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Subject Expert
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Mentor
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I just got another quote for a 5.35 pc 5/1 ARM with zero points and zero closing costs. What u guys think of that ?
Mentor
If you can afford the 15, I’d do the 15.
Or get the 5 yr and pay it like the 15 to get the principal down a bit.
Subject Expert
Just so I better understand… are you paying any points?
Our firm expects Fed Funds to settle around 3.25%-3.50% by the end of 2026… so that’s a 0.75% reduction from current target… and barring any major economic shocks, we expect rates to settle around (maybe and additional 25-50bps) there as part of the Feds neutral policy stance…
Obviously, I can’t tell you what to do, but one idea could be to pay down principal for the next year or so to see what happens over the next 6-12 months… alternatively, if you can swing the constant paying of closing costs… lock in the 4.99%, because that’s what we know right now… then reassess in a year or so…
Mentor
How accurate have your firms predictions been over the past 2 or 3 years?
I think most projections had rates falling much faster than they actually have over that period of time, which is exactly why it’s hard to predict where we will be in 2 to 3 years from now.
Mentor
How far into the 5 year period are you?
Have you looked at a 20 or 30 year term?
I mean, if you can afford the payment on the 15 yr, you’ll save a crap ton of interest compared to the longer periods
I am in year 2
Given that rates are at least as likely to go down as up, I would be wary of high closing costs. Ask what your rate would be if you got enough of a credit to do no cost / no fee. If rates go down soon, you may refi again and those costs are wasted.
Subject Expert
They can pay the closing costs out of pocket… but $5-6K isn’t going to fundamentally move the needle on your APR… you could do a breakeven analysis…
Also look to see the actual fees vs the cost to start a new escrow and what your old escrow refund will be. If you’re paying $5,000 but will get a refund check for for $4,000, that’s not as bad as paying $5k but only having like $300 for an escrow refund in current account.
Wouldn't suggest doing escrow. Only banks make money off that. Save and pay the property tax at year end.
For the refi. I would suggest doing it. Anything more than 1/2 a % point is worth it. And 4.99 is pretty decent. Also consider making 1-2 extra payment a year and you can shave off a few more years in the mortgage.. and get done under 10 years.
What about fixed rate with no costs / fees / points? If not available might consider this instead of current. As D2 noted over 50 bp usually worth it (I would add no cost no fee.).