I am thrilled to see my refinancing deal closed with no surprising closing charges. With a final closing charge of $1,833.56 and the financing amount of $249,000, I recalculated my savings (see previous post "My (Upcoming) Refinancing Deal In Microscope" for modelling details).
Annualized Rate of Return (ARR):
Stay one year: -38%
Stay two years: 53%
Stay three years: 86%
Stay four years: 99%
Stay five years: 103%
And Net Present Value (NPV) at 10% Discount Rate:
Stay one year: -$511
Stay two years: $674
Stay three years: $1,736
Stay four years: $2,686
Stay five years: $3,534
In retrospect, I am very lucky to be able to lock this bottom rate. The most competitive 5/1 ARM rate, as reported by BankRate.com, is 4.25% now. EverBank now only offers 5/1 ARM at 4.63%, a 113 basis point jump from what I got just 30 days ago.
What is behind this mortgage rate increase is the encouraging economic reports, especially March job numbers, which fueled a spike in fixed income rate. Actually, 5-year Treasury, the notes deemed risk-free, now yielding 3.653%, a 15 basis point higher than my loan rate. What can be more fulfilling when you know someone is willing to lend money to you at a rate lower than bulletproof US Treasury papers?
I mentioned two risks when I discussed the refinancing transaction in detail earlier this month. The first risk, losing flexibility to get an even lower rate, now seems to disappear. The second risk, trapped in