Homeowners refinance, save with adjustable rate mortgage

Mortgage banker: Dave Stambone

Home value: $1,200,000

Property type: Single-family home in Westport

Loan amount: $650,000

Loan terms: Conventional, 7/1 ARM 4 percent no points.

Backstory: A couple was referred to Stambone by their financial adviser to discuss refinancing their home. They had put it off for months and the recent jump in rates finally influenced them to take action.

The couple purchased their home several years ago and had been paying interest on a higher loan amount. Since then, they had paid down the loan balance significantly making additional payments toward principal with bonus income.

When they closed on the home, both homeowners were employed and had a joint income. As their life and family progressed, they made the decision for one of them not to return to work.

Based on their new lifestyle, budget and income, increasing their monthly cash flow was imperative. They were hoping to obtain a 30-year fixed Jumbo mortgage rate around 4 percent (a Jumbo mortgage is a loan balance that exceeds the industry loan limit, which is currently set at $453,100).

Consequently, rates have remained volatile and have been trending north. Strong economic indicators, such as the lowest unemployment rate since 1969, a surging stock market, a high level of consumer confidence and a recovering housing market, have all impacted rates.

Stambone carefully reviewed the couple’s situation and advised that based on their plans and projected timeline, to consider a 7/1 ARM (Adjustable Rate Mortgage). The 7/1 ARM product offered a 4 percent interest rate, fixed for seven years, on a 360month payment schedule. There would be no pre-payment penalties so they may continue to make extra payments toward principal in order to pay the loan off faster.

Finally, the couple freed up more than $1,000 per month by refinancing to the smaller mortgage they had paid down. They also saved close to 1 percent in interest compared to a 30-year fixed Jumbo rate. This would save approximately $300 more per month and $25,000 over the next seven years. They closed on the refinance in less than 30 days and were very pleased with the outcome.