Adjustable rate mortgage

[utrecht]

Reading the "Interest rate" thread reminded me that my 7 yr ARM expires next year. I called Wells Fargo to see what index is used to calculate the rate once the fixed perdio expires and the clerk on the phone obviously didnt know what she was talking about.

First she said something about 1.08%. Then she said they used the 1yr US treasury index. From what I know about these things (very little), dont they add something to the index to calculate the new rate? Did she mean that my new rate will be the 1YR index +1.08%?

Where can I find the 1 YR Tresury index rate?

 

[brewer12345]

I would go find your loan docs and read what they say.

 

[utrecht]

If only I could find them. The wife seems to have done some spring cleaning at some point in the last 6 years.

 

[justin]

The "1 year constant maturity treasury" is a fairly typical rate index. Yes - your rate is usually the 1 yr CMT plus a margin.

Here's a link to the 1 yr CMT rate:

http://www.moneycafe.com/library/cmt.htm

Check your loan docs for the index rate used, the margin and any caps on movement up/down and max/min rates. It might pay off to refinance.

 

[utrecht]

Low and behold...I actually found my loans docs.

As I thought, the lady on the phone was clueless. My current rate is 3.75%

In 8/08, my fixed rate period ends. It will be 1YR treaury +2.75% (not the 1.08% that she said)

The rate can increase a max of 2% per year (not the 5% / yr that she said..I knw that wasnt right).

So basically the rate will be 5.75 for the year after the fixed rate period ends and then maybe 7.75% for the next year.

On to the next question:

I make my house payment and also make another payment to a mutual fund that is soley for paying off the house. Ive done it this way instead of paying the extra money directly yo the mortgage company and was betting that the market would rise faster than the 3.75%. This fund will have enough money to pay off the house just about the same time as the fixed rate period ends so my choices would be

1) Pay off the house...if I did this I would continue to invest the amount of the house payment (minus the taxes and insurance amounts) along with the monthly extra amount that Im investing in ths fund right now. There will be tax consequences and I will lose the tax write offs from the mortgage interest.

2) Keep going as I am right now without paying off the house. I would need the mutual fund to increase more than the higher interest rate that Im paying.

3) Dont pay off the house in one lunp sum because of tax consequences, but make the monthly house payment from funds from the mutual find each month. This sounds like a good idea if I was retired and no longer saving, but since Im not yet, I would still be investing monthly at the same time that Im paying the mortgage from investments which doesnt seem to make any sense.

Thoughts?

 

[youbet]

1. If you can find a sweet deal before the 7.75% kicks in, refinance.

2. Otherwise, pay it off.

By "tax consequences" I'm assuming you mean paying long term cap gain taxes on MF's you would liquidate to pay off the mortgage.

 

[utrecht]

Anyone know if its possible nowdays to refinance with no (or very little) closing costs? Im only planning on being in this house for about 8 more years ( which would be about 5 1/2 years form the point the rate jumps to 7.75%)

 

[renferme]

The old pay-off-the-house or keep-paying-mortgage-payments question comes up again.
I personally like choice number 1, but I'm sure others will have different opinions and good reasons for the other choices.
Here's what we're doing: we have a 15 yr 5.25% fixed loan that we got in Nov 2002.
We pay about 300 or so extra each month and come Jan or Feb 2009 we will pay it off completely. Why Jan or Feb 2009? Because, at that time we will have a bunch of CDs mature and the loan balance will be approx. equal to the CDs. So, we're going to pay it off. It's the only debt we have, and it will feel so good to be 100% debt free.
Also, at that time, I'll be drawing SS and should not have to tap into my savings/investments. SS and pension should be enough.
.
You can always roll the closing costs into the new mortgage.

 

[brewer12345]

Anyone know if its possible nowdays to refinance with no (or very little) closing costs? Im only planning on being in this house for about 8 more years ( which would be about 5 1/2 years form the point the rate jumps to 7.75%)

Check out etrade mortgage, e-loan, or ING direct. They should be able to give you a firm quote (no "estimate") and easily be able to refi at little or no cost for well under 7%, assuming your credit is good.