commit c9ac5e43a15f1a66e302aeda398bb956649d7f37 Author: glorybeavis939 Date: Fri Oct 10 18:20:04 2025 +0800 Add Mortgage Refinance: Don't Overlook Adjustable Rate Mortgages (ARMs). diff --git a/Mortgage-Refinance%3A-Don%27t-Overlook-Adjustable-Rate-Mortgages-%28ARMs%29..md b/Mortgage-Refinance%3A-Don%27t-Overlook-Adjustable-Rate-Mortgages-%28ARMs%29..md new file mode 100644 index 0000000..23f7210 --- /dev/null +++ b/Mortgage-Refinance%3A-Don%27t-Overlook-Adjustable-Rate-Mortgages-%28ARMs%29..md @@ -0,0 +1,110 @@ +
The mortgage rates dropped again. I'm re-financing my home loan once again. It's amazing it hasn't been even a year because I did it last time.
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The rates were low in 2015 since of the anticipation for QE2. Once QE2 began, rates went up. Now rates are low once again. Why? I do not understand. Maybe the marketplace is expecting a QE3.
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This time, instead of following my typical Stepping Down the Ladder script, I'm re-financing my home mortgage to an ARM with a money out. Before you call me insane for selecting an ARM when rates are lower than ever, bear with me and read to the end.
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Stepping Down the Ladder
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Stepping Down the Ladder indicates refinancing to a set rate somewhat above the marketplace rate, with sufficient credit from the lending institution to cover the closing cost. Rinse and duplicate every time the rates go lower again.
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It's a no-lose proposal. You begin gaining from the lower rate on the first day. As the rates go lower, you keep [securing](https://athworldproperties.com) to a lower rate, and never ever pay any closing costs. Repeat this procedure till the rates reach the bottom. Because the rate is fixed, your rate will remain at the bottom.
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10-Year and 15-Year Fixed Rate Mortgages
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When I looked at refinancing this time, I began with the exact same approach. Because I have a 15-year fixed rate home loan now, I took a look at 15-year fixed and 10-year fixed options.
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If I go with another 15-year repaired, the best rate I can get is 3.625% without any closing cost. It's barely worthwhile due to the fact that my current rate is 3.75%. If I choose a 10-year repaired, I can get 3.25% with no closing cost.
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Between these two alternatives, I would choose the 10-year repaired. I've had a 15-year fixed home loan for a few years now. I want to pay it off in ten years.
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5-Year Adjustable Rate Mortgage (ARM)
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I typically don't take a look at ARMs at all, due to the fact that the whole idea of Stepping Down the Ladder is about locking in the most affordable rate for the life of the loan. But since I was considering a 10-year fixed, I likewise looked at ARMs.
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A 5/1 ARM has a set rate for the first 5 years. The rate begins adjusting yearly after five years. If I'm going to settle in 10 years, by the sixth year the staying balance will be little enough that I can pay off if I want to. If I do not like the rate at that time, I will simply pay it off. Meanwhile I will have conserved a fair bit of interest in the first five years.
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If I opt for a 5/1 ARM, I can get 2.75% with no closing expense.
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Cash Out Refi
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A cash-out refi indicates obtaining more than the current loan balance. Usually you will pay a greater rate and/or greater fees if you re-finance with a cash-out. However, if your loan-to-value ratio (LTV) is low enough, there is a [ceiling](https://propertymanagementhuahin.com) you can go to without sustaining a penalty for cash-out.
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Why take squander? Because the lending institution credit is related to the loan amount. Within specific limitations, the greater the loan quantity, the higher the lending institution credit. When the lending institution credit is high enough, it will be able to bump the rate down a notch and still make it a no closing cost loan.
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For instance, suppose the lending institution credit for a $100k loan is $1,000 at 2.625% and the overall closing cost is $2,000. It means the net closing cost is $1,000 for the 2.625% rate. To make it no expense you will have to go to 2.75%. However, if you [increase](https://fb2bweb.com.br) the loan total up to $200k, the loan provider credit will be $2,000, enough to cover the closing cost. Then the $200k loan will be no expense at 2.625%.
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If I increase the loan quantity to the maximum enabled, I can get a 5/1 ARM at 2.625% with a net $900 paid to me at closing in addition to the cash-out. I got this offer.
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I'm utilizing the exact same lending institution I used last time: First Internet Bank of Indiana ("FirstIB"). For the loan I desire, FirstIB provides the very best deal amongst a short list of lending institutions I looked at: PenFed, National Mortgage Alliance, and AmeriSave.
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Won't borrowing more [increase](https://dcs-group.fr) the overall interest paid? Yes, if you only pay the minimum. Because the loan has no prepayment charge, you can pay the cash-out right back in the first month. The only effect of a higher loan quantity will be a greater required regular monthly payment amount. Since I'm going to follow a 10-year payoff schedule and the 5/1 ARM utilizes 30-year amortization, the higher required month-to-month payment is still lower than what I'm going to pay anyhow.
