More ARM advice – new client, different circumstance
by Evan Vanderwey on 08/12/09 at 7:46 pm
This conversation was the result of another of my clients reading my blog last week:
CLIENT:
ok wanting your advice on this . We have the house up there in MI that we have an ARM on and we are so upside down that its ridiculouse , then we have the house down here in [out west] that we bought at the bottom of the market and are ( hopefully ) going to make money on . We are going to sell the house in MI as soon as is financially profitable to do so , and i was thinking of re financing the one up there . I don’t know how the market is up there and i havn’t the time ( work commitments and all ) to work this out , so i would appreciate some in[ut from you guys .
Due to the distance involved we would really like you guys to handle everything if a re fi is the way to go . I’m not looking long term on this ( like 20 years ) we just need to sell and make a few, and call it a right off if needs be
MY RESPONSE:
Hey, great to hear from you – hows the weather out west!?
Send me your mortgage statement and I will confirm my thoughts with it, but as I recall, your loan rate is currently less than or around 3% right? Your payment has got to be quite low as a result and even if you made the lowest payment option you are given each month you would be reducing your principle balance considerably over the course of a year.
In addition, the Feds just came out with a statement that they would like to keep short term interest rates “very low for a very long time”. They are using the year 2012 as the first date they will be moving their rate. This is never a sure thing but I certainly like the sound of this more than the sound of hyper inflationary rising rates!
My advice for anyone in an ARM type mortgage who will be holding onto their home for just the next 3 to 5 years is to NOT refinance. Fear on the one side will cause us to move toward the certainty of a 30 year mortgage and incur whatever expense it takes to get it. On the other side, some are in a low rate ARM mortgage and are making their decision based on greed. As long as greed is the motivator, they will likely wait too long trying to hold onto the relatively small amount of savings and then in a year or two they will end up in a higher fixed rate for the next two decades as a result.
In your case, you don’t have a long term outlook on this home or mortgage. The level headed approach is to sit tight and make your payments.
That said, you don’t have an option to refinance right now anyway because your home is worth less than you owe on it and neither Fannie Mae nor Freddie Mac are the current paper holder on your mortgage. None of their open access programs will apply. Enjoy 3% it will likely be around a little while.
Thinking back, when we wrote this loan for you a few years ago, we said that this could be the last mortgage you write on a home in Michigan. At that time we did not know you would be moving West (we thought East) but we DID like the fact that you would not be spending money on closing costs again here.
I wrote a post a while back called YOUR economy vs. THE economy. I think YOUR economy is fairing quite well in THIS ecomomy. Lets add it up:
1. You were able to secure a VERY low price on a home out west that you will be in for a longer period of time.
2. On the home you can’t sell right now you have both a very low mortgage rate and a tenant making your payment.
It looks to me as though you are landing right on your feet!
Your thoughts?
evan
