We have 7 years left on our mortgage with a balance of $104,000.00. Our house is worth approx. $300,000.00. We want to take $40,000.00 cash out for home improvements, making it a $145,000.00 loan. Is a 7/1 fixed ARM a good option for us. The rates are sooooo low right know and a lower monthly payment would be great for us. Also does anybody refi for a 7 year fixed??? Or should we go with a ten year fixed refi? Would like to move in the next 10 years as well. Thank You
If you're sure that you're going to completely pay the $145K off in the next 7 years - you can take the ARM. But, if you don't, the rates are going to go up and you'll get hit.
10-fixed is IMHO a safer option, for the same period of time.
Note that you have 104K left for the next 7 years, but you're going to make it 145K for a similar period. Don't expect your payments to be much lower, if at all.
The ARM is the better deal, as long as it is amortized over a 10 year period, and you have decent rate caps in place. My bank limits caps annual rate increases by 2%, and lifetime rate escalations are capped at 6%.
For example, if you get a 2.5% mortgage on $150k, you're only going to owe about $30,000 in principal by year 7. The actual cost of a rate escalation will be marginal at that point. (Your first year of interest savings will probably cover the risk.)