I am new to refinancing my mortgage.
I've contacted a direct lender company who does not charge me closing costs if I decided to refinance again from the same company (i.e., second and subsequent refinancing). The person I spoke to said that I can refinance the mortgage as many times and as frequently as I want, and I don't need to pay the closing costs. The interest rate is the same as other lenders.
I then though that it may be a good idea to start off with 5 to 7 year ARM with a lower rate and switch to 30 (or even 15) year fixed when the interest rate goes up. If the interest keeps going down, I just keep refinancing the ARM.
Are there any potential problems in doing that, except my mortgage term being reset at each refinancing? Any advise?
Thank you so much in advance!!!
- Your Fat MamaLv 78 years agoFavorite Answer
I wouldn't recommend an ARM at this time. It's a lot more likely that rates will increase than that they will decrease. If they do increase, you could get stuck with a high rate, and refinancing won't help, because that will also be at the new, high rate. Given how low rates are right now, your best bet is to get a fixed rate, even if it's slightly higher than the variable rate you can get right now.
- JefLv 48 years ago
First off, check what is meant by "no closing costs." Are there prepaids involved (e.g. application fees, appraisal fees)? How about title fees? Settlement charges? When they say no closing costs, do they mean no costs, or just that the costs are covered by the new loan proceeds?
This fits into the "if it sounds too good to be true, it probably is" thing.
Secondly, refinancing to an adjustable mortgage right now is a really, really odd choice. The difference between a 5/1 ARM and a fixed rate 30 year mortgage is minimal now, and even smaller if you're able/willing to do a 10 or 15 year fixed rate mortgage. However, I can give you near certainty that when that 5/1 ARM adjusts for the first time, it'll be significantly higher than what you could lock on a fixed term today.
And finally, as already noted, check on prepayment penalties. Getting stuck on a 5/1 or 7/1 ARM that has a 2-3% prepayment penalty would be a real bummer. Sure, you'd be fine with that 2.50% interest rate for the first five years, but come the adjustment and it goes up to 6.00%, you'll be faced with either a huge increase in your mortgage payments, or paying a hefty prepayment penalty to refinance into a fixed rate.
- Howard LLv 78 years ago
You might still need to qualify for the refi. If your credit gets damaged for any reason, sickness, unemployment, injury, you might be stuck with a high interest mortgage when it adjusts. You'll probably never see fixed rate interest this low again. Get a fixed rate now because in 5 years an ARM is likely to have a higher interest rate then the 30 year fixed rate you get today.
- 8 years ago
ARMS typically have prepayment penalty in their terms. Something along the lines of "3% of entire loan value" penalty. Most likely your loan officer is not giving you full disclosure.
I would get someone else involved with the lender. You might even want to get a written statement from them if they really are offering this unspeakable deal. Also don't forget that if interest rates spike before your ARM adjustment, you are going to come out with a potentially higher interest rate loan.
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- ?Lv 78 years ago
Yes it signals other lenders you are having financial difficulties and maybe unable to pay your bills.
You also run the risk of your mortgage being sold and that direct lender going out of business. Then the ARM increases and you are screwed. In 1987 ARMS increased to 17%.
Not a wise gamble.
Your circumstances could change and you don't qualify in 5 yrs.
- Go with the flowLv 78 years ago
Careful with the company you are dealing with.
Be very careful.
Do not do ARMS - you need to lock into today's low rates.
Interest rates could not possibly go any lower. If so, not by much at all.
No closing costs - seems deceptive. Again. Step carefully.
Many consider ARM mortgaes pure scams.
- Anonymous8 years ago
Get more quotes. Anyone can do a no cost refinance and probably at a lower rate. Check http://wefixrates.com since they have the lowest.