Penfed 5/5 Arm Rate Reset?

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WentzWagon
Posts: 203
Joined: Thu Jan 08, 2015 10:25 am

Penfed 5/5 Arm Rate Reset?

Post by WentzWagon » Fri Jul 20, 2018 9:28 am

I refinanced with Penfed less than 5 years ago at 2.75% and am due for a rate increase in March 2019 time frame to 4.75%

I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months. I would be paying about 7 months at a higher rate but saving more in the long run. I calculate it will cost be about $890 (increased rate + $250) more the next 7 months but save me about $4000 the following 60 months

Thoughts? Is there a catch?

INTEREST RATE...............................2.75%..............4.750%..................3.8125%

PRINCIPAL & INTEREST PAYMENT..........$734.8..............$908.1..................$826.26

TOTAL PAYMENT............................. $734.83............$908.16................$826.26

ESTIMATED MONTHLY SAVINGS
Principal and Interest Saving..............................................................$81.90**
Last edited by WentzWagon on Fri Jul 20, 2018 10:43 pm, edited 2 times in total.

Luke Duke
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Location: Texas

Re: Penfed 5/5 Arm Rate Reset?

Post by Luke Duke » Fri Jul 20, 2018 9:46 am

Is the increase to 4.75% certain? What is the maximum rate that the new loan could rise to?

WentzWagon
Posts: 203
Joined: Thu Jan 08, 2015 10:25 am

Re: Penfed 5/5 Arm Rate Reset?

Post by WentzWagon » Fri Jul 20, 2018 9:49 am

Luke Duke wrote:
Fri Jul 20, 2018 9:46 am
Is the increase to 4.75% certain? What is the maximum rate that the new loan could rise to?
Thats exactly what I asked as I know the rate increase is based on the Index.

2% is MAX it could rise per 5 year period. What is the current index?

"Rate is variable and can increase by no more than 2 percentage points after the initial five years period and at each subsequent five year rate adjustment, with a lifetime maximum adjustment of 5% (7.75% for this example). Since the value of the index in the future is unknown, the First Adjustment Payments displayed are based on the current index plus margin (fully indexed rate) as of the date above.

new2bogle
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Re: Penfed 5/5 Arm Rate Reset?

Post by new2bogle » Fri Jul 20, 2018 9:53 am

I believe the 5 year T note is used for 5/5 ARMs (but do make sure by calling up PenFed).

OP, do mean you refinanced 5 years ago (not months)?

PenFed usually gives these offers out before the first 5 year rate reset. Some of us who had rates reset in 2016 or before actually got an offer for lower rates after the $250. i would go ahead and do it if you are staying in the house long term as it looks like it will save you considerably more than the upfront cost.

There is no catch, I did the same thing a few years ago (and there is a thread on Bogleheads about it somewhere). If I remember correctly, I went from 3.25% to 2.65% for the second 5 years for $250, which made me, at the time, super suspicious, but it is all good. There is no catch.

cccheel
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Re: Penfed 5/5 Arm Rate Reset?

Post by cccheel » Fri Jul 20, 2018 10:33 am

I'm in the same boat. My 5/5 ARM with PenFed goes from 2.65 to 4.65 in January 2019. I'm thinking of refinancing around December into a 15-year fixed instead of doing the rate reset. We'll see what rates are then.

an_asker
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Re: Penfed 5/5 Arm Rate Reset?

Post by an_asker » Fri Jul 20, 2018 10:35 am

new2bogle wrote:
Fri Jul 20, 2018 9:53 am
[...]
There is no catch, I did the same thing a few years ago (and there is a thread on Bogleheads about it somewhere). If I remember correctly, I went from 3.25% to 2.65% for the second 5 years for $250, which made me, at the time, super suspicious, but it is all good. There is no catch.
I wasn't as lucky. We went from 2.75% to 2.95%. But we did accept it. And are on track to pay it off before the next reset looms :-)

OP: Yes, there is no catch. Go ahead and take it.

an_asker
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Re: Penfed 5/5 Arm Rate Reset?