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For example, to settle $100k in ten years at 3.25%, I will have to pay $977 monthly. The needed month-to-month payment on a $200k 5/1 ARM at 2.625% with a 30-year amortization is $803. If I obtain $200k, pay back $100k right away and keep paying $977 a month, the remaining $100k will still be settled in 10 years.
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Borrow More to Invest?
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I thought about keeping the cash-out and investing it. After all, it's tough to see how I can't earn more than 2.625% a year from my financial investments. A five-year CD from Melrose Cooperative credit union pays 2.90% a year. If I only pay the required minimum regular monthly [payment](https://circaoldhouses.com) and put the cash-out and the extra primary payments in a CD, as long as the is greater, I will come out ahead. The tax on the CD interest and the tax reduction on the home loan interest will be a wash.
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If I put the additional money in a worldwide varied portfolio of stocks and bonds, the return needs to be greater - if I don't believe that I ought to just liquidate whatever, pay off my home mortgage, and put the rest all in CDs. Everybody who is bring a home mortgage and investing at the exact same time is betting the financial investments will make more, or else they would not invest before the loan is paid off.
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But anticipated returns are just that - anticipated. You can wager and expect all you desire. The real returns might come higher or lower than your expectation.
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Although the idea of earning money with other [individuals's cash](https://pricelesslib.com) is appealing, I'm not yet that comfy with it. I may still do the CD however that's about it. I do not wish to take more danger with this cash.
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Rates Have Nowhere to Go But Up?
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You might think rates have no place to go however up and that it's shortsighted to get an ARM now when rates are the most [affordable](https://vreaucazare.ro). You might think 5 years from now rates of interest will be much higher.
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I believed the very same each time I re-financed in the last 10 years but rates keep boiling down, reaching one historical low after another. I honestly believed it was the last opportunity to refinance in March 2010. That was two refinances earlier.
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The marketplace has defied all forecasts of higher rates. I will stop saying this will be my last re-finance. It will not surprise me if rates go either method: significantly greater or substantially lower. If rates go down once again, I will [refinance](https://mckenziepropertiestrnc.com) again with an ARM and extend my 5-year fixed rate period.
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When you are within 10 years to paying off your home mortgage, re-financing to an ARM can save you cash compared to a 10-year set rate home loan. The rate is lower. So are the closing expenses (for example PenFed charges a 1% origination fee on all repaired rate mortgages, however not on ARMs).
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Taking a squander and paying it right back will decrease the closing costs. You might even make money for doing the re-finance. If you are going to settle in 10 years anyway, it's free money.
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Say No To Management Fees
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Reader Interactions
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Comments
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1. Money Beagle says
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June 13, 2011 at 5:50 am
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I would re-finance in a heart beat if it were possible, however the equity in our home is well below what the banks would think about in giving us a PMI-free loan w/o escrow (which is what we have today due to the reality that we put 20% down at the time). If I had the ability to re-finance I would absolutely think about an ARM. Even if rates were higher a few years down the road, the amount of principle I 'd be able to pay down in the mean time would most likely well balance out any possible uptick down the roadway.
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2. David says
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June 13, 2011 at 7:39 am
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Very interesting analysis. Did you think about the PenFed 5/5 ARM? If so I'm curious about your thoughts on that. I've taken a look at that over the last few years whenever there was a dip in rates but I constantly wound up opting for the "much safer" fixed rate loan.
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3. Harry Sit says
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June 13, 2011 at 9:27 am
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@David - Yes I considered [PenFed's](https://mycasamyhouse.com) 5/5 ARM. It's currently 3.25% for the first 5 years, versus 2.625% on the 5/1 ARM from FirstIB. If I'm going to pay 3.25%, I might also get the 10-year repaired at 3.25% from FirstIB with no closing expense. For my loan, the PenFed 5/5 ARM isn't as good as the deals from FirstIB.
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4. Mike says
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June 13, 2011 at 10:46 am
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Interesting method. What is limit. LTV ratio you can cash out without being punished?
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5. Harry Sit says
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June 13, 2011 at 10:47 am
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@Mike - 60%.
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6. TJ says
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June 13, 2011 at 6:00 pm
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Has teh no closing expense expired? I don't seem to see that alternative ...
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7. Harry Sit states
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June 13, 2011 at 8:30 pm
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@TJ - FirstIB only lists rates with closing expense. The next greater rate will have no closing expense. For example if the highest rate (lowest charges) noted is 3.5%, 3.625% will have no closing expense.
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8. enonymous states
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June 14, 2011 at 11:08 am
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excellent analysis
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naturally 60% LTV, and small adequate balance to be able to payoff the loan with a balloon payment at the end of the 5 years is the crucial
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the Penfed 5/5 is an incredible deal at 3.25% (if that is stll there) particularly for those with jumbo home loans. however it is not a lot for those in TFBs exact situation ...
