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sgriffin26
sgriffin26, Loan Officer
Category: Finance
Satisfied Customers: 93
Experience:  Licensed RE Agent, Loan Officer, and NMLO. I have been in residential lending for over 10 years.
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Mortgage Finance Question about which 5/1 jumbo (6/2) ARM offer

Customer Question

Mortgage Finance Question about which 5/1 jumbo (6/2) ARM offer to accept.
1.$750k (amt of existing mortgage), 2.625%, 28 yr term (rate renewal of existing 5/1). Adjusts in 5 yrs. Total cost $3,800.00. No tax or insurance escrow.
2.$762k (refi existing $750k + pays 2011 real estate tax and establishes 2 mo reserve escrow account + effectively $5k cash out due to skipped monthly payment, but not considered a cash out loan), 2.875%, negative 0.625 point (covers cost of refi including tax stamps and title insurance).
Financial objective is to increase equity and reduce loan balance. Primary residence to be owned indefinitely
Submitted: 2 years ago.
Category: Finance
Expert:  sgriffin26 replied 2 years ago.

sgriffin26 :

Hello and thank you for using Just Answer.

sgriffin26 :

I will agree with you. Option one seems to be the better of the 3 options.

sgriffin26 :

You will have more of a saving with the first option and be able to pay down the loan faster.

sgriffin26 :

I would not want the tax and insurance ( escrow) included in my mortgage, because you are then paying interest on the tax and insurance reserves attached to the loan. That is a waste of money, unless you are trying for a higher interest payment to write off on your taxes at the end of the year.

sgriffin26 :

Please let me know if you have any specific questions about wither of the 2 options and I will be more than happy to help.

Customer: replied 2 years ago.
Not clear about your advice on the escrow. When property tax and insurance are escrowed, the money needed to pay them is placed in a separate account and the pro rata monthly amount is added to the principal + interest payments due on the mortgage. Some escrow accounts earn a small amount of interest for the person paying the mortgage, but I've never heard of having to pay extra interest on such an escrow account. Do you agree?
Expert:  sgriffin26 replied 2 years ago.
Sorry if I was not clear with my explanation. When you have an escrow account you have an upfront reserve which is attached to the loan This is the part where you will have to pay interest.. Normally 4-6 months of tax and insurance reserves.. Than there is a separate account that interest does not touch, that is used to hold the escrow balance from each monthly payment before it is paid to its respectable party every 6 months.It is not a positive interst in your favor, it is interest that you pay for in the whole. The reserve amount is added to your total loan and you pay interst on that amount that is added to your toal loan. I only recommend an escrow account for people who have trouble saving money to pay their taxes and insurance every six months.
sgriffin26, Loan Officer
Category: Finance
Satisfied Customers: 93
Experience: Licensed RE Agent, Loan Officer, and NMLO. I have been in residential lending for over 10 years.
sgriffin26 and 6 other Finance Specialists are ready to help you
Customer: replied 2 years ago.
Thank you. I misunderstood your answer which was basically "don't finance the property tax and insurance escrow from the new loan". That is a good answer if one has the option of paying these directly outside the mortgage. That is my objective--increase equity by eliminating debt. If the goal is to reduce interest paid, then borrowing more on the 1st could also be a good option if one is using the extra loan proceeds to pay down a higher interest rate 2nd mortgage or higher rate credit card loan used to pay the property tax or insurance.
Expert:  sgriffin26 replied 2 years ago.
No problem. Glad I could help.

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