We were one of those unfortunate people who got caught in the mortgage "scams" a few years ago. It wasn't a scam per se...it was all real. But not as it appeared. I should have trusted my gut feeling at closing and stopped, but alas....we put so much time into it, we just did it.
Three yrs ago, we did a re-fi and took out the max equity from the house to pay off debt (big surprise there....). The rate was 5.5%, or so we thought. At closing, the papers said 7.5%, so we called the broker (why we used a broker is beyond me). He said, oh no...it is 5.5. Also, there was a paper in there that said if we chose to do another re-fi within 24 months, it would wave the broker fees. Sounds good, right?
Yeah....not so much.
In short....the 7.5% fixed was correct. The 5.5% we THOUGHT we were getting was based on paying bi-weekly (thus making an extra month worth of payment per year) and over the entire life of the loan, it would average out to 5.5%. Pretty sneaky, huh?
Wait...it gets better.....so when the rates dropped, we tried to do a re-fi......and found out that there was a HUGE pre-payment penalty of 5% for the first 36 months. Basically, it would cost us an additional 10k to get out of the current loan, or we had to wait it out. UGH.
So we called the original broker (remember him.....if we do a re-fi, no fees?) Out of business!!!!!!
Here we are....we paid our dues. October 24th the pre-payment penalty is lifted!!!! YIPPEE!!!
We are looking into our options....we are much more savvy about this now, so we have much more to look at. The debate is between a conventional fixed rate 30-yr OR and ARM that is fixed for 5 yrs at 4%, then goes adjustable up to a max of 2% per year, with a cap of 6% total increase.
Normally I wouldn't even look at the ARM. But we are hoping to relocate. Plus, we will save over 9k in the next 5 yrs doing the arm. If we want to re-fi again in 5 yrs, we can. No idea where the rates will be at that point....but the MAX our interest will go up is 2%. So that would put us at 6%. And if the current plans work out.....we should be debt free in 5 yrs, so a re-fi might be to a 20 yr vs a 30 yr.