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I am in the process of doing an FHA Streamline Refi from a 5% 30-year-fixed to a 2.7% 5/1 ARM. I will only have to come up with slightly less than the amount of my monthly mortgage payment at closing (which doesn't affect me since I skip a payment in between refinancing) but one thing I did notice was a rather drastic increase from my current principal balance ($355ish) compared to my proposed new balance ($364ish).

Why would this be?

(if more information is needed, please request it in a comment and I will update, thanks)

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3 Answers 3

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Short answer - Look at the paperwork. Closely.

Likely answer - closing costs. Depending on how the loan is structured, you might have to pay an origination fee for the loan, plus local taxes and a whole bunch of fees (title insurance for the mortgage broker, local taxes, etc, on my)

I'm in the midst of a refinance right now, but I'm looking at lowering my APR on a 30 year loan 1%, with flat fees + taxes being about 1.4% of my loan amount.

1.5% of your loan amount is only $5325. Its likely that you may be being charged 3% fees, which is not great.

Also, with rates this low, why are you choosing a 2.7% ARM? I hope you've gone the math in thinking about how much your rate might adjust in 5 years (I'm wary of ARMs in general, esp since I'm getting a 3.875% 30 year loan.

A kindly suggestion - if you dont/didnt understand the fees up front, read the paperwork very closely before signing. You might be getting ripped off.

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You're going from a fixed-rate mortgage to an ARM?! Oh gosh, please don't do that!

If you can refi to another 30-year at around 4%, do that, but mortgage rates haven't been this low in several generations. They have almost no more room to go down, and every reason to go up.

That, and your current rate is not bad. And it's fixed!

If you still have the mortgage after the teaser period, you'll really be sorry you have an ARM instead of a fixed-rate.

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    You might be able to get an even better rate with a 15 year fixed rate mortgage, but like mbhunter said, don't get the ARM unless you are SURE you will be selling the house or paying off the mortgage entirely in the next five years.
    – Jeffrey
    Commented Nov 5, 2010 at 15:16
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You should receive a summary of costs before closing that spells out to the penny what you'll owe. We can all guess, but you should have the exact answer at your disposal. A typical ARM is capped at 5 or 6% over the starting rate. This is near 8% you risk. Yes, you will save 2.3%/yr for 5 years, but can soon go negative for much of the 25 after that. Rates are unnaturally low right now. All ARMs are based on an index and adder, 1yr t-bill plus 3%, for example. What are your terms? You can see the history of the index and get a feel of how fast that rate can rise by seeing what happened in the earlier '00s.

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