Mortgage Blog

I have one long time client called me Tuesday about the possibility of the refinance. She has 5/1 ARM rate of 2.625% with 4.x years to go, and she asked me about the possibility of 15 yr fixed, and whether she needs to refi.

Basically the rate might be similar, she can get 2.625% to 2.75% for 15 yr fixed rate if she decided to refinance. The advantage of doing the refinance is to get the rate fixed. The disadvantage is the more monthly payment for 15 yr fixed, which will eventually hurt the cash-flow for the future purchase.

We talked about the ARM rate for the rental. Basically if you have a rental property with an ARM rate, you might not need to refinance, the main reason is that the ARM reset is not bad for rental. You will get the same rate as the primary ARM reset. So in the future, if the rate does not go up more than 1% for the next a few years, then ARM on rental is perfectly ok.

I explained to her why Fed wanted to increase the rate now, and how much they wanted to increase. If you read the previous blogs, you might know the answer. Basically Fed wanted to increase the rate just in case there is a recession in the future, they can have room to lower the rates. In order to do that, they have to increase the interest rate by around 1%, assume the economy is "good". So at least it is safe to increase the rate.

Since we are in California, our view about the job market, the real estate market is different. I visited Toronto this Summer, the RE market was so hot, there were full of the cars in the parking lot for the registration(or drawings), I never saw this kind of market in USA. I am very impressed by the buying power of those Canadian people, even though the price already went up so much in the past a few years. But I also visited a few east coastal cities, those down town areas are so different from those in California. My friends told me that the companies moved out of the area, all their friends moved out of the area. And we had to double check whether the car locked when we ate in a restaurant. 

So what I am saying that the us economy is not fully recovered. There is possibility of slipping back to recession some time soon. If in that case, do you think the rate increase sustainable?