Welcome to the eighth edition of “What Would You Do?”! If you have a question and would like to know what others would do please contact me and I’ll keep it in mind for future editions of “What Would You Do?”. Some of the more popular editions have asked Should I Buy the NeatDesk or NeatReceipts Scanner, What Would You Do With $1,000,000 and Should I Pay Off My Car Loan? Now on to this week’s question…
This is our first reader submitted What Would You Do and I think it is a great situation to consider. Below is what the reader has shared with me. I have edited it a bit to protect any identifying information and to make it read a little better.
I have a question that I think affects a lot of folks these days, but doesn’t get much press. I have a variable rate mortgage that will reset for the first time on April 1st.
My rate will reset to 3.125% (calculated by adding 2.375% to the LIBOR) interest at that time. Of course I have the option of paying the extra savings toward the principal over a few years, but I don’t plan to stay in the home for more than a few years. I am planning to go ahead and let it reset.
I have been approved for a refinance under the HARP program, and the new lender is pressing me to set a date to do the close. They told me to expect to pay around $2,300.00 in closing costs in the beginning, and now that we are closer to closing, those costs have mysteriously risen to around $3,500.00.
Since I don’t plan to be in the house more than 3 years at the most, I don’t see the point in investing in the new mortgage. I’m surprised that there isn’t more talk about those in a similar position that may be falling for HARP, and because like me they are underwater, are rushing to take 3.99% refi’s because they’re scared to death not to.
I may be unique in that I will be 59 1/2 before my rate can escalate out of control and can access 401(k) funds without penalties to pay my mortgage down to the point that I can get a conventional (non-penalty higher rate) approved.
In short, the LIBOR that my variable rate mortgage is based on is at historic lows, so why not just let it reset and save a ton of money without the HARP route? As long as the LIBOR has taken to gradually ease down, I can’t imagine it shooting back up over several weeks or even months before I can make a move.
Another important note is that I have around $10,000.00 of consumer debt that is at 12 to 14% that I intend to payoff over the next year or two with the money that I will save on the relieved mortgage payments.
It’s much more logical to use the money to pay down that debt than the wisdom in gaining a similar amount of equity in the home with a conventional mortgage that would cost me $3,500.00 to buy into.
What say you?
Based on what I see I have a couple comments.
- You must always watch out for yourself in financial transactions.
- Mortgage lenders get paid by each mortgage they close so it makes sense they’re pressuring you whether or not it is the right move for you.
- Increasing costs seem fishy… you might want to ask what exactly has changed and get a good explanation on it if you plan to go forward.
- No one can read the future. While it may seem highly unlikely that there will be a rate spike, you never know what could happen. If rates go up and you lock into a conventional mortgage later on you might be locking in at a higher rate.
So what are your thoughts? Should this reader refinance their mortgage or not?