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I plan to take retirement at the end of this year based on several factors, not the least of which is health. My question relates on my current mortgage and possibly refinancing it, and free up some cash, to help pay for future expenses. Right now I have a fixed rate mortgage at 4.5% at a monthly payment of $1,166 and a balance of around $81K. The mortgage runs through 2025. I have a daughter who graduated from college this spring and is getting an advanced degree in Occupational Therapy. My wife have been fortunate enough to save money for her undergraduate degree and she came out with a B.S. degree and no debt. We told her that her graduate degree will need to be funded through loans, but we also told her we'll help out with the daily living expenses such as rent, food, etc.

 I have also been lucky to have worked in a job that provides me with a pension. My estimate for an end of year retirement is around $4,300 gross/month. My wife also gets a pension from a job she retired from back in 2014.

Going to back to the reason for this post and the 7-year ARM question. We do not plan to stay in our current house beyond the next five years. I do need to have more available monthly cash to help pay for some of my daughter's expenses while she attends grad school. Since we plan to sell and move in the next five years is a 7-year ARM the right mortgage vehicle for us to free up more cash?
asked Sep 4 in Refinancing by Rick

1 Answer

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Okay, if I read this correctly, you are saying that over the next few years, your expenses will be higher and you'd like to reduce your mortgage payment to increase your cash flow. You indicated that you don't expect to own the home for more than five years and that your current mortgage is 4.5 percent with an $81,000 balance and a $1,166 principal and interest payment. It also looks as though your mortgage is very close to being paid off and so I assume that you have a lot of home equity.

Right now, the average rate for a 7 year ARM is pretty close to what you are already paying. The reduction in payment is mostly due to stretching out your repayment over a new 30-year term. But at 4.25 percent, your payment would drop about $700 a month.  In the long run, borrowing this way increases your costs, but if you are looking for breathing room for a few years, the 7/1 ARM does provide it. You may even want to pull some extra cash out for some of these extra costs as long as you're refinancing if the $700 a month savings does not provide enough security for you.

Thank you for writing, and good luck.
answered Sep 10 by GinaPogol (43,100 points)
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