe than sorry.

[SusannahM]

Are you going to have to end up paying PMI if the house price declines more? If you're on the edge of having to pay that (and it sounds like you are), I'd go ahead and refinance now if it prevents you from having to pay it. Not having to pay PMI would make up for the $1700 fee fairly quickly.

[Belleweather]

I'd refi now in case prices or comps drop or the credit crunch tightens and you can't get a refi in August. I don't think rates are going to drop too much more as far as interest and it would be better to lock in a fixed rate while you can and pay a small amount more than be stuck in your ARM.

[PatchyMama]

Thanks ladies. We are definitely right on the edge of the PMI bubble so to speak because of the drop of house prices. We submitted an app with USAA to see what they say I also have a call into our current mortgage company (WAMU) and we will compare the two. I am secretly hoping that maybe WAMU will want to let us refinance and waive the prepayment penalty

[JuniperMama]

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