Refi into 30 year Fixed or ARM??

[Matt Steele]

Hi all,

I am looking to refinance my loan. We have gained some significant appreciation in the last year. We are looking to take advantage of that before rates go up and/or the market begins to cool down.

I have done some research and analysis. Looking for some feedback or opinions.

Currently we are in an FHA loan with some heavy PMI.

I have a family friend who is a loan officer. He drew up two different loan options.

1) 30 year fixed @ 4.625% and a PMI 109 and 72 when the LTV is 85-89.99% and 80-84.99% respectively.

2) An ARM @ 3.875% fixed for 7 years with a 2% cap each year after that. Same PMI has above.

I have dumped this into a spreadsheet and done a break even analysis.

I discovered that it would take us roughly 7.3 years to break even on the 30 year loan, as we will be paying less principal and more interest, but ultimately getting rid of PMI. We could save a ton of money over the life of the loan, if we were to hold it for the remaining time.

I also discovered that we would break even very quickly on the ARM, in roughly 9 months. I also found that after breaking even we would save ~ $26,000 until the ARM begins to kick in. At which we would plan to do something with the loan again.

The property is in MA.

With rates on the rise and the market as hot as it is, a lot can happen in 7 years. I am looking for any advice or opinions on an ARM.

I don't mind sharing my spreadsheet to double check my analysis either.

Thanks,

Matt

[Kevin Romines]

Why not look at a fixed 1st mortgage followed by a small 2nd mortgage to eliminate the MI all together. Like an 80/5 or an 80/10. Because the 1st is no more than 80% LTV there is no MI and then you just have a small 2nd for the difference of what you owe? It will save you the 109 or 72 a month and most likely get you better rates on the 1st. You can also inquire as to if you lender can offer the 1st as an Adjustable if that works for you?

I'm assuming its an owner occupied property based on the fact that your current loan is an FHA loan?