Should I refinance now?

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talkirvine

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I have an ARM 3/1, and the first 3-year fixed-rate period will end soon on Nov 1 2023. That means my rate--and therefore my monthly payment--is going to change (yes, increase) on Nov 1 2023. My current rate is 4.125%. I am so afraid the rate is going to be above 7% or even 8% by Nov. I have quoted around about refinance, and the lowest rate I can get right now is 6.625.

If I refinance now, my monthly payment is going to increase by $2k. If I wait, the mortgage rate might be higher or lower in Nov. So it all depends on where the mortgage rate is heading by Nov. Any thought on that? Thank you.
 
Actually, adjustable rate has NOTHING to do with mortgage rate. When your rates start adjusting in November, it will be the following:

Interest rate = Index + margin

Margin is a fixed percentage (usually 2% to 2.25%) that is added to the index rate
Index - Chase used to use LIBOR (London Interbank Offer Rate), but now they have switched to Refinitiv USD IBOR Cash Fallback 12-Month Term.

The Refinitiv USD IBOR 12-Month is currently about 5.5%. Adding the 2-2.25% margin, you're look at about 7.5% to 8%.
 
Isn’t there a cap on wha the rate can increase in the first adjustment and then every year thereafter with a maximum cap on the overall increase over the life of the loan??

When I had an arm I think it couldn’t go higher than 2% in any given year. So in your case, you would go to 6.125%.
 
qwerty said:
Isn’t there a cap on wha the rate can increase in the first adjustment and then every year thereafter with a maximum cap on the overall increase over the life of the loan??

When I had an arm I think it couldn’t go higher than 2% in any given year. So in your case, you would go to 6.125%.
Click to expand...
The cap of first change is 5%.... After that it is 2% cap on future rate changes.
 
CalBears96 said:
Actually, adjustable rate has NOTHING to do with mortgage rate. When your rates start adjusting in November, it will be the following:

Interest rate = Index + margin

Margin is a fixed percentage (usually 2% to 2.25%) that is added to the index rate
Index - Chase used to use LIBOR (London Interbank Offer Rate), but now they have switched to Refinitiv USD IBOR Cash Fallback 12-Month Term.

The Refinitiv USD IBOR 12-Month is currently about 5.5%. Adding the 2-2.25% margin, you're look at about 7.5% to 8%.
Click to expand...
Yes, you are absolutely right. My margin is 2.25%, so the rate would be 7.75% at the current index level....
So the real question is where would the Refinitiv USD IBOR 12m go in the next 5 months...
Is there a place where I can see the historical date of the rate, even better with comparison to other rates like LIBOR?
 
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I think Refinitiv USD IBOR 12M is tied to Fed. There is a chance that the Fed might raise another 0.25% if inflation persists, but I think that is the max. Most likely, the Fed won't do anything in the next meeting. It depends on what happens after that. I don't see the Fed cutting rates until next year, probably closer to mid year.

Since you only need to wait for 3 to 6 months to be able to refinance again if you were to decide to refinance now, I think that might be the best option. I don't see Refinitiv USD IBOR 12M dropping to 4.5% in November. Just my guess.
 
If there is little to no cost to flip your loan from X to Y, take that step now. Your closing date would likely be in late June with an August 1 first payment due date. (BTW You aren't skipping a payment, merely paying prorated interest either in the payoff demand or in cash at closing) I do not think the Fed is done with rate hikes given how inflation continues to remain high. That means a 7x handle today could be an 8 handle shortly. Remember also when calculating your new payment to use a 26 year amortization, not 30.
 
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