Refinance 5/1 ARM into FRM

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ARM

5/1 ARM at 5% on a foreclosure bought 9/08 at 370K L/V about 78% Refinance into fixed?

Question :

I initially put 20% down, loan balance as of 4/1 will be 293K. April tax assessment is 378K. Does it make sense to refinance into a fixed loan? I could possibly scrape up closing costs, but, may need to fold into loan. I don't have plans to move in the next few years, but, anything is possible.

Answer :

With today's great rates, you can save interest by refinancing to a lower fixed rate, and benefit from the security of the fixed rate. However, the break-even of your refi will likely be about 4 years; so at a minimum, you'd have to know that, you would be in the home at least 4 years to justify refinancing.

To complicate matters a little, for the first 12 months of ownership, we use the lesser of purchase price or appraised value to calculate your LTV. Although you can certainly roll your closing costs into the new loan, if you go over 80% LTV, you'll end up paying PMI.

I calculate your monthly interest savings from 5% to 4.5% at $123/month. If you consider the total closing costs would $6,000, you would break-even in month 48 months.

Date: March 21

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