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Old 03-07-2008, 11:05 AM   #181
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Isn't that the truth. One of my short-term investment grade bond funds was down almost 1% yesterday even as Treasuries rallied. This one has about 30% of its portfolio in CMOs, which I have to think was the cause. Many of these are government-backed, so if people would stop panicking they'll be fine. Instead, they're selling low.
But in order for someone to sell low, someone else has to buy low, no?
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Old 03-08-2008, 07:09 AM   #182
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But in order for someone to sell low, someone else has to buy low, no?
Yes ... usually the market makers
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Old 03-18-2008, 07:37 AM   #183
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Penfed has the 5/5 listed at 5.125 this morning. This seems like a pretty good rate. This would be a decent deal for me, but not a great one like when they dipped below 4.75 and I hesitated

If anyone is in the advice giving mood I'm all ears. I turn 31 this year and currently have 28 years left on a 30 year fixed rate at 6.35%. I have > 20% equity in my house. I would put the odds of me being in this house in 5 years at < 10% though there is a chance that I will want to rent it out at that point instead of selling... maybe 30-40% chance.

Nick
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Old 03-18-2008, 07:52 AM   #184
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If you can whack more than 1% off your loan rate, it seems attractive to me, so long as you would be OK with the loan resetting to the max it can contractually go in 5 years' time.

Having said that, I would not be surprised in the slightest to see mortgage rates come down shortly. They have diverged from treasuries lately as the mortgage bond market has fallen apart, but the Fed's efforts are starting to take effect and agency mortgage bonds are starting to narrow the gap with treasuries.
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Old 03-18-2008, 08:39 AM   #185
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Penfed has the 5/5 listed at 5.125 this morning. This seems like a pretty good rate. This would be a decent deal for me, but not a great one like when they dipped below 4.75 and I hesitated

If anyone is in the advice giving mood I'm all ears. I turn 31 this year and currently have 28 years left on a 30 year fixed rate at 6.35%. I have > 20% equity in my house. I would put the odds of me being in this house in 5 years at < 10% though there is a chance that I will want to rent it out at that point instead of selling... maybe 30-40% chance.

Nick
Our personal preference (wife and mine) has always been to have a fixed rate mortgage. What is the difference between your current fixed rate, and another fixed rate (say 20 year note)?
Obviously, one would also have to assess if the shorter term mortgage is capable of being paid also.
Are you 100% sure you have > 20% LTV on your current mortgage? Home prices have even started going down in our area (NorthEast). Slightly, but they have nonetheless.
Likewise, if there's a fairly high chance you'd want to rent it out, why worry about switching the mortgage to an adjustable rate in the first place. I wouldn't have an ARM if I were even considering renting a house out, because I'm more risk averse than that.
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Old 03-18-2008, 08:44 AM   #186
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Oh, and don't be afraid to pull the rip cord if it hits a rate that you're comfortable with.
If you were waiting for rates to drop by 1/2 or more, that's one thing. But to worry about 1/8 to < 1/2, is a waste of time. You might as well try and time the market.
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Old 03-18-2008, 09:07 AM   #187
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Our personal preference (wife and mine) has always been to have a fixed rate mortgage. What is the difference between your current fixed rate, and another fixed rate (say 20 year note)?
Obviously, one would also have to assess if the shorter term mortgage is capable of being paid also.
Are you 100% sure you have > 20% LTV on your current mortgage? Home prices have even started going down in our area (NorthEast). Slightly, but they have nonetheless.
Likewise, if there's a fairly high chance you'd want to rent it out, why worry about switching the mortgage to an adjustable rate in the first place. I wouldn't have an ARM if I were even considering renting a house out, because I'm more risk averse than that.
I'm not sure exactly how homes are appraised, but from what I can tell the values have continued to rise in my neighborhood. Price per square foot is about 10-15$ more for recent sales than what I paid for my home and I have the addition of a 2 car garage where most of the homes have no garage (older neighborhood) so I would think that would be worth something, maybe not though.

The 30 year fixed at penfed is 6.125%. I'm pretty risk tolerant, but I don't necessarily see the 5/5 ARM as that much of a risk... worst case is that the loan adjusts up 2% (max) after 5 years and stays there for another 5. Using simple math, this would give a 10 year interest rate of (5.125 + 7.125) / 2 or 6.125... so after 10 years, there is no real risk. If it went up another 2% after that we would have (5.125 + 7.125 + 9.125) / 3 = 7.125 for 15 years. This doesn't really seem highly risky to me... and this is simple math assuming the worst case. I would expect the actual effective rate to be lower than the simplified version because the loan value will be less as time goes on, and more principal will be paid down during the first 5 years with the lower rate. I may be missing something though :-)

I'm really looking for 4.75 or so to push me over the edge. If it gets much closer to that my trigger finger will be very itchy.
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Old 03-18-2008, 09:17 AM   #188
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If you can whack more than 1% off your loan rate, it seems attractive to me, so long as you would be OK with the loan resetting to the max it can contractually go in 5 years' time.

Having said that, I would not be surprised in the slightest to see mortgage rates come down shortly. They have diverged from treasuries lately as the mortgage bond market has fallen apart, but the Fed's efforts are starting to take effect and agency mortgage bonds are starting to narrow the gap with treasuries.
Hope you're right....DW and I are still patiently waiting the 5.0% or less 15yr fixed. Over the past couple weeks watching the 10yr treasuries be as low (for longer) than the January dip has been frustrating.
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Old 03-18-2008, 09:39 AM   #189
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I'm not sure exactly how homes are appraised, but from what I can tell the values have continued to rise in my neighborhood. Price per square foot is about 10-15$ more for recent sales than what I paid for my home and I have the addition of a 2 car garage where most of the homes have no garage (older neighborhood) so I would think that would be worth something, maybe not though.

