Deciding On Refinancing
REM # F734
By Ilyce R. Glink
Summary: A ThinkGlink reader is thinking about refinancing his adjustable rate mortgage (ARM). Ilyce explains how to decide if this is the right move.
Q: I met you at the Smyrna, GA jonquil festival this fall, you were very helpful!
I need your advice: My adjustable rate mortgage (ARM) is expiring next month.
The rate for the 30-year mortgage option is 5.875 percent.
I am thinking about going with a 15-year fixed rate loan. I got a quote of 5.75 percent with 2 points, and was told that my closing costs would be $5,000. Should I pay points? I plan to live in the house for approximately 10 more years.
A: Here’s how I feel about paying points when interest rates are flirting with 30 to 35-year lows: Typically, if you can "earn" out your points with the savings in the mortgage rate within a year, it's a good idea to pay the points.
In your case, the lender wants 2 points to reduce your rate by 1/8 of a point.
That seems too high. If you take out the 30 year loan and make the payments
on the loan as if you had taken out the 15 year loan, you’ll probably
come out ahead. Especially if you use the 2 points that you would pay for the
15 year loan to get a smaller 30 year loan.
I'm glad you came out to the Smyrna festival. It was fun, wasn't it? I had a
great time.
NOTE: This column is distributed by Real Estate Matters Syndicate, PO Box 366, Glencoe, Illinois, 60022. This column may not be resold, reprinted, resyndicated or redistributed without written permission from the publisher.
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