Help me think through this PenFed 5/5 mortgage situation

[LRDave]

I got a PenFed 5/5 ARM in July 2010 - 3.75%. I've been monitoring the current rates - today it is at 2.5%. The fine print says an existing PenFed 5/5 loanholder can't simply refinance to the new, lower rate - even paying closing costs and an origination fee. (Well you can if you increase your mortgage by $50K)

BUT....

There is some fine print that says you CAN re-adjust to the new rate for 1% of the outstanding balance. So the re-adjust will cost me about $1880 upfront and save about $128 per month until July 2015. In July 2015, the rate will adjust up using the new lower 2.5% baseline to 3.5%. The PenFed rep says it's just a couple of pages of paperwork by fax to get this going. but they have a 4 week backlog to even get started. So I guess the Sept. 2013 payment would be the starting point. (So about a 15 month payback period.)

DW and I don't ever want to actually own this boat anchor. Our plan is to be out in 5 years and into our vacation home that we will retire to.

Can anyone see why the re-adjust is not a good use of $1880?

Thanks in advance for any comments or suggestions.......

[Katsmeow]

Have you looked for other places to refinance where you wouldn't have to pay the fee?

[LRDave]

Quote:

Originally Posted by Katsmeow Have you looked for other places to refinance where you wouldn't have to pay the fee?

I have - a bit........

I am frankly attracted by the simplicity of the transaction. I am in the middle of selling my business. So could be looking at a mortgage closing and a business closing at around the same time - which could make for tricky documentation.

But the above not withstanding, I was thinking the transaction would stand on it's own merits.

[JDARNELL]

You need to call them and look at when the loan was actually taken out. I did this and they looked up my loan and told me my loan was fine as I had it before they changed the policy.

JDARNELL

[LRDave]

I've done a pretty good bit of looking around since my original post. I am pretty convinced that $1880 up front for reducing my interest rate (30 yr. amortization) to 2.5%, 2.5%, 3.5%, 3.5%, 3.5% for each year in the five-year time horizon I plan to live in this house is as good as I can get.

The only other option I can think of would be to go to a mortgage broker and tell her this is what I am willing to pay up front and this is the interest rate I'll get for the next 5 years and can you beat that (?).

[Sesq]

I think you can refi. That fee is new.

I'd rather refi and have the full 5 years.