When Should You Refinance?
By: Spencer Rascoff, CFO & VP of Marketing | October 4, 2006
Interest rates are going up, or so everyone tells me. Clearly they have already gone up over the last year, according to these charts by Mortgage-X.com (who unfortunately don’t permit republishing of their charts).
So if you’re sitting there with a big interest-only ARM that will convert from a fixed rate (say, 5%) to a variable rate (8% or higher), your future motgage payments are probably looming large on the horizon.
As I’ve commented before, some people will be hit hard when ARMs convert from fixed to variable. Many interesting posts have been written by others on this subject and Businessweek recently did a cover story, which resulted in a huge number of comments to their editors.
So should you refinance now? I’m no expert, so I can’t say for sure. It seems to me though that a lot depends on how long you think you’ll be in your house. If there’s a chance that you’ll sell it anyway before the ARM flips to a variable rate, then clearly you shouldn’t refinance. But what if you’re not sure how long you’ll be in the house? It’s a high-stakes gamble.
Consider this napkin math — the monthly payment on a 80% interest-only ARM on a $400,000 house would go from about $1700 to $2500 or more. For many people, that jump will be enough to force them to sell their house. So the question is this: do you refinance now and bite the bullet, or do you roll the dice in the event that rates don’t keep climbing and/or you end up moving anyway? I’m struggling with this very decision right now. Advice is welcome.
Update 7/30/2008: You can now get free, anonymous loan quotes from the Zillow Mortgage Martetplace.
- Stumble it!
- Categories: Home Mortgage, Refinance
Comments
8 Comments so far
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Brian Jamieson on October 8, 2006 10:25 am
I am in a similar bind. I have a 2 year ARM that I expect to jump up significantly in the future. I think I will stay in my new house at least two years, but probably not five, so my initial decision was not to re-finance (which will hurt me if I do stay longer). But then again, the rates may drop in five years and I could refinance then.
Brian Jamieson (your HW classmate)
justin on October 20, 2006 8:46 am
Good News - I just saved a bunch of money on my mortgage. I went through http://refinance.pricefaqs.com and they got it done fast. I was getting worried because 3 other lenders said “No”, but pricefaqs.com got it done for me!
JoeT on March 18, 2007 4:14 pm
I have to let everyone know about my recent refi experience. I started out on this website http://www.easymademortgage.com. Got a great rate and a $300 gift card when my loan closed. Best mortgage experince I’ve ever had!!!
Shamun Mahmud on February 13, 2008 10:59 pm
Have a great day & if you have a little extra time, please watch this 4 minute video to find out how you can pay off your mortgage in as little as 1/3 to 1/2 the time with no change to your current cash flow & without refinancing your existing mortgage! Give me a call if you’d like to get more information once you take a look.
http://u1stfinancial.net/betterloansNOW
Click on “Money Merge Account Flash Video” link below “Welcome To U1st Financial!
jnm on May 29, 2008 8:12 pm
Which bank has the best refinance rates? Iam looking to refinance soon.
Spencer on May 31, 2008 8:54 pm
jnm - submit a loan request via Zillow Mortgage Marketplace. You remain completely anonymous until you decide to reach out to a lender. You can find Zillow Mortgage Marketplace by going to Zillow and clicking on the Mortgages tab.
Bruce on June 6, 2008 6:35 am
Finding the right info on loans and refinanacing is a quadmire to work your way though - most of us will need some help.
Roger on July 29, 2008 8:12 pm
It is so true that finding the right type of refinance loan can saved you so much money. I’m in a 80/20 right now that I have saved so much money with. Thank you for this nice blog.