To some extent it depends how large this loan is relative to your other assets. If you have a net worth of 2x or 3x this loan amount AND the maximum payment on this loan at 8.375% is less than 25 -30% of your income, then the risk of keeping the ARM is small.

Otherwise, figure out what the ARM rate would reset to such that your savings from going to a fixed rate is paid for over 5 years.

I’m gonna make a quickly stab at this:

Suppose it costs 4000 to refi (2850 in points, another 1150 in appraisal, title and other fees)

Your fixed rate payment would be : 1005.

TO pay for the 4000 over 4 years, you would need to save about $83 per month. That corrwesponds to an ARM rate at about 5.625%.

To come out ahead on a refinance over the next 4 years the ARM would have to average more than 5.625%. That’s 1.5% above today’s level, which is likely.

I would take the fixed rate.

To some extent it depends how large this loan is relative to your other assets. If you have a net worth of 2x or 3x this loan amount AND the maximum payment on this loan at 8.375% is less than 25 -30% of your income, then the risk of keeping the ARM is small.

Otherwise, figure out what the ARM rate would reset to such that your savings from going to a fixed rate is paid for over 5 years.

I’m gonna make a quickly stab at this:

Suppose it costs 4000 to refi (2850 in points, another 1150 in appraisal, title and other fees)

Your fixed rate payment would be : 1005.

TO pay for the 4000 over 4 years, you would need to save about $83 per month. That corrwesponds to an ARM rate at about 5.625%.

To come out ahead on a refinance over the next 4 years the ARM would have to average more than 5.625%. That’s 1.5% above today’s level, which is likely.

I would take the fixed rate.

To some extent it depends how large this loan is relative to your other assets. If you have a net worth of 2x or 3x this loan amount AND the maximum payment on this loan at 8.375% is less than 25 -30% of your income, then the risk of keeping the ARM is small.

Otherwise, figure out what the ARM rate would reset to such that your savings from going to a fixed rate is paid for over 5 years.

I’m gonna make a quickly stab at this:

Suppose it costs 4000 to refi (2850 in points, another 1150 in appraisal, title and other fees)

Your fixed rate payment would be : 1005.

TO pay for the 4000 over 4 years, you would need to save about $83 per month. That corrwesponds to an ARM rate at about 5.625%.

To come out ahead on a refinance over the next 4 years the ARM would have to average more than 5.625%. That’s 1.5% above today’s level, which is likely.

I would take the fixed rate.

The fixed rate may help you sleep better in the coming years. Nobody knows exactly what will happen but the risk of inflation and/or higher rates is real. I can’t say when or how high, but there are a lot of possibilities and even more variables. There are no variables with a fixed rate. After reading Former’s analysis, I agree, go fixed, betting that rates average below 5.625% over 4 years doesn’t sound like a safe bet. It may feel like that now but looking back over my lifetime, sub 6% were rare periods and rarely sustained, probably equal to the amount of time it was double digits.

The fixed rate may help you sleep better in the coming years. Nobody knows exactly what will happen but the risk of inflation and/or higher rates is real. I can’t say when or how high, but there are a lot of possibilities and even more variables. There are no variables with a fixed rate. After reading Former’s analysis, I agree, go fixed, betting that rates average below 5.625% over 4 years doesn’t sound like a safe bet. It may feel like that now but looking back over my lifetime, sub 6% were rare periods and rarely sustained, probably equal to the amount of time it was double digits.