Mortgage question!

[TripleAAA]

So I've been hearing the news lately about these Option ARM's which is basically another form of the dreaded Sub-Prime Mortgages that have partly attributed to this whole mess of the mortgage industry. I'm not entirely sure if I have one of these Option ARM's though so maybe someone can help me out. There is no specific term that mentions this in my documents, nor was I offered a "teaser" interest rate considering I've been paying 5.875%.

I bought my current home in August '06 with little money down (like only 4k). The loan was initially 143k and in about the last 2 1/2 years I've paid down the principal to roughly 136k. Not great, but considering I got through grad school debt free I can't complain too much.

I was looking over my loan docs and it said my interest rate is at 5.875%. At each "Change Date" they can add a margin of 1.75%, but then the next paragraph says it will increase or decrease by 1%. My first "Change Date" is not until January 2010 though. The max the interest rate could be would be 10.875% (max of 5% increase from the original rate).

So my questions are such: Do I have an Option ARM? If so, should I look at refinancing or given the info here, should I look into refinancing?

My current situation is I have a relatively stable job pulling in about 45k a year. Debt free except for the mortgage of course. I'm single, but the possibility of marriage might occur within 2 years or so. My current mortage payment which has pretty much held steady since I started the loan, is about $1150/month.

Thanks for any info you can provide.

 

[Capt Caveman]

You don't know what kind of mortgage you have? Wow....

 

[bsobel]

"It is an ARM on which the interest rate adjusts monthly and the payment adjusts annually, with borrowers offered options on how large a payment they will make. The options include interest-only, and a "minimum" payment that is usually less than the interest-only payment. The minimum payment option results in a growing loan balance, termed "negative amortization"."

You do not have an option arm, you have a traditional adjustable mortgage. The risk with option arms is that people take the minimum payments and are actually deeper in debt after each month, not flat or lower.

 

[LegendKiller]

you have a traditional arm

 

[TripleAAA]

Originally posted by: Capt Caveman
You don't know what kind of mortgage you have? Wow....

I knew I had an ARM, but wasn't entirely clear if I had an Option ARM. This is somewhat relieving.

Even considering, do you think it's at all feasible to refinance? By refinancing am I essentially starting over with my interest payments, therefore not making as much of a dent in my principal as I would be if I just staying with my current loan 2 years from now?

 

[bsobel]

Even considering, do you think it's at all feasible to refinance? By refinancing am I essentially starting over with my interest payments, therefore not making as much of a dent in my principal as I would be if I just staying with my current loan 2 years from now?

Refinance if you want to lock in a fixed rate at this time. As far as 'starting over', well you starting with a lower balance as well. And nothing says you can't make additional principle payments if you like...

 

[zzuupp]

Originally posted by: TripleAAA

I knew I had an ARM, but wasn't entirely clear if I had an Option ARM. This is somewhat relieving.

Even considering, do you think it's at all feasible to refinance? By refinancing am I essentially starting over with my interest payments, therefore not making as much of a dent in my principal as I would be if I just staying with my current loan 2 years from now?

The loan was initially 143k and in about the last 2 1/2 years I've paid down the principal to roughly 136k.


You've made a good dent in the principal.

One thing to check would be, what would be the current value of your home? With $4K down, $7K paid off, $136K loan left, it doesn't like you'll be near an 80% loan to value. From what I've been reading, the market for anything but a traditional mortgage has all but disappeared.

The good news is that you have a year before the rate goes up. And two more before the rate could be on the high side

 

[jagec]

Does it matter what the mortgage is called?

All that matters is (a)What rate you're paying, (b)What rate you WILL be paying in the future, and (c)Whether you can keep paying under both rates.

It sounds like you're set. You're not part of the problem, good for you.

 

[TripleAAA]

Just giving those interested an update...in the next few weeks I'm going in to look at possibly refinancing just to see what kind of responses I get. I'll update when I hear more.

FYI...I've been doing the bi-monthly payment plan since the inception of my current loan which I think has partially helped the principal being paid down.

 

[txrandom]

This is one of the problems with America. Home buyers don't even know what type of mortgage they are purchasing. I'm sure you spent a few hours building a PC, but don't even know what type of mortgage you have?

 

[rasczak]

Originally posted by: txrandom
This is one of the problems with America. Home buyers don't even know what type of mortgage they are purchasing. I'm sure you spent a few hours building a PC, but don't even know what type of mortgage you have?

he does now, it becomes apparent after reading the entire thread.

 

[CPA]

Option ARM or Option anything gives you the choice of paying interest only or interest plus principle each month. The problem so many folks had with Option mortgages is that they were sold on the fact that "hey I only need to make the interest payment" not realizing that when the ARM kicks in 3, 5, 7 years later they must start making principle payments as well. So, they generally had an increase of their payment by not only the increase in the interest portion but also the principle piece that now must be paid.

You have just a traditional ARM.

 

[OCGuy]

Originally posted by: CPA
Option ARM or Option anything gives you the choice of paying interest only or interest plus principle each month. The problem so many folks had with Option mortgages is that they were sold on the fact that "hey I only need to make the interest payment" not realizing that when the ARM kicks in 3, 5, 7 years later they must start making principle payments as well. So, they generally had an increase of their payment by not only the increase in the interest portion but also the principle piece that now must be paid.

You have just a traditional ARM.

They also have a neg-am option, which lets you pay less than interest only, called a minimum payment. It takes the difference between the I/O payment, and the minimum payment, and actually adds to your principle.

Also, refinance! I have been closing loans from 4.375-4.99 for 3 weeks now. I am absolutely flooded due to the rates...

 

[Kelemvor]

Look into refinancing. Can cut half a point or more off that and get out of an ARM. Anything that's an ARM is bad news most of the time over time.

 

[child of wonder]

Amazing. Went to Grad school and don't know what your mortgage is.

 

[waggy]

Originally posted by: rasczak

Originally posted by: txrandom
This is one of the problems with America. Home buyers don't even know what type of mortgage they are purchasing. I'm sure you spent a few hours building a PC, but don't even know what type of mortgage you have?

he does now, it becomes apparent after reading the entire thread.

yeah..but i think the point is that people would know WHAT mortgage they have BEFORE they sign the papers.