Ask Money


Chris Farrell Jan 29, 2008

Question: I purchased my house three years ago with a 5-year ARM and a second mortgage to cover the down payment. My credit was (and is) good, and the interest rates and payments on both loans are low (about 5%-6% on the loans). I purchased my house just before property values climbed here, so the value has appreciated and the market has not crashed as in other places. When I purchased my home, my job was only supposed to last two years, so I expected to move long before the interest rate started to adjust. My job has now lasted 3 years, and it is no longer certain that I will move out of town before the 5 year mark. Should I refinance the house now just in case I don’t move, or wait to see what happens with interest rates and lenders? The interest rate will start to adjust in October of 2009 and I have heard that 2009 might be a better time to refinance a home because the market is expected to have stabilized. Thank you.

Answer: Clearly, you have a good rate and the time to decide. By the way, I’m also a fan of 5-and 7-year adjustable rate mortgages. The rate is usually attractive and you buy time to decide on your next move.

Of course, I have no idea where interest rates will be in 2009. I do think the recent drop in mortgage rates makes refinancing over the next couple of months an attractive proposition for anyone with a good credit score and borrowing record–like you. The rate on a 30-year fixed rate mortgage has dropped to 5.54% (the last posting I saw). If I were you, I’d be running some numbers now to see whether you can 1) get rid of the second mortgage and 2) calculate the point where it makes sense for you to buy an “insurance” policy and long-term piece of mind by refinancing into a conventional 30-year fixed rate mortgage.

Of course, I don’t have the answer, but my guess is that it’s sooner rather than later.

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