sgip
Well-known member
A TI reader sent me a scenario that has it's plusses and minuses so I'm throwing it out for comments. I've seen these scenarios in the 2006-2007 mortgage market and several lenders are rolling out these again. What is listed below are not the actual numbers from this TI reader, but a reasonable analog to what was pitched by their lender. I've seen the same thing offered to a client on an owner occupied refinance as well by a "name brand bank".
Let's see what the crowd thinks!
Non-Owner refinancing is difficult to accomplish given how hard pricing is hit with add ons by the Agencies. Let's assume a couple of things:
1) The present value of the property is $800,000
2) The original loan balance is now paid down to 565,000
3) The original loan type was a 10/1 ARM at a rate of 3.750.
4) There are 5 years left on the fixed portion of the ARM.
5) The current payment is $2,778 (P+I only)
The owner believes that within 5 years rates will be considerably higher than where they are today. Even though 5 years are left on the loan, refinancing is being considered. At present, the offers on the table are as follows:
A) A 25 year term fixed rate refinance at 4.25 at zero closing costs (other than prepaids) Payment is $3,060 - remember, this is Non-owner, not owner occupied so those low rates being talked about just aren't there in this case.
B) A 25 year term fixed rate refinance at 3.250 at a new loan balance of $585,000 (+20k in points and fees). Payment is $2,826
In all 3 scenarios (keep the loan, refinance at no cost, refinance by adding fees) each of the loans will pay off in 25 years. The owner believes strongly that they will retain the property for at least 15-20 years.
Which choice might be is the wisest? Leaving the loan as is, yet stay awake at night fearing for the future? Is it best to keep your costs low and refi for peace of mind? Is it best to pay a higher fee today for the possibility of a lower rate in the future once the ARM adjusts?
What would you do?
My .02c
Let's see what the crowd thinks!
Non-Owner refinancing is difficult to accomplish given how hard pricing is hit with add ons by the Agencies. Let's assume a couple of things:
1) The present value of the property is $800,000
2) The original loan balance is now paid down to 565,000
3) The original loan type was a 10/1 ARM at a rate of 3.750.
4) There are 5 years left on the fixed portion of the ARM.
5) The current payment is $2,778 (P+I only)
The owner believes that within 5 years rates will be considerably higher than where they are today. Even though 5 years are left on the loan, refinancing is being considered. At present, the offers on the table are as follows:
A) A 25 year term fixed rate refinance at 4.25 at zero closing costs (other than prepaids) Payment is $3,060 - remember, this is Non-owner, not owner occupied so those low rates being talked about just aren't there in this case.
B) A 25 year term fixed rate refinance at 3.250 at a new loan balance of $585,000 (+20k in points and fees). Payment is $2,826
In all 3 scenarios (keep the loan, refinance at no cost, refinance by adding fees) each of the loans will pay off in 25 years. The owner believes strongly that they will retain the property for at least 15-20 years.
Which choice might be is the wisest? Leaving the loan as is, yet stay awake at night fearing for the future? Is it best to keep your costs low and refi for peace of mind? Is it best to pay a higher fee today for the possibility of a lower rate in the future once the ARM adjusts?
What would you do?
My .02c