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Old 09-12-2009, 04:22 PM   #221
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Hi, Tom. Might be a nice idea to introduce yourself on the "Hi, I am..." forum.

Anyway, IMO Pen Fed might or might not be the best place for mortgages and CDs, but I definately shop them first and then see if anyone can beat it. Right now, they are as competitive as anyone on CD rates, and its still piddling interest. I am hoping that they do a "special" in January as they sometimes have in the past, but 4% for 5 years would be a gift right now and its not exactly an exciting yield.

As for mortgages, I am in a very similar boat. I have about 8.75 years left on my 4.99% 15 year note. I am salivating at the thought of a refi, but rates are just a hair too high to pull the trigger. While I would prefer to refi ino a 10 or 15 year fixed loan, the games lenders are playing with fees make this unattractive thus far. However, I am watching the 5/5 loan they offer because they eat almost all of the fees on their adjustable rate loan. The structure of that note is that it adjusts once every 5 years to the lower of their current rate for the product, the indexed rate in the contract, or no more than 2% higher than the original rate. So this means that if you take the loan at 4.5%, it will not reset to higher than 6.5%. Since I would only have a few years to go after the reset, when I spreadsheet this loan and assume that I keep up with my current payments (to finish my 4.99% note in 8.75 years), I essentially cannot lose if they drop the 5/5 loan to 4.25%. So I am watching and waiting, and if they drop the rate by another quarter point I will jump on it.

I suggest you build a spreadsheet to model keeping your current loan vs. the worst possible outcome on the various flavors of ARM you come across. The 5/1 product that most lenders offer is unattractive to me vs. my fixed note because they can adjust every year after the first reset and keep pushing rates higher and higher. But this would not be that obvious without my spreadsheet.
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Old 09-12-2009, 09:06 PM   #222
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As for mortgages, I am in a very similar boat. I have about 8.75 years left on my 4.99% 15 year note. I am salivating at the thought of a refi, but rates are just a hair too high to pull the trigger. While I would prefer to refi ino a 10 or 15 year fixed loan, the games lenders are playing with fees make this unattractive thus far. However, I am watching the 5/5 loan they offer because they eat almost all of the fees on their adjustable rate loan. The structure of that note is that it adjusts once every 5 years to the lower of their current rate for the product, the indexed rate in the contract, or no more than 2% higher than the original rate. So this means that if you take the loan at 4.5%, it will not reset to higher than 6.5%. Since I would only have a few years to go after the reset, when I spreadsheet this loan and assume that I keep up with my current payments (to finish my 4.99% note in 8.75 years), I essentially cannot lose if they drop the 5/5 loan to 4.25%. So I am watching and waiting, and if they drop the rate by another quarter point I will jump on it.
5/1 ARM is under 4% at many places, often with low or no closing cost. It's more risky than 5/5 ARM but with only a few years left, you can just pay the whole thing off if you don't like the rate when it adjusts.
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Old 09-12-2009, 09:27 PM   #223
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5/1 ARM is under 4% at many places, often with low or no closing cost. It's more risky than 5/5 ARM but with only a few years left, you can just pay the whole thing off if you don't like the rate when it adjusts.
I agree...that may make sense for me since it would not really hurt much in my planning if I decided to pay off at end of 5 years. I have a US Bank mortgage officer that has done 3-4 mortgages for me over the years...I am going to check with her Monday...my guess is they will not be competitive with the online rates??

Thanks...Tom R
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Old 09-13-2009, 08:04 AM   #224
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5/1 ARM is under 4% at many places, often with low or no closing cost. It's more risky than 5/5 ARM but with only a few years left, you can just pay the whole thing off if you don't like the rate when it adjusts.
Such as? The problem is also to total cost of the financing. Not real interested in swallowing a bunch of fess that jack up the total cost of the note. I also have a fair amount of trepidation on the riskier loan, since I spent years as a distressed debt analyst and watched/took advantage of a number of otherwise decent businesses which made poor financing decisions.
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Old 09-13-2009, 08:28 AM   #225
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Such as? The problem is also to total cost of the financing. Not real interested in swallowing a bunch of fess that jack up the total cost of the note. I also have a fair amount of trepidation on the riskier loan, since I spent years as a distressed debt analyst and watched/took advantage of a number of otherwise decent businesses which made poor financing decisions.
Thanks Brewer. What about the 10/1 on the PenFed site? APR w/no points = 3.416%. I don't follow this? Face rate 5.375% 0 Points APR 3.416

Must be an error here? Maybe my I don't have the definition correct? 10/1 should have fixed rate for 10 years w/annual rate adjustments to 30 years? Maybe they are "assuming" rate adjustment at 10 years at today's interest rates? I'll bet I just found the "flaw"

BTW worse case I am very OK having to payoff at 5/7/10 years if I do not like the "new" rate...as long as I get significant savings during "fixed" rate period.

