Like millions of Americans, my 3/1 ARM will reset in 2008. Fortunately, I'm not like the 39% of Americans who bought their home in 2006 -- those people are underwater on their loan. I put 10% down when I bought my house in 2005, but I bought the home that I was renting at the time so my purchase price was very reasonable, and I've been paying down principal on my ARM along the way.
Anyway, I just went through the exercise of considering whether to refi or not. Here's what I did:
1) I emailed the mortgage broker that I used for my original purchase. To his credit, he had already been pinging me because he was on top of the fact that my ARM was going to reset soon. We spoke on the phone once, briefly, but went back and forth by email on different loan types and rates. I ended up with 2 GFEs from him.
2) I went to eloan.com and filled out a lead gen form there. I was turned off by eloan because I couldn't get rates by email; their loan officer kept calling me to talk in person, and I wanted to communicate by email at off hours because I don't have time during the day to talk about non-work stuff.
3) I called First Horizon, the lender with my current loan, to find out what my reset would look like. Their customer service was terrible -- it took me almost a week to get a straight answer, and I had to do it by phone. It was a terrible experience.
However...
Turns out that, strangely, my payments will go down if I let my rates reset in a few months. Letting my ARM reset will result in lower payments than refinancing into a new loan (ARM or otherwise). Now of course, I run a huge risk by letting the rate reset because in another year it will reset again. But if I think I won't be in my current home for more than another year or two, I'm much better off just sitting tight and letting my ARM reset. Even if rates were a lot higher in another year, I'd still be better off.
Anyway, it was an interesting experience and reminded me how lonely it is for borrowers out there. Even with a good mortgage broker at your side, it can still be an intimidating process and you're always wondering whether you getting the best deal or not. Zillow has a mortgages product in the works which we'll launch in the coming months which will hopefully help borrowers, lenders and brokers with this complicated transaction.
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Eloan? I've heard more horror stories about internet based companies than I care to post. Also i just learned that First Horizon doesn't do rate extensions. So if you locked in a rate say last week at 5.5% and were unable to close within the lock you would get todays pricing of 6.25% instead. Your loan sounds like a conforming arm usually referred to as a 3/1 and not a subprime arm usually referred to as a 3/27. Most subprime companies make it so that the rate MUST go up when it adjusts. The current rate of an arm product is figured by taking the index and adding the margin (which by your comments you know exactly how to calculate). Subprime arms take the index add an extremely high margin but give you a lower rate during the fixed period. For example say the index is 4% and the margin is 8%. Your rate may be 7% at close for 3 years but at the end of the period no matter how low the index goes your rate must go up. You may save money by waiting it out but remember that we are still at record lows. Look at the rate trend this week and where experts say rates are going to settle before you make your decision. Best of luck!