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I'm in a 15 year repaired, doing the refi thing yet once again (constantly no closing expenses), and the 5/5 or 5/1 and even 7/1 ARMs didn't make good sense to me, mostly since I'm reluctant to to make the big balloon payment required to be safe with a 5/1 or 7/1, and because the 3.25 5/5 ARM isn't low enough to entice me from my 3.75% 15 year repaired ...
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9. ChrisCD states
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June 17, 2011 at 7:59 am
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Forgive me, however I am unclear how the no-closing expenses deal works. Every time I have actually looked they have actually wanted to cover the costs into the loan which isn't what I am looking to do.
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In addition, our home value has actually dropped low enough to make it the option seem out of reach.
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cd:O)
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10. Heidi states
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June 18, 2011 at 4:54 pm
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Money Beagle - I remained in a similar scenario. After calling a number of banks (since their website calculators regularly concluded that I would not receive their mortgage due to my LTV), I discovered Connexus [Credit Union](https://lucasluxurygroups.com). They let me do an 80/20 to avoid PMI just last December and I saved over a $1,000 a month on my incredibly jumbo mortgage. I have actually considering that paid off the HELOC and am paying off the 25 year 3/3 ARM over a 10 year amortization. You might desire to attempt providing them a call.
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11. Madison states
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June 22, 2011 at 6:38 am
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I keep [decreasing](https://fernandochagasimoveis.com.br) our 5/5 ARM at penfed with a plan to pay off in 5-10 years. And similar to you, I thought every time it could not go lower. We're at 3.375% on our 5/5, and now of course, I see rates are even lower again!
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I'll have to take a look at FirstIB, I hadn't looked into their ARMs lately.
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12. TJ states
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June 23, 2011 at 9:26 pm
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@TFB - I see a choice with no points, but this choice still has $2k in costs (origination charge, appraisal, credit report, flood cert, title insurance coverage, federal government recording charges)
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13. Harry Sit states
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June 23, 2011 at 10:59 pm
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@TJ - If you want the no expense choice, include 0.125% to the highest rate listed. You need to call them.
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14. TJ says
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August 7, 2011 at 4:08 pm
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@TFB do you have any experience with boxhomeloans. com?
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I got much better rates for a thirty years than any other sites. I locked it but because it was "after hours" (the weekend), they can't confirm until Monday, if it is lower than what i locked, my own will be the lower rate, if rates go on monday, they will disregard my request and I have to resubmit a lock request.
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15. Harry Sit says
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August 7, 2011 at 6:16 pm
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@TJ - Sorry, I don't have any experience with Box Home Loans. Maybe check the FatWallet thread?
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16. extremely bill says
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February 19, 2012 at 7:27 pm
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First IB looks appealing for a 5/1 ARM. However, I live in Maryland and it appears that they do not lend here. Do you know if this holds true and if so, could you advise other organizations? I am seriously thinking about the PenFed 5/5 at 3.125% without any closing ... Thanks for an excellent website.
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17. Harry Sit states
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February 19, 2012 at 8:12 pm
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@super expense - Several other readers likewise reported the very same thing. You can constantly call their 800 number to validate if it's still the case. If so, opt for PenFed then. Maryland has a transfer tax. It'll be extremely challenging to beat the PenFed rate when you consist of the transfer tax, which PenFed states it covers.
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"5/5 Adjustable Rate Mortgage (ARM) Promotion: We will pay closing expenses up to $10,000 per loan, to include: Appraisal charge, Tax Service Fee, CLO Access Fee, Title Fees, Transfer Tax Fees, Credit Report Fee, Flood Cert Fee, Recording Fee, Survey if needed and Work Verification Fee."
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18. extremely costs says
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March 12, 2012 at 10:55 am
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TFB - simply desired to follow up on my publishing. I appled for the PenFed 5/5, which seemed excellent, but their appraisal can be found in method low - about 120k under what our last appraisal was one year back. Therefore, our loan amount exceeds their limitation given the appraisal. I am attempting to appeal however in the meantime, wished to see if you or others had other tips for a 5/1ARM or interest just product with no closing costs? (BTW, I consulted FirstIB, and they do not lend to MD) Thanks again.
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19. Harry Sit states
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March 12, 2012 at 12:55 pm
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@super expense - Too bad the PenFed appraisal can be found in low. I hope you will be able to effectively appeal it. Maybe they can ask for another one? The other two loan providers on my brief list to inspect are NMA (nmaloans.com) and AmeriSave (amerisave.com). Also [inspect](https://oasisrealestateeg.com) the [long] [FatWallet thread](http://evolvelanka.online).
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Reply
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20. Jc says
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July 6, 2012 at 8:52 am
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If my lyv is 50% and I refi from a 30 to a 15yr fix, and squander 50,000 and after that repay the 50,000 towards the principal, it seems i will be conserving a big quantity of interest each month. Is there a draw back to this besides a higher month-to-month payment?
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