Post by an_asker » Fri Jul 20, 2018 11:22 am

cccheel wrote:
Fri Jul 20, 2018 10:33 am
I'm in the same boat. My 5/5 ARM with PenFed goes from 2.65 to 4.65 in January 2019. I'm thinking of refinancing around December into a 15-year fixed instead of doing the rate reset. We'll see what rates are then.
Didn't you get the same offer from PenFed?

cccheel
Posts: 11
Joined: Tue Jan 17, 2017 11:45 am

Re: Penfed 5/5 Arm Rate Reset?

Post by cccheel » Fri Jul 20, 2018 3:33 pm

an_asker wrote:
Fri Jul 20, 2018 11:22 am
cccheel wrote:
Fri Jul 20, 2018 10:33 am
I'm in the same boat. My 5/5 ARM with PenFed goes from 2.65 to 4.65 in January 2019. I'm thinking of refinancing around December into a 15-year fixed instead of doing the rate reset. We'll see what rates are then.
Didn't you get the same offer from PenFed?
I did, but (1) it's only for 60 months, and (2) it's higher than a 15-year fixed rate inquoted out the other day. Just gonna wait and see where rates are before the adjustment and make the call from there.

an_asker
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Re: Penfed 5/5 Arm Rate Reset?

Post by an_asker » Fri Jul 20, 2018 7:00 pm

cccheel wrote:
Fri Jul 20, 2018 3:33 pm
an_asker wrote:
Fri Jul 20, 2018 11:22 am
cccheel wrote:
Fri Jul 20, 2018 10:33 am
I'm in the same boat. My 5/5 ARM with PenFed goes from 2.65 to 4.65 in January 2019. I'm thinking of refinancing around December into a 15-year fixed instead of doing the rate reset. We'll see what rates are then.
Didn't you get the same offer from PenFed?
I did, but (1) it's only for 60 months, and (2) it's higher than a 15-year fixed rate inquoted out the other day. Just gonna wait and see where rates are before the adjustment and make the call from there.
Oh, if you have a 15-year no closing costs option for 3.8% or thereabouts, I think you should take it. It might not last until January!

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jimb_fromATL
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Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Penfed 5/5 Arm Rate Reset?

Post by jimb_fromATL » Fri Jul 20, 2018 7:19 pm

WentzWagon wrote:
Fri Jul 20, 2018 9:28 am
I refinanced with Penfed less than 5 months ago at 2.75% and am due for a rate increase in March 2019 time frame to 4.75%

I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months. I would be paying about 7 months at a higher rate but saving more in the long run. I calculate it will cost be about $890 (increased rate + $250) more the next 7 months but save me about $4000 the following 60 months

Thoughts? Is there a catch?

INTEREST RATE...............................2.75%..............4.750%..................3.8125%

PRINCIPAL & INTEREST PAYMENT..........$734.8..............$908.1..................$826.26

TOTAL PAYMENT............................. $734.83............$908.16................$826.26

ESTIMATED MONTHLY SAVINGS
Principal and Interest Saving..............................................................$81.90**
The thread title is Penfed 5/5 Arm Rate Reset?

I must be missing something. If you refinanced to a 5/5 mortgage 4 months ago -- in March 2018 -- why is it adjusting in March 2019? Shouldn't the first adjustment be in March 2023?
I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months.
Do you mean that you pay then a total of $250 now and they will reset the rate to 3.8125% and keep that rate for 60 months?

What was the original balance?
How long is the mortgage?
How long do you expect to live in the home?

jimb

cccheel
Posts: 11
Joined: Tue Jan 17, 2017 11:45 am

Re: Penfed 5/5 Arm Rate Reset?

Post by cccheel » Fri Jul 20, 2018 8:41 pm

jimb_fromATL wrote:
Fri Jul 20, 2018 7:19 pm
WentzWagon wrote:
Fri Jul 20, 2018 9:28 am
I refinanced with Penfed less than 5 months ago at 2.75% and am due for a rate increase in March 2019 time frame to 4.75%

I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months. I would be paying about 7 months at a higher rate but saving more in the long run. I calculate it will cost be about $890 (increased rate + $250) more the next 7 months but save me about $4000 the following 60 months

Thoughts? Is there a catch?

INTEREST RATE...............................2.75%..............4.750%..................3.8125%

PRINCIPAL & INTEREST PAYMENT..........$734.8..............$908.1..................$826.26

TOTAL PAYMENT............................. $734.83............$908.16................$826.26

ESTIMATED MONTHLY SAVINGS
Principal and Interest Saving..............................................................$81.90**
The thread title is Penfed 5/5 Arm Rate Reset?

