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Penfed rate reset

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I got a Penfed 5/5 mortgage in 6/2014 at a 2.75% intro rate. The rate resets every 5 years to the 5 year treasury rate + 2%. I got pretty "screwed" when my rate reset June of last year since it locked pretty much right before the sharp drop but in any case the rate is now locked at 4.25% for the next 4 years.  

 

I got an offer today to reset the rate to 3.25% until 2029 (9 years instead of 4) with only a $250 fee. Seems like a no brainer to me at first glance, but just wanted any thoughts on any downside of this? I do need to add that getting a normal refinance is not really an option until at least 6 months down the line due to some special circumstances. 

 

thanks in advance!

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Posted (edited)
1 hour ago, jkk4life said:

I got a Penfed 5/5 mortgage in 6/2014 at a 2.75% intro rate. The rate resets every 5 years to the 5 year treasury rate + 2%. I got pretty "screwed" when my rate reset June of last year since it locked pretty much right before the sharp drop but in any case the rate is now locked at 4.25% for the next 4 years.  

 

I got an offer today to reset the rate to 3.25% until 2029 (9 years instead of 4) with only a $250 fee. Seems like a no brainer to me at first glance, but just wanted any thoughts on any downside of this? I do need to add that getting a normal refinance is not really an option until at least 6 months down the line due to some special circumstances. 

 

thanks in advance!

I would take this in a heartbeat.  No refi closing costs and you knock 1% off your loan, plus protect your downside risk for any additional 5 years, it's a no-brainer.  Look at it this way, you aren't going to re-fi in the next 6 months (at least).  If the 1% savings translates into a $50 reduction in your payment, you have essentially locked in the lower rate for the next 8+ years for nothing, and can still re-fi at that point should the situation warrant.  As long as there aren't any pre-payment loopholes, etc, I don't see the downside.  Just read all the T&Cs carefully.

Edited by CTSoxFan

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Yes I put screwed in quotes since it was what I had agreed to when I signed the mortgage but it was just bad timing. If the rate had reset this year instead of last my rate would be 2.36% right now instead which is quite a difference. 

 

In any case, I'm going to take this. I think even if my rate would go down to 2% in 4 years (the absolute floor with the 5 year T-bill at 0% or negative), I would still be better off having paid less interest and more towards principal for the next 4 years. 

 

 

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