30 yr vs 5 yr arm

[jcweb]

What is the name of your state?IL
We are in the process of refinancing our rental property--right now we have a 30 year at 6%...my mortgage broker said he is working with 2 lenders and he said they may want to do a 5 year ARM versus the 30 year (at 5.85%) because most lenders want 2 years of landlord ownership---we will have owned the house for 2 years in January 05.....is this normal? I don't think we would consider a 5 year
ARM-are there any advantages of an ARM? I think we are lucky to have a 30 year at 6% on a NOOP and would be great if we could get a 30 year at 5.85%---aren't we close enough to the 2 year ownership? Any advice would be appreciated
thanks

 

[nextwife]

Personally, I don't see any point in refinancing for such a small difference in rate.

 

[jcweb]

We are refinancing to cash out and pay off credit cards----the house was appraised at $238,000 and we owe $148,000 and are cashing out $25,000 to pay off the credit cards---the interest rate is not our main concern (just so we can keep it at 6 or below) but we really need to pay off these cards and get back on track....

 

[MORTGAGEman]

It all depends on how long you plan on keeping the rental property. If you plan on keeping the rental property for 10 years than the 5/1 ARM isn't the way to go. If you plan on holding onto the property for 3 or 4 years than you might as well go with the 5/1 ARM instead of the 30 year fixed because it generally has a lower interest rate. A 5/1 ARM is fixed for 5 years and adjusts with the market every year after that.


The question is how long do you plan on holding on to the property?

 

[jcweb]

I'm not sure how long we plan on having that property--the house itself is old but it is in a great location (chicago burbs--close to train) and they are doing tear downs all around it and putting up million dollar homes--we actually got a great deal on it--so we will probably hold onto it--right now we just need the money--I would even take a 30 year at 5.9%--just let us cash out some of our equity (we did not qualify for a HELOC--fico is 10 pts too low)....is there any reason my broker would PREFER me to do an ARM? He said the rate would be the same for an ARM versus a 30 year--so just give me the 30 year, right?

 

[MORTGAGEman]

I can't think of any benefit for him besides trying to sell you on a lower interest rate. Is he charging you any points? How much did he say closing costs were?

 

[jcweb]

No sure about the points, but we are looking at about $4,000 in closing costs

 

[MORTGAGEman]

Sounds good... just make sure that there are no points.