COMMUNITY FORUM

ctell1

03:55AM | 09/15/04
Member Since: 09/14/04
3 lifetime posts
Bvrealestate
We bought the house about a yr. ago and have 2 yrs. left on a 3 yr.ARM @ 4.25%. The question is: Do I shop for a fixed loan now while percents are still low or ride it out and start a new loan after this one ends?

Next: We will be getting some inheritance $ soon, maybe 50K so do I put it towards the principle now or wait until a refinance or new loan begins to add it?


k2

05:54AM | 09/15/04
Member Since: 06/06/03
1248 lifetime posts
Hi ctell, how long are you planning on being in your home?

Regards,

-k2 in CO

Moderator, Miscellaneous Forum

http://www.bobvila.com/BBS/Miscellaneous

ctell1

10:59AM | 09/16/04
Member Since: 09/14/04
3 lifetime posts
Hopefully 30-40 years.

k2

11:31AM | 09/16/04
Member Since: 06/06/03
1248 lifetime posts
Hi again ctell,

Glad to hear you have a long-term perspective! :)

OK, here are my OPINIONS....I'm not a financial advisor or anything, so strictly For What it's Worth!, OK?

Unlike a lot of people, I'm a big believer in paying down debt early. I know, a lot of people say, "Hey, it's deductible!" I say, "yes, but the taxes you save are less than the interest you pay!"

I've also been known to stick with an ARM despite other peoples' advice. They've worked for me--and they tend not to adjust as much as people think. What is yours indexed against?

But, yes, you can say that rates are the lowest they've been for a long time--so why not re-fi with a fixed? I say it depends on 2 things: your comfort level with a changeable rate, and the total cost it'll cost to get a new loan. Consider that this could be $2000, or ??? But don't re-fi till you get the inheritance--read on...

As for the upcoming inheritance, these usually come at a great end to a tumultous time. Of course how you use is up to you. But my recommendation is to CELEBRATE it! By this, I don't mean throw a big party (although you certainly could!). I mean, take into account the legacy of the person you got it from--and use in a way that'll benefit YOU now and long term, if possible.

So, a good time to re-fi might be after you get your inheritance, you could (say) put $25K toward the mortgage and re-fi, and put the other $25K away and think about it for a while (or, maybe send to me?...only kidding!)

Good uses for inheritance money (in my opinion): your home and other LONG term investments (think of the golden goose). Maybe put into savings or blue-chips and use the dividends for occasional nights out. Something you can use every day and think of who you got it from in a good way. Maybe a new kitchen, some quality furniture.

Bad use for inheritance money (in my opinion)...a new boat. Might as well throw the money away.

And take your time and think it over! Think of your goals.

And don't forget that if you make extra payments on your ARM, this is a very powerful thing to do. Have you ever seen an amortization table? These things are brutal over a 30-year term. Start making extra payments, cut the term in half and you won't even have to re-fi. (Again, if you can relax with the adjustable rate.) If you were to make a $20K payment toward the loan, all of a sudden your next payment would be for a lot more principal and a lot less interest!

If it were me, I might just rather add $2K in a principal payment than waste $2K by giving it to a bank for new appraisal fees, filing fees and other nonsense.

Obviously I can't decide for you, but I think you can at least make an informed decision.

Your thoughts?

Regards,

-k2 in CO

Moderator, Miscellaneous Forum

http://www.bobvila.com/BBS/Miscellaneous

ctell1

08:19AM | 09/17/04
Member Since: 09/14/04
3 lifetime posts
Thanks, and the 3yr. ARM is based on 30 yrs. I heard also from a another that if you can relax in the long term an ARM will save you money, but you got to admit if at the end of my 3 yrs. and there is a fixed at 4.25% (like my current ARM)it would be tempting to lock it in. How's that work anyway, if at the end of the 3 yrs. I get another ARM or even a fixed is it now based on 27 yrs?

k2

03:18PM | 09/17/04
Member Since: 06/06/03
1248 lifetime posts
Hi again ctell,

The way I "think" it works is that the rate will adjust after 3 yrs and you'll have 27 yrs left (assuming you haven't been making any extra additions to principal).

Now when you get your inheritance, if you find you can put a bunch toward the loan and then qualify for a 15-YEAR fixed, that might be a sensible thing to do.

Two things that I can think of would make your loan re-start as a 30-year: if your current loan is a "balloon", or if you refinance.

I still say, either keep paying down your current loan....or think about refinancing as a 15-year fixed. Unlike most people, you'll have a special opportunity to make some real headway on your mortgage!

Regards,

-k2 in CO

Moderator, Miscellaneous Forum

http://www.bobvila.com/BBS/Miscellaneous
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