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Member
ffactoryxx
Posts: 18
Registered: ‎10-27-2011
0

Penfed 5/5 Arm Refinance question

So I have a condo I am in the process of refinancing with Penfed on a sweet 5/5 Arm deal they had.

 

Locked in Penfed - 2.75% 

Max Increase/Decrease - 2% or less every 5 years

Max lifetime 7.75%

NO CLOSING COSTS - ALL COVERED BY PENFED

 

Current Rate - 5.25% - $1,167/mo - 25-26 years left (originally 30 year).

 

Here is my situation

 

Ok so my appraisal came in lower than expected.

 

What would you do?

Appraisal: 225K
Loan Amount Left: $191K
Need 80% LTV for no PMI

Considering living in house for 3-4 years more than maybe sell or rent.


NO PMI
$10,000 Cash to bring down LTV
Monthly Payments = $734
Savings = $433 month

WITH PMI At Current Loan Amount
Monthly Payments = $782
PMI = + ~100/mo = $882
Savings = $285 month
PMI Falls off when LTV hits 78%

 

 

So. do I stay at my fixed or go with one of the option above?

 

If one of the options should I then pump the savings back into the loan and built equity?

Valued Contributor
BrianB_The_Loan_Professor
Posts: 1,381
Registered: ‎07-29-2008
0

Re: Penfed 5/5 Arm Refinance question

Tough call - how bad will it hurt to be out 10k?

Personally given the parameters provided I would probably hang on to my cash since there is no telling what the market wil do in the time frame you have shared - if it were to go down you could lose that money?

That and you in my  mind the monthly savings doesnt justify the big out of pocket cost

 

In the end you will have to do what makes the most sense to you given your life plans and financial position

 

Brian

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Brian B The Loan Professor
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Member
ffactoryxx
Posts: 18
Registered: ‎10-27-2011
0

Re: Penfed 5/5 Arm Refinance question

Will not be hurt by the 10K.

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StartingOver10
Posts: 4,519
Registered: ‎03-06-2010
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Re: Penfed 5/5 Arm Refinance question

[ Edited ]

ffactoryxx wrote:

Will not be hurt by the 10K.


Then, IMO, it would be better to put down the 10k to avoid the PMI.

You save $433/mth instead of $235/mth and in 48 months that is $9500+.This calculation doesn't take into account your tax savings. Just calculated the difference in payments only.

 

Everytime I have a goal to sell in X months (3 yrs, 5 yrs etc) I end up staying longer. No reason, its just that sometimes plans change. Are you likely to stay longer than 4 yrs? If you do, then you are in for more savings and will get beyond the breakeven point. JMHO.

Member
ffactoryxx
Posts: 18
Registered: ‎10-27-2011
0

Re: Penfed 5/5 Arm Refinance question

Thanks. 

 

I don't think I will stay longer than 4 years however I might rent the house out in the future. Also I don't look at 48 months being really a break even point because that 10K is going directly towards principal and equity. Not like I am really loosing it.

 

Do you think I should wrap the 433 back into the loan itself to build even more equity?

 

I could probably put in a Mutual Fund and gain 6+% in a year.

Frequent Contributor
grassfeeder
Posts: 375
Registered: ‎03-01-2012
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Re: Penfed 5/5 Arm Refinance question

put that $433 into a mutual and let that grow.  I think you'll end up ahead of what the housing market will yield.

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Member
ffactoryxx
Posts: 18
Registered: ‎10-27-2011
0

Re: Penfed 5/5 Arm Refinance question

With that being said should I say screw it, lose the apprisal fee and stay at my current rate?

 

Then pump that 10K into a mutual fund?

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Revelate
Posts: 9,731
Registered: ‎12-30-2011
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Re: Penfed 5/5 Arm Refinance question

[ Edited ]

ffactoryxx wrote:

With that being said should I say screw it, lose the apprisal fee and stay at my current rate?

 

Then pump that 10K into a mutual fund?


 

Based on the numbers S10 suggests, you'd need to earn ~17% annually on that 10K (compounded monthly, napkin math) to reach that level of money in the market and historically returns in the market are nowhere close to that (these last few years notwithstanding).  I think with the way things may be shaping up over the next year, that you're far better off putting that additional money in equity and take the savings directly, actually I think it's a no-brainer if you include the same level of gain in investing that difference in the market over the same time period.

 

 

 

 

 

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