Should I convert LIBOR arm to fixed rate?

[ranchob]

I have an ARM mortgage that resets every year based on the 1 year LIBOR rate. I am in the process of refinancing this with a locked in fixed rate of 4.875%, 1.5 points, but now question whether I should do this since the LIBOR rates are now so low. Does anyone have any way of predicting whether the low LIBOR rates are a long term trend that will last for years or is this purely a guess?

DETAILS: My current ARM mortgage balance is $190,000. It resets every year to 2.25% over the 1 yr LIBOR rounded up to the next 1/8% with a cap of 8.375% and a maximum of 2% up or down each year. If it were to reset based on today’s LIBOR rate (it actually uses the rate as of Aug 25) the rate would be 4.125%. I am not in a hurry to sell and could absorb the cost if the loan were to go to as high as the cap.

[(former)FormerSanDiegan]

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.

[(former)FormerSanDiegan]

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.

[(former)FormerSanDiegan]

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.

[(former)FormerSanDiegan]

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.

[(former)FormerSanDiegan]

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.

[temeculaguy]

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.

[temeculaguy]

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.

[temeculaguy]

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.

[temeculaguy]

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.

[temeculaguy]

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.

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