I must be missing something. If you refinanced to a 5/5 mortgage 4 months ago -- in March 2018 -- why is it adjusting in March 2019? Shouldn't the first adjustment be in March 2023?
I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months.
Do you mean that you pay then a total of $250 now and they will reset the rate to 3.8125% and keep that rate for 60 months?

What was the original balance?
How long is the mortgage?
How long do you expect to live in the home?

jimb
Yes, I can do the rate reset now before it automatically adjusts in January of next year. That would give me a rate of 3.8125% for 60 months, at which point it could adjust again, a Max of 2%. Or I can do a 15-year fixed refi now at 3.625% with about $788 in fees.

Original balance was $200,000.
30 years, I believe.
A long time. No desire to move anytime soon.

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jimb_fromATL
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Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Penfed 5/5 Arm Rate Reset?

Post by jimb_fromATL » Fri Jul 20, 2018 9:57 pm

cccheel wrote:
Fri Jul 20, 2018 8:41 pm
jimb_fromATL wrote:
Fri Jul 20, 2018 7:19 pm
WentzWagon wrote:
Fri Jul 20, 2018 9:28 am
I refinanced with Penfed less than 5 months ago at 2.75% and am due for a rate increase in March 2019 time frame to 4.75%

I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months. I would be paying about 7 months at a higher rate but saving more in the long run. I calculate it will cost be about $890 (increased rate + $250) more the next 7 months but save me about $4000 the following 60 months

Thoughts? Is there a catch?

INTEREST RATE...............................2.75%..............4.750%..................3.8125%

PRINCIPAL & INTEREST PAYMENT..........$734.8..............$908.1..................$826.26

TOTAL PAYMENT............................. $734.83............$908.16................$826.26

ESTIMATED MONTHLY SAVINGS
Principal and Interest Saving..............................................................$81.90**
The thread title is Penfed 5/5 Arm Rate Reset?

I must be missing something. If you refinanced to a 5/5 mortgage 4 months ago -- in March 2018 -- why is it adjusting in March 2019? Shouldn't the first adjustment be in March 2023?
I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months.
Do you mean that you pay then a total of $250 now and they will reset the rate to 3.8125% and keep that rate for 60 months?

What was the original balance?
How long is the mortgage?
How long do you expect to live in the home?

jimb
Yes, I can do the rate reset now before it automatically adjusts in January of next year. That would give me a rate of 3.8125% for 60 months, at which point it could adjust again, a Max of 2%. Or I can do a 15-year fixed refi now at 3.625% with about $788 in fees.

Original balance was $200,000.
30 years, I believe.
A long time. No desire to move anytime soon.
I'm still confused :confused and don't know what numbers to crunch.

What am I misreading?
You say you refinanced less than 5 months ago. If it were 4 months, that would be about March 2018.
I see now you say it's January instead of March
The title of this thread asks about a 5/5 ARM.
A 5/5 ARM can reset only once every 5 years.
If you've had it for 4 months since January (or March) 2018, it would not reset the first time until 5 years later in 2023.

Are you by any chance talking about recasting a 1 year ARM that currently resets every year into a 5/5 ARM that resets only once every 5 years?

Or could you mean that you refinanced into a 5/5 ARM nearly 5 years ago ... possibly in January or March 2014 ... and that it will reset to a higher rate after the first 5 year period in January or March of 2019?

Do you know the exact balance now?
Do you know exactly when you refinanced?

jimb

WentzWagon
Posts: 203
Joined: Thu Jan 08, 2015 10:25 am

Re: Penfed 5/5 Arm Rate Reset?

Post by WentzWagon » Fri Jul 20, 2018 10:43 pm

new2bogle wrote:
Fri Jul 20, 2018 9:53 am
I believe the 5 year T note is used for 5/5 ARMs (but do make sure by calling up PenFed).

OP, do mean you refinanced 5 years ago (not months)?

PenFed usually gives these offers out before the first 5 year rate reset. Some of us who had rates reset in 2016 or before actually got an offer for lower rates after the $250. i would go ahead and do it if you are staying in the house long term as it looks like it will save you considerably more than the upfront cost.

