4.2% 30 year fixed refinancing

Along this discussion, I'm curious as to know whether younger folks (no kids, or starting) have a good hunch how long they intend to stay at a property? Talking to a buddy at lunch, and his situation, up in the high conforming.



He wants to fefi at 4.75 no points 5 year fixed (principal + interest) + adj or 5.25 no points 30 year fixed. Current rate is about 6.25, I believe at 30 year fixed. Only has to pay related fees ~2500 for refi. This can be recouped in 4-6 months. Issue we were dealing with is if he should go for the 5 year or 30 year. He's in a condo, newly married, no kids. He doesn't think he will be there more than 5 years out, but doesn't know. His loan guy said, although highly dependent on situation, average in CA is 3.5 years before someone moves (work, for example) or upgrades. Loan guy wasn't pushing either way.



If you were in a similar situation (either single, newly married, no kids, but maybe plans), are in a place that could accomodate a starting family, imagine 3-5 years move, but really don't know, would you go for the 5 year and save a couple hundred dollars a month and see what happens after that with respect to rates, or do the 30 year fixed? Move is likely but too early to even consider where that would be or where career will be, how big family will grow, etc.



I may be missing other considerations. Any insight I could pass along or use to introduce into our continued conversations?
 
5.25 30yr fixed without points isn't too bad. I paid 0.75 points for 4.375 awhile back (conforming refi).



3.5 years before a move or upgrade sounds right-on. Seems like we have a revolving door around us. We've been in the same neighborhood for ten years and the house across the street is on it's fourth family, house to the left on it's third, house to the right on it's third, house behind us on it's third, and house two doors down is the only other 10-year family. So every three or four years sounds right.



My opinion? I wouldn't do the ARM thing for all the money in the world. If I was good at gambling and testing my luck I'd be in Vegas or playing the horses. 30 year fixed is 30 year fixed. Ain't nobody that can mess with you.



That's worth WAY more than $2000 a year to me.
 
Thanks IrvineCit. Good point. Arm isn't that bad since it is NOT interest only. I suppose the real question is, if you do the 5 years, if you end up at that place for 6 or 7, would you be comfortable paying whatever interest prevails for those 1-2 years? If rates shoot back to 6 or 7%, could the increased mortgage significantly nullify the savings of the past 5 years. Obviously no one has a crystal ball, but could rates explode to something outrageous 5 years out? He can afford the 6.25 now, so as long as it doesn't blow back way over that he shoudl be fine, I think (assuming same household income, etc.).



I guess a follow up question, is this really gambling? Or is there something sound that argues for doing the 5 year, and if you stay for 7 max, it should be okay and you'll still end up ahead. Again, my buddy KNOWS he will move. Almost has to. Whether it is 3, 4, 5 or 7 years not clear. 5 year still worth the $175/month * 60 months savings? I guess knowing he has a 5 year arm could facilitate the decision point at 5 years if he's still around.



So I guess the next question is, is it better to have the 5.25 so at 5 years there is no pressure to move if the market is at 8%?





Sorry for the ramble. Looks like I'm having a discussion with myself here.
 
another consideration is what are interest rates going to be like in 5 years?



if the super high rates of the 80s come back, then the 30 year is going to look sweet. we might even see a return of assumption of primary loans at low rates as a selling point.



certainly if it is a condo, the 30 yr might make sense if rates and cpi/rents soar to keep it as a rental



just fwiw
 
[quote author="freedomCM" date=1238659877]another consideration is what are interest rates going to be like in 5 years?



if the super high rates of the 80s come back, then the 30 year is going to look sweet. we might even see a return of assumption of primary loans at low rates as a selling point.



certainly if it is a condo, the 30 yr might make sense if rates and cpi/rents soar to keep it as a rental



just fwiw</blockquote>


Another good point. He says he paid over $6ook for the place. From a previous discussion, his HOA is high too + Mello Roos, I think. May not be an ideal rental property. Probably better to cut this sucker loose when it's time. High rates of the 80s would suck, although the music was pretty good back then, but not the dress...
 
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