Mortgages

[Uninformed]

I need to sell a home exactly 2 years from now (There is no flexibility in the timing of the sale). I have an ARM at 5.0% that will float at the exact same time that I need to sell. Should I refinance (rates are at about 5.65%) or just accept the risk? If the market is fine (ie houses are moving) then I won't have a problem. If interest rates are fine then I won't have a problem (IMO highly unlikely).

 

[01 grad]

Given teh current instability and less than certain outlook, I'd refinance.

 

[BigWill]

depends on the terms of the refi. Points and fees can really skew the thing.

 

[JohnnyM]

Maybe I'm confused, but the only reason to refi would be to save yourself the additional carrying cost 2 years from now at a point where you need to sell the home ASAP anyway, right? There's no real benefit for the next 2 years (and it'll cost you more per month). I don't see any reason to refi that thing IF you're already dead-set on selling in 2 years.

What would be the payment difference if the rate went to 8% in 2 years? 10%? 15%? How many months of that additional payment would it take to wipeout all the "savings" of not doing the refi now?

 

[JohnnyM]

Post deleted by JohnnyM

Note: thanks texascoder

 

[texascoder]

You're so right JohnnyM. After thinking about it, I realized that I shouldn't have thrown out that sarcastic post since it wasn't on the West Mall board. Do you think you could ever find it within yourself to forgive me, oh powerful internet sheriff? In fact, I'll just delete my post. Will that make you feel better?

 

[Uninformed]

In reply to:

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[JohnnyM]

Is the house in an area where listings are taking a year to sell? You need to find the "break-even" number of months and ask yourself if you think the house will sell in that amount of time.

I understand the fear associated with the ARMs, and we'd have to know numbers to really figure this out, but I can't imagine that refinancing is a great option.

If you refinance you're going to pay:
Closing costs NOW (including points, etc)
Extra $ per month starting NOW

If you don't, your exposure is:
In two years, the rate will reset higher, but no telling how much higher
In two years, if you can't sell it, you will likely be losing $ each month vs. the 5.625% refinance

The big question is how much you really HAVE to sell the house in 2 years. If you want a certain price and are willing to wait 8-10 months, then maybe the refinance is a good option. If you're going to price it to sell and aggressively look to sell it, why would you pick an option that will only benefit you if you hold the house for "x" number of months?

 

[Uninformed]

You make good points.

I think some of it has to do with age. When I was young, houses in certain parts of the country wouldn't sell. Look at Detroit. I am sure that the same thing happened in many parts of New Jersey, Pennsylvania, Connecticut and Ohio. In Louisville, where I am, it hasn't happened, but I guess it could.

Remember, it is likely with our budgets and with the cost of socialized medicine, we will likely have runaway inflation when the economy picks up. that in itself won't cause any problem with housing sales as a strong economy would help with the sale. However, if we have stagflation - a stagnant economy with high inflation like what occurred during Carter's presidency then we would have a problem with moving the house. And remember, housing is local. Louisville isn't exactly a booming place and if a big corporation like Ford or Yum Brands or Humana has layoffs, it has a big impact on the community.