Wednesday, April 29, 2009

Twist my ARM - I like it

I'm one of those losers who has an ARM - Adjustable Rate Mortgage. Before you all pelt me with tomatoes and burn me at the stake, let me explain.

After buying two houses, I still have no clue how it's done. When Roy and I bought our first house, I didn't pay much attention to the financing because it was done through Roy's VA loan program. All I had to do was show proof of income, sign the closing documents, and voila we owned a house. After he died, I sold the house and moved into a rental townhouse with the intent of buying another house after a year. Since I was single, I could only apply for a loan with one income (that was probably the only part I understood). That made it harder for me to qualify for a conventional 30 year mortgage, and the bank would only lend me $170,000. Sounds like a lot, but that would only get me a townhouse-type dwelling. No thanks, I wanted a house, not a shared-wall situation. In December 2001, my realtor and I found an empty lot in a really nice neighborhood, and she found a builder with a houseplan I liked. Next thing you know, 6 months later I'm writing out a check for the down payment, signing more closing documents, and voila I have another house. My realtor did tell me I had an ARM, and that in 5 years it would adjust according to the blahblahsomethingorotherfederaldeweycheatemandhowe index. (ok ok, I looked it up, and it's the Index Rate plus 2.25%.) She recommended in 4.5 years I look into refinancing to lock into a 30 year fixed rate. No problem, that was 4.5 years away, and I would worry about it then. I assumed that the ARM loan made it easier for me to qualify, and I did end up having to borrow $175,000. With my 20% down payment, I was in a sweet house in a sweet neighborhood, but without the mondo mortgage and payments.

4.5 years later, in 2007, life had taken a bit of a turn and I couldn't really afford to refinance. I could afford the higher payments if my interest rate adjusted upward, but I didn't have the chunk of money for the refi closing costs. Of course, the interest rate did go up, and my mortgage went from 6% to 8 point something percent. Not the end of the world, but not an ideal situation. I decided to save up for a refi the following year. We planned to be in the house at least another 6-8 years, so the cost would have been worth it.

Then something funny happened. The economy started taking a nosedive.

The index that my interest rate is tied to went down. In April 2008 I got a very nice letter saying my interest rate would be 5.625%, and even after higher taxes, insurance, and escrow shortages, the total payment would only be about $20 more than when I bought the house in 2002. Whoa, what a nice turn of events. I could pull another Scarlett O'Hara act, and think about refinancing another day.

Fast forward another year to last month. I start thinking about heading to the credit union to see what they could do. Life had happened again in a big way, and some of our savings went to Alaska Airlines, Hilton Garden Inn, Hertz Rent A Car, etc. I kinda sorta have enough for closing costs, assuming it's less then $5,000. My rate is set to adjust July 1, so 3-4 months should be adequate. Oh but wait! I forgot that our economy is still in the toilet, and the Feds reduced the index rate a few months ago. Sure enough, when I opened my bank letter yesterday, my new interest rate will be 4.125%, bringing my payment down roughly $133 per month. Folks, there is probably no way on earth I'd qualify for a rate this low. I don't think conventional 30-year loans go this low. I could be wrong, but I don't have to worry about it for another year.

OK, so now I really should get cracking on finding out my FICO score, saving more money, and getting ready for next year when I have to think about this again. I don't think the rate can go any lower, so yea, I will have to deal with this next year. I cringe at all that will be involved in buying my house a second time. It's aggravating, and there are 20 million other things I'd rather be doing. But just to show you all that I CAN get stuff done, I did manage to re-register Cassandra for school :D


  1. Dion, I married an accountant and so, after nearly 30 years and 10 houses, I still have no clue how it's done. In my case it's "why have a dog and bark yourself?" LOL

    Congratulations or re-registering Cassandra! :oD

  2. That should be "on" not "or". Ooops! :oD