Refi or Roll the Di?

With rates slowly on the rise, and home prices starting to level off, we are left with a conundrum.

My family and I bought a home in Tierra Shores nine months ago. At this time we have a plethora of equity in our home, and are planning to put between $15K and $20K back into it in the form of a back yard, some tile work, etc.

When we purchased the home we were able to negotiate the builder buying down our 5/1 Arm interest rate to 4.5% (no pre-payment penalties). Obviously that means we have another 4 years and three months until our rate adjusts.

Should we refinance our loan to a more conventional loan while the rates are still relatively low and take out the money we need? Or should we roll the dice on future interest rates, enjoy our low payment for the next four years, and take out a home equity line?

What would you do? Why?


  1. Rolling the dice is not what I would call it at all. Simply a calculated risk. Let me explain the calculation. As a very experinced loan officer, I would have to ask you a few questions before advising you what your risks are. First how long do you plan on living in the home,(most people in the US more every 3-5 years) What is the margin of the adjustment as well as what index your loan follow and what are the maximuim adjustments that are allowed per the loan terms. IF your plans are to live in the home for more than five years than you would take the total cost of the refinance 2.5 -3% of the loan amount roughly, and compare that to the amount of savings of the next 5 years plus you would figure out the adjustments of the rate to its maximum and compare. It will probably tell you that it will take an additional 3-4 years for you to get hurt on your current loan. However if you also have a current interest only payment they are generally tied to the same time frame as the fixed rate period. Meaning the the same month that you receive you first adjustment you will also go into repayment of the loan and will find your payment nearly double on the 61st payment. All of the information that I am referncing here should be on a form in your closing documents called truth in lending and will show you worst case scenarios for comparison sake. If you need clarification or further information feel free to call me:
    Andrew DeVore
    Sr. Loan Officer
    Wholesale Mortgage Source
    (951) 551-4108