Since my exisiting mortgage is 5.375% and I have just under 9 years (on 15 yr original) remaining...I will likely not refinance unless I drop the rate to 4.5% or less.

Thanks...Tom R
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Old 09-13-2009, 08:44 AM   #226
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APRs are effectively meaningless for ARMs of any flavor. Just look at the rate for the fixed period, bumped up by whatever your up front cash costs to refi turn out to be. After that, it is just a straight index plus margin equation, with any caps taken into account. I usually model worst case and expected case to see what the loan really looks like.
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Old 09-13-2009, 09:51 AM   #227
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APRs are effectively meaningless for ARMs of any flavor. Just look at the rate for the fixed period, bumped up by whatever your up front cash costs to refi turn out to be. After that, it is just a straight index plus margin equation, with any caps taken into account. I usually model worst case and expected case to see what the loan really looks like.
So does that mean that the Pen Fed 10/1 is actually 5%+ for the 10 years fixed and the APR of under 4% is somehow computed beyond the 10 year "lock"?

BTW...if I were to sign up for an adjustable...I would essentially be only concerned about the "locked" years as I would plan on paying off IF adjustable rate were not to my liking at the end of the lock period...Tom R
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Old 09-13-2009, 09:54 AM   #228
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So does that mean that the Pen Fed 10/1 is actually 5%+ for the 10 years fixed and the APR of under 4% is somehow computed beyond the 10 year "lock"?

BTW...if I were to sign up for an adjustable...I would essentially be only concerned about the "locked" years as I would plan on paying off IF adjustable rate were not to my liking at the end of the lock period...Tom R
That is my understanding. APR disclosures are formula-driven according to consumer protection regs and therefore are totally useless for ARMs and misleading for fixed loans. So look at the rate during the fixed period. Frankly, byond 5 years in ARM land it looks to me like one woudl be beter off with a fixed mortgage given relative rates.
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Old 09-13-2009, 11:27 AM   #229
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Such as?
ING Direct: 5/1 ARM, 3.99%, $395 lender fee.
NMA: 5/1/ ARM, 4.00%, -$421 lender fee, $874 total closing cost after lender credit (closing cost depends on which state and size of loan; used 150k in CA as example)
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Old 09-13-2009, 11:56 AM   #230
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ING Direct: 5/1 ARM, 3.99%, $395 lender fee.
NMA: 5/1/ ARM, 4.00%, -$421 lender fee, $874 total closing cost after lender credit (closing cost depends on which state and size of loan; used 150k in CA as example)
Thanks. Had seen ING, but had not run across NMA before. I am frankly leery of the 5/1 structure and have some employment related restrictions on who I can borrow from, so I will be watching and waiting.
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Old 09-13-2009, 11:59 AM   #231
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T I am frankly leery of the 5/1 structure
Brewer...other than making sure you have the effective rate correctly calculated and are prepared to pay off the loan at 5 years...what other concerns? Thanks Tom
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Old 09-13-2009, 12:09 PM   #232
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Brewer...other than making sure you have the effective rate correctly calculated and are prepared to pay off the loan at 5 years...what other concerns? Thanks Tom

Frankly, my main concerns are that the world is an uncertain place and I have no idea what life will be like in 5 years. So I desire less risk when it comes to debt obligations, especially when the marginal cost for lower risk is small. Its essentially the same reason I keep a large HELOC in place even though I rarely use it: option value in case of troubles.
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Old 09-14-2009, 06:16 PM   #233
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I have 7 years left on a 5% 15 year loan, balance about 110K. If I take a 5/1 or a 5/5 loan, it'll be close to be paid off at the end of the fixed term provided I make the same payments that I'm making now. So, I was thinking if I can get something in the 4 - 4.25 (such as the ING direct rate of 4), wouldn't this be sorta of a no brainer? Anything I'm missing?
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