Who Picked Up a New Mortgage While They Were On Sale?

[MediumTex]

I did a no cost refinance and got into a 15 year mortgage at 4.25% back in the fall.

Anyone else pick up one of these from the sale rack?

[Lone Wolf]

Doesn't it feel great?  We closed on a 3.75% about a month or so ago.  This is just a ridiculously good arrangement.  I've been living clean, but not that clean!

[bigamish]

Scored a 2.99% rate (w/ $1000 off closing costs) from ING Direct a few months ago.  Now I'll be able to pay my house off in under 5 years! 

[MediumTex]

Scored a 2.99% rate (w/ $1000 off closing costs) from ING Direct a few months ago.  Now I'll be able to pay my house off in under 5 years! 

ARM I assume?

How long is the rate fixed?

[moda0306]

I'm thinking of switching to a 7/1 ARM.  It seems to be a good combination of reduction in interest rate, length of time to benefit from it (refinancing after 3 or 5 years doesn't sound that great to me), and length of time to reevaluate my finances if interest rates are rising rapidly, and banking somewhat on my theory that rates will remain low for years to come based on the same reasons MT has given.

[fnord123]

I refinanced into a fixed 30 @ 4.5% about half way through 2009. I wish I'd waited for late 2010, I could have gotten 4.25% or maybe even 4% - but I'm still pretty happy with 4.5%.

I'd urge people to avoid any sort of ARM product - they have a ton of risk wrapped up in them.  See Karl Denninger's post here as to why: http://market-ticker.org/akcs-www?post=180134&page=1

[bigamish]

ARM I assume?

How long is the rate fixed?

Technically it is a balloon mortgage.  Once 5 years passes (at 2.99%), I have to pay up what remains.  Nice thing about ING Direct mortgages of this type is that I can get a 5 year extension at the going interest rate (with a nominal fee...a couple hundred dollars) should a SHTF scenario arise.  Thankfully, my mortgage will be fully paid off ~4-5 months prior to the "balloon" event so it works great for my situation.  Not for everyone though, admittedly.

[bigamish]

I should also add that ING balloon mortgage monthly payments are based on a 30 year fixed  rate.  At 2.99%, that means that a ridiculous amount of my biweekly overpayment goes directly to principal.

[TBV]

I'd be wary of adjustable or balloon mortgages.  In 1978, a 30-year mortgage averaged 8.85%.  That was close to what it had been for several years.  However, four years later, the rate was 16.04%.  By way of an example, at 8.85%, a $300K 30-yr loan works out to $2297.  At 16.04%, it's $3682!!  Quite a difference.

[bigamish]

Very true.  All the more reason to pay off the entire mortgage before the 5 (or 10 in some cases) year period expires.  In my specific refinancing case it made good financial sense as it will allow me to pay off my mortgage ~2 years early simply by maintaining what I was overpaying per month on my old 5.5% 30 year fixed rate mortgage.  However, I would never purchase a home using such a loan.  That would be extremely unwise.

[brajalle]

I unfortunately missed the great rates in Oct of last year.  I did leap on an almost-as-good 3.875% 15year fixed refinance in early Jan, and closed the last day of my lock for $1400 in closing costs.  I'm a pretty frugal person, so my condo isn't luxurious, but it's huge and nice by my standards.  The refinance answered that nagging question of - do I pay down, will I want to still have a mortgage in 30 years, etc - for a whopping price of $80/month.  My MCU transferred, so the tax credit remains, my real rate is around 2.9%.

At that amount, no matter how much I'd like to eliminate the monthly payment, I can get a better return elsewhere.

I've read some convincing stuff on rates going up due to legislation/etc coming into force in a few months - not sure if it will happen, but that, plus being at historic lows, seemed to hurt the case for any of those ARM deals from PenFed, ING, etc. 

[TBV]

Brajalle:

You mention your "real rate" which I take to mean your net interest rate after factoring in the tax deduction for mortgage interest. When comparing the return gained by pre-paying your mortgage, the real rate is the full mortgage interest rate, so long as the returns on your alternative investment are taxable.  If they're non-taxable, then (and only then) do you compare after-tax gains.

[fnord123]

Good point TBV.

For my mortgage (fixed 30 4.5% not factoring in tax deduction), I do not prepay, even though all the guaranteed return investments I can find yield less than 4.5%.  My reasoning is that the PP will likely yield more than 4.5%, so I just put the money in there instead.

I'd be curious about others take on whether to put spare cash towards mortgage prepayment (or any loan that yields something south of the PP) or put their money towards their PP.

[TBV]

I'm mulling over the same issue, myself.  Have read over at John Hussman's site that S&P 500 market returns for the coming decade are expected to be somewhere around 3.25% before inflation.  That makes paying off your 4.5% mortgage seem like a good idea.  Now, of course, the PP has averaged closer to 9% over time, so putting your money there might be the best play of all.  Then again, who really knows how all this will turn out?

[brajalle]

It seems like we're all having the same issue - I felt I solved mine on the refinance and when comparing returns.  I save in Roth vehicles, so contributing to the PP in them (in this case, I ended up maxing my 457 and IRA) was something I considered a better investment in the end. 

[hrux]

We got a 5/1 ARM amortized over 30 years at 2.875%.