7 Year ARM Loan - The Bills.com Blog

I need some advice, I have a 7 yrs arm and a second mortgage. Is it good to refinance now and get a 30 yrs fixed loan or just wait before the senventh year of my loan reaches and decide to refinance, Im already on my 1yr and 4 months of my loan. tnx

Thanks for your question to Bills.com… you fundamentally have 2 concerns: pre-payment penalty and rate. I can certainly tell you that it is rarely a good idea to wait until the loan “flips” or adjusts because sometimes a lender has a gun to your head… so you are smart to plan well in advance. If you start shopping around today, Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at: https://www.bills.com/mortage/refinance Now, for some specifics to your question: A 30 year fixed loan is a loan where the principal is repaid over a 30 year period and the interest rate your lender charges is fixed for the life of the loan. This contrasts from an ARM, which is an "adjustable rate mortgage" where the loan's interest rate is fixed for a short period of time and then readjusts for the remaining term of the loan to an adjustable market rate. If rates go down, you benefit... but if rates go up your rate will increase and your monthly payment could rise. A problem encountered by many borrowers trying to refinance their home loans are the early refinance penalties charged by their current lenders. Many loan agreements state that borrowers must pay a penalty to their current lender if they wish to refinance their loan before the expiration of a certain period defined by the loan agreement. These “penalty periods” vary from loan to loan, but are frequently between two to five years from the date of the original mortgage. Before you attempt to refinance your current mortgage, you should contact your current lender to discuss whether or not your current loan agreement includes a prepayment penalty, and if so, its amount and when you can refinance without penalty. These penalties can be quite costly, and can easily make a refinance loan too expensive to save you money over your previous loan. Again, you should find out the amount of the penalty, if any, on your current loan, then contact several potential refinance lenders to discuss whether or not a refinance loan is a practical solution for you Once you have determined what the refinance will cost in terms of penalty charges, and what new loan terms are available to you, you can weigh the two options against one another to determine if the terms offered on the new loan will save you enough money to outweigh the cost of the penalties imposed by your current lender. If you find that you will save more money by moving forward with a refinance now, then by all means, I encourage you to do so. However, if the penalties charged by your current lender outweigh the savings on your new loan, then you may want to wait until your penalty period has expired before you move forward with a refinance. To learn more about refinance loans, I encourage you to visit the Bills.com Home Refinance Resources page at http://www.bills.com/home-refinance If you enter your contact information in the Bills.com Savings Center at the top of the page, we can have several pre-screened lenders contact you to discuss the refinance options available to you. I wish you the best of luck in finding a loan the meets your needs, and hope that the information I have provided helps you Find. Learn. Save. Best, Bill www.Bills.com

Which of the two would you choose? 1. 7/1 ARM 6.125 % APR $1000 Closing cost 2. 30 year Fixed 6.25 % $7000 Closing costs We dont plan to stay here longer than 7 years. But we dont know that for sure. Which is a better deal?

A 30 year fixed loan is a loan where the principal is repaid over a 30 year period and the interest rate your lender charges is fixed for the life of the loan. This contrasts from an ARM, which is an "adjustable rate mortgage" where the loan's interest rate is fixed for a short period of time and then readjusts for the remaining term of the loan to an adjustable market rate. If rates go down, you benefit... but if rates go up your rate will increase and your monthly payment could rise. For a 7/1 ARM, The interest rate will stay the same for the first 7 years. The term for this loan is 30 years. At the end of the first 7 years this loan will automatically adjust to an adjustable rate mortgage. Usually, the adjustable rate mortgage is a one-year Treasury Arm. The interest rate for this loan will adjust once per year. The first adjustment may be larger than the remaining adjustments. You should check to see if this loan has a cap on the maximum it would adjust at the first adjustment. The loan should also have a cap for the maximum percentage that it can adjust each year after the first adjustment. Usually, with a treasury arm loan the cap is 2% every year. You also need to check that this loan has a cap on the maximum percentage it can adjust during the term of the entire loan. Be sure to calculate your payment based on the total maximum payment your loan could ever reach. That way you will know if you can make that payment without any financial difficulty. Assuming that (according to what you stated) you end up selling the home before the 7years, then the 7/1 ARM makes sense financially. However, as stated above make sure you find out the cap on the amount of maximum interest rates that can be charged. The reason for this is that under typical rate environments (including today's) there is a rising yield curve (the expectation of higher rates in the future) -- which means that shorter term rates are lower (in this case 7 year is lower than the 30 year fixed rate). As for the 30 year fixed loan, make sure you find out in detail as to what the prepayment penalty clauses are, that would be an added cost on top of the interest and closing costs. The best thing that you can do is to find a trusted mortgage broker and have him or her help you find the best mortgage loan for your needs. Bills.com makes it easy to compare mortgage offers and different loan types. Please visit the loan page and find a loan that meets your needs at: https://www.bills.com/mortage/refinance You can find in depth information on mortgages on our mortgage section at https://www.bills.com/mortgage There you will find current news articles, glossary of terms and even current interest rates. I hope the information I have provided helps you Find. Learn. Save! Best, Bill www.bills.com