Posted on: 09th Mar, 2009 05:13 pm
Can you predict my future?
Back in 2006 my husband and I purchased a home for $399900. We put 20% down and got a 10/1 ARM at 6.375% plus interest only. Currently our payments are $1990, but total $2400 due to HOI and taxes.
When our mortgage resets in 2016 what do you think is going to happen? We really can't afford more each month.
What if we want to refi in 2016 the $319,200 we borrowed? Will it have to be a 20 year mortgage? Do payments typically go up even though interest rates seem to be dropping?
Please help explain all of this to me. At the time in 2006 it seemed like a good idea because it allowed us to buy a bigger house for our growing family, but now I hear negative things about ARMs.
Thanks for any advice!
Back in 2006 my husband and I purchased a home for $399900. We put 20% down and got a 10/1 ARM at 6.375% plus interest only. Currently our payments are $1990, but total $2400 due to HOI and taxes.
When our mortgage resets in 2016 what do you think is going to happen? We really can't afford more each month.
What if we want to refi in 2016 the $319,200 we borrowed? Will it have to be a 20 year mortgage? Do payments typically go up even though interest rates seem to be dropping?
Please help explain all of this to me. At the time in 2006 it seemed like a good idea because it allowed us to buy a bigger house for our growing family, but now I hear negative things about ARMs.
Thanks for any advice!
If I understand you correctly, you got an interest only loan and you really cannot afford to pay principal. In my opinion, you may have bitten off a little more than you can chew, especially considering the fact that taxes do increase over time.
You could think about refinancing now but you may or may not be able to reduce your rate/payment.
You are concerned about whether you can afford your payments in 2016. That is seven years from now. I would begin working on increasing your income over the next 7 years so that you CAN afford the payments at that time. You could also put additional cost cutting measure in place at home.
You could think about refinancing now but you may or may not be able to reduce your rate/payment.
You are concerned about whether you can afford your payments in 2016. That is seven years from now. I would begin working on increasing your income over the next 7 years so that you CAN afford the payments at that time. You could also put additional cost cutting measure in place at home.
We do have about $50,000 in the bank to use in an emergency. And we are hoping our incomes will increase over time with our expenses going down. We just don't really know what to expect as far as how much our payments are going to increase. I keep hearing about payments doubling, and while we definitely could not afford that, we could afford at most $3000/month. What are our options going to be in 2016? Will our mortgage reset to a 20 year fixed on the new amortization? Am I understanding this correctly?
It's good to see that you have saved enough money for your emergency needs. As you are hoping that your income would increase over time, I don't think it will be difficult for you to make the payments. Refinancing at a lower rate can always be a good option. Moreover, you should follow Eric's opinion and start saving more inorder to make payments after your mortgage adjusts in 2016.
IF you refi in 2016 it will be as if you rented for the past 10 years except you interest was a tax deduction. IF you hold on to the loan after it goes adjustable it will re amortize at a 20 year mortgage. Depending on what company you did your mortgage with, you may be ok. Lots of i/o loans have 2% caps a year and a cap at 9% on the interest rate. The problem you are going to run into is that when the loan comes up in 2016 you will have to pay principal also raising your payment way high. I do financial advising and my suggestion would be to refi now into a 7/1 i/o arm or a 10 the rates right now are about 3.5-4%. which would save you about $800 a month right now and extend your time to get you situation fixed. I do have a question you loan balance should be $374,588.24 is that what it was after your 20% down? what you really need to do is after you refi you need to pay yourself the difference $1900 a month difference (3000 what you can afford - 1100 new rate) if you save it that amount you will have 228,000 saved in year ten so you will be ok. In what state do live? the reason i ask cause getting an i/o loan requires 20% down and you bought at the peak of the market, also there are a lot of options of how to handle this.
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something does not add up quite right.
if you have an interest only arm at 6.375% and the mortgage balance is $319, 200 the monthly interest only payment is $1,695.75, not $1,990 before taxes and home insurance.
a 30 year fixed mortgage right now at 5.25% would be principal and interest $1,762.63. if you can, refinance right this minute while rates are low and then no worry about later. if necessary spend some of the $50,000 to do so.
the present loan adjusts in ten years and that is 2016. a 5/1 or 7/1 arm now would adjust in 2015 or 2017 and then you start worrying again about adjustments up year after year and pay closing costs again to get out of the arm.
refinance to a 30 year fixed right now if you can.
if you have the same 10/1 arm when it adjusts after ten years and the first adjustment cap is 2%, your principal and interest payment will go to $2,744.89. year after that could go up again.
if you can not refi now due to income, get a second job and start paying extra now or save it along with the $50,000. if you still have the same mortgage in 2017, just before adjustment pay down the balance as much as you can. then when it adjusts to the new 20 year left will be based on a lower loan amount.
it is good you are planning way ahead. there are a number of options and game plans. do one or more of the suggestions.
if you have an interest only arm at 6.375% and the mortgage balance is $319, 200 the monthly interest only payment is $1,695.75, not $1,990 before taxes and home insurance.
a 30 year fixed mortgage right now at 5.25% would be principal and interest $1,762.63. if you can, refinance right this minute while rates are low and then no worry about later. if necessary spend some of the $50,000 to do so.
the present loan adjusts in ten years and that is 2016. a 5/1 or 7/1 arm now would adjust in 2015 or 2017 and then you start worrying again about adjustments up year after year and pay closing costs again to get out of the arm.
refinance to a 30 year fixed right now if you can.
if you have the same 10/1 arm when it adjusts after ten years and the first adjustment cap is 2%, your principal and interest payment will go to $2,744.89. year after that could go up again.
if you can not refi now due to income, get a second job and start paying extra now or save it along with the $50,000. if you still have the same mortgage in 2017, just before adjustment pay down the balance as much as you can. then when it adjusts to the new 20 year left will be based on a lower loan amount.
it is good you are planning way ahead. there are a number of options and game plans. do one or more of the suggestions.