The 30 year fixed at penfed is 6.125%. I'm pretty risk tolerant, but I don't necessarily see the 5/5 ARM as that much of a risk... worst case is that the loan adjusts up 2% (max) after 5 years and stays there for another 5. Using simple math, this would give a 10 year interest rate of (5.125 + 7.125) / 2 or 6.125... so after 10 years, there is no real risk. If it went up another 2% after that we would have (5.125 + 7.125 + 9.125) / 3 = 7.125 for 15 years. This doesn't really seem highly risky to me... and this is simple math assuming the worst case. I would expect the actual effective rate to be lower than the simplified version because the loan value will be less as time goes on, and more principal will be paid down during the first 5 years with the lower rate. I may be missing something though :-)

I'm really looking for 4.75 or so to push me over the edge. If it gets much closer to that my trigger finger will be very itchy.
True, more of the principle would be paid down in the first 5 years.
Let's examine a $100,000 mortgage @ 6.125% and @ 4.75%, for years 1-5.
6.125% principle paid down = $6,803.
4.75% principle paid down = $8,502.
Is it worth waiting to paying down less than $340/yr (average) on the principle for the first 5 years?
That's why I was suggesting a shorter term mortgage. The mortgage would be inherently paid down sooner, although one could typically pay it down sooner by making extra payments in either case.

And, one has to figure how the rate will adjust at a maximum of up by 2% at the end of the 5 years (unless that was of course in writing). Most of the ARMs that I had seen so far allow for a maximum adjustment up to 12%-13% for the life of the loan. That would truly hold me back from getting that kind of mortgage. But as you mentioned, you're more risk tolerant than I.
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Old 03-18-2008, 09:48 AM   #190
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Here are the terms:
  • Adjustable Rate Mortgage with a low rate that only adjusts every 5 years for 30 years
  • Rate would adjust up to 2% or our prevailing rate, whichever is the lowest
  • Maximum lifetime adjustment that will not exceed 5% above the initial rate
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Old 03-18-2008, 09:57 AM   #191
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Of course we are just hours from a fed rate cut and perhaps getting a glance at what to expect in the future (rate wise.)

Mortgage rates are not behaving as they historically have so it is hard to say what may happen, but with the goal being to bring those rates down, I would not bet against it happening. That said, today's rates look awfully good when viewed with a 30-40 year perspective.

Myself, I'm hoping to lock a HEL under 4.8% over the next few months.
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Old 03-18-2008, 10:09 AM   #192
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Here are the terms:
  • Adjustable Rate Mortgage with a low rate that only adjusts every 5 years for 30 years
  • Rate would adjust up to 2% or our prevailing rate, whichever is the lowest
  • Maximum lifetime adjustment that will not exceed 5% above the initial rate
In general, those are pretty darn good terms. Although after the 15th year, the rate could be at 11.125%.
And, worst case scenario, after year 5, your payment increases by about $155/month (in comparison to original payment), after year 10 the payment increases by another $138/month (or $293 more than the initial monthly payment), and after year 15 the payment increases by another $54/month (or $347 more than the original payment). In essence, you've added about 50% more payment to your mortgage in just 15 years.

Obviously, if you can rent it out for more than that every month for the full term, then you are a benefactor of appreciation.

(I know the numbers are off a little bit, I'm just to lazy to do them thoroughly)
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Old 03-18-2008, 10:13 AM   #193
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Actually it would max out at 10.125 if I got it today at 5.125 with a max increase of 5% over the term.... and wouldn't the value of the dollar be nearly halved by 2023? :-) Haha... there are just a lot of factors to take into account. For the next 5 years, I don't think there is any doubt that it's a good deal and it's not a bad deal at all for the next 10. After that the future is muddier.
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Old 03-18-2008, 12:26 PM   #194
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True, more of the principle would be paid down in the first 5 years.
It's principal, not principle.
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Old 03-18-2008, 12:46 PM   #195
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It's principal, not principle.
Yep, I do that all the time.
Argue with myself ... it's 'al', no it's 'le'.
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Old 03-18-2008, 12:49 PM   #196
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In my experience, the principal is the guy with the paddle...
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Old 03-18-2008, 12:52 PM   #197
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In my experience, the principal is the guy with the paddle...
The princiPAL is your PAL. Remember that one?
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Old 03-18-2008, 12:53 PM   #198
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Not sure if I quite have the brass cojones to do this, but a thought has crossed my mind: with the Fed whacking rates to beat the band and not about to reverse course any time soon, why not refi the mortgage onto a HELOC? Schwab offers a 70% LTV HELOC at prime minus 1%, which would be 5% right now (less if the Fed does what everyone seems to be expecting).
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Old 03-18-2008, 12:54 PM   #199
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The princiPAL is your PAL. Remember that one?
He wasn't my pal, especially when I was in the 6th grade. I was one of those bored kids who wasn't stimulated by the work at that level and wound up distracting the class -- and being sent to Mr. Schadeck's office frequently. The school secretary (this was 1977, they were still secretaries then) was one of the meanest people I've ever known.
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Old 03-18-2008, 01:02 PM   #200
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The princiPAL is your PAL. Remember that one?
I remember that I didn't really mind going to school, it was just the principle of the thing...or was it the principal?
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