There is no catch, I did the same thing a few years ago (and there is a thread on Bogleheads about it somewhere). If I remember correctly, I went from 3.25% to 2.65% for the second 5 years for $250, which made me, at the time, super suspicious, but it is all good. There is no catch.
whoops. I meant less than 5 years and updated

WentzWagon
Posts: 203
Joined: Thu Jan 08, 2015 10:25 am

Re: Penfed 5/5 Arm Rate Reset?

Post by WentzWagon » Fri Jul 20, 2018 10:44 pm

jimb_fromATL wrote:
Fri Jul 20, 2018 7:19 pm
WentzWagon wrote:
Fri Jul 20, 2018 9:28 am
I refinanced with Penfed less than 5 months ago at 2.75% and am due for a rate increase in March 2019 time frame to 4.75%

I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months. I would be paying about 7 months at a higher rate but saving more in the long run. I calculate it will cost be about $890 (increased rate + $250) more the next 7 months but save me about $4000 the following 60 months

Thoughts? Is there a catch?

INTEREST RATE...............................2.75%..............4.750%..................3.8125%

PRINCIPAL & INTEREST PAYMENT..........$734.8..............$908.1..................$826.26

TOTAL PAYMENT............................. $734.83............$908.16................$826.26

ESTIMATED MONTHLY SAVINGS
Principal and Interest Saving..............................................................$81.90**
The thread title is Penfed 5/5 Arm Rate Reset?

I must be missing something. If you refinanced to a 5/5 mortgage 4 months ago -- in March 2018 -- why is it adjusting in March 2019? Shouldn't the first adjustment be in March 2023?
I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months.
Do you mean that you pay then a total of $250 now and they will reset the rate to 3.8125% and keep that rate for 60 months?

What was the original balance?
How long is the mortgage?
How long do you expect to live in the home?

jimb
I meant less than 5 years 😀

Original amount around $230k
30 year mortgage
Been here about year 9-10 total and moving soon. Going to rent.

WentzWagon
Posts: 203
Joined: Thu Jan 08, 2015 10:25 am

Re: Penfed 5/5 Arm Rate Reset?

Post by WentzWagon » Fri Jul 20, 2018 10:47 pm

jimb_fromATL wrote:
Fri Jul 20, 2018 9:57 pm
cccheel wrote:
Fri Jul 20, 2018 8:41 pm
jimb_fromATL wrote:
Fri Jul 20, 2018 7:19 pm
WentzWagon wrote:
Fri Jul 20, 2018 9:28 am
I refinanced with Penfed less than 5 months ago at 2.75% and am due for a rate increase in March 2019 time frame to 4.75%

I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months. I would be paying about 7 months at a higher rate but saving more in the long run. I calculate it will cost be about $890 (increased rate + $250) more the next 7 months but save me about $4000 the following 60 months

Thoughts? Is there a catch?

INTEREST RATE...............................2.75%..............4.750%..................3.8125%

PRINCIPAL & INTEREST PAYMENT..........$734.8..............$908.1..................$826.26

TOTAL PAYMENT............................. $734.83............$908.16................$826.26

ESTIMATED MONTHLY SAVINGS
Principal and Interest Saving..............................................................$81.90**
The thread title is Penfed 5/5 Arm Rate Reset?

I must be missing something. If you refinanced to a 5/5 mortgage 4 months ago -- in March 2018 -- why is it adjusting in March 2019? Shouldn't the first adjustment be in March 2023?
I was given an offer to reset my rate to 3.8125% in September for $250 for 60 months.
Do you mean that you pay then a total of $250 now and they will reset the rate to 3.8125% and keep that rate for 60 months?

What was the original balance?
How long is the mortgage?
How long do you expect to live in the home?

jimb
Yes, I can do the rate reset now before it automatically adjusts in January of next year. That would give me a rate of 3.8125% for 60 months, at which point it could adjust again, a Max of 2%. Or I can do a 15-year fixed refi now at 3.625% with about $788 in fees.

Original balance was $200,000.
30 years, I believe.
A long time. No desire to move anytime soon.
I'm still confused :confused and don't know what numbers to crunch.

What am I misreading?
You say you refinanced less than 5 months ago. If it were 4 months, that would be about March 2018.
I see now you say it's January instead of March
The title of this thread asks about a 5/5 ARM.
A 5/5 ARM can reset only once every 5 years.
If you've had it for 4 months since January (or March) 2018, it would not reset the first time until 5 years later in 2023.

