Refinance ARM now?
I am in a quandry, and I know no one can predict the future of interest rates. But I wonder what your gut instinct is.
We still have 3 more years left on a 5-year ARM at 5.25 percent. Our friend (a financial planner) is urging us to refinance now, because rates are going up and he feels this long term of loose money is reaching the end. He warns that in 3 years we could be looking at 7 or 8 percent or even worse. Our mortgage lender (it's a local company who keeps the loans) says we should wait (but of course it's in his interest -- no pun intended -- to have us sit for 3 years and be forced to refi at a higher rate, right?). The rate as of Friday was 6.25 with 1 point.
We have excellent credit, but we did buy at the height of the housing boom and even at 5.25 the payments aren't easy. We add $400/month toward principal, and if we keep that up for another 3 years, the loan amount will be down from its original $400K to $376K. Right now, at 6.25 for a 30-year fixed, we'd have to tighten our belts and couldn't make extra principal payments. At 7 percent, even with an increase in income, we will have to reign in all unnecessary spending (difficult with kids in middle school at that time). At 8 percent, it would be hard to keep the house without a substantial increase in income.
Some people say that in 3 years, there will be a new administration, a different economy, and it may even get better. Of course, no one knows.
What would you do?