Are you by any chance talking about recasting a 1 year ARM that currently resets every year into a 5/5 ARM that resets only once every 5 years?

Or could you mean that you refinanced into a 5/5 ARM nearly 5 years ago ... possibly in January or March 2014 ... and that it will reset to a higher rate after the first 5 year period in January or March of 2019?

Do you know the exact balance now?
Do you know exactly when you refinanced?

jimb
I meant less than 5 years /not months😀

Original amount around $230k/ around 165k left
30 year mortgage
Been here about 9-10yrs total and moving soon. Going to rent

cccheel
Posts: 11
Joined: Tue Jan 17, 2017 11:45 am

Re: Penfed 5/5 Arm Rate Reset?

Post by cccheel » Sat Jul 21, 2018 6:07 am

I think our two posts got confused because of quoting.

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jimb_fromATL
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Location: Atlanta area & Piedmont Triad NC and Interstate 85 in between.

Re: Penfed 5/5 Arm Rate Reset?

Post by jimb_fromATL » Sun Jul 22, 2018 6:13 pm

WentzWagon wrote: I was given an offer to reset my rate to 3.8125% in September ... etc. etc.
jimb_fromATL wrote:
Fri Jul 20, 2018 9:57 pm
Huh ??? etc. etc.
WentzWagon wrote:
I meant less than 5 years /not months😀

Original amount around $230k/ around 165k left
30 year mortgage
I'm still not clear on exactly when the rates change, and I cannot quite match your numbers for the balances and pyaments you've listed.

But I do know that regardless of a few months one way or the other, in order to make a valid apples to apples to comparison you need to use the up-front cash and the same (higher) payment on both loans for comparison.
  • For example, if you're paying $250 out of pocket to get the new loan, you need to pay $250 on the balance on the current loan.

    Then in September when you would start paying the higher payment on the new loan, your comparison needs to be for making the same payment on the current loan.

    Then in January or whenever the normal rate adjustment would have been, you need to apply the same higher payment to the new loan too.

    The same applies with the next rate adjustment.
A quick look using my best guess for the actual balance and dates suggests that for exactly the same money out of pocket for payments, you'd be more like $7200 ahead (less interest and more principal) five years further down the road. Looks like a pretty good use for $250 up front.

Then depending on the next rate adjustments, and if the rate caps stay the same, the same payments as you would have had on the current mortgage will pay the new mortgage off several months sooner.
Been here about 9-10yrs total and moving soon. Going to rent
More :confused
Do you mean you're going to sell this house soon and rent a place to live, or do you mean you're going to keep the house and rent it out to a tenant?

Here's something maybe more important:

It appears that you're talking about a mortgage rate that is based on the home being your own primary residence. So PenFed may not allow you to keep the mortgage if you rent it out. There is more risk to the lender when the debt is secured by rental property, since a borrower is more likely to default on the loan when it's not secured by their own home where they live and where their stuff is. (Like any other investor, lenders and their shareholders want to earn a higher rate of return when they're taking more risk with their money. So ... they may choose to call the loan due in full immediately, or else may require you to refinance it at a higher rate to reflect their extra risk.)

If you plan to rent it out and buy another home to live in, and even if PenFed lets you keep this mortgage, you'll also need to have a lot of income in order to qualify to buy another home.

That's because your backend DTI (Debt to Income) ratio)typically cannot be more than about 35% of your gross income, including the mortgage payment, taxes, insurance, and HOA or condo fees on the rental property PLUS the total costs of the place where you plan to live (whether it's rent or another mortgage with taxes and insurance) PLUS any other recurring debt payments you may have such as car payments, student loans, etc. They are not in the business to speculate on potential rental income, so most lenders will not typically count rental income in qualifying for the DTI ratio until you have well documented proof of a year or two of actual rental income.

If you have very high income and a lot of assets and plenty of spare discretionary income, some lenders will allow the total back-end DTI ratio to be up to around 45% of your income. Mainly, they want to see proof that you can always afford to make the payments on time all the time instead of having to default or delay a payment to be able to pay for other necessities. But even then, you may not get the lowest possible rate on the new mortgage because there is still more risk for the lender.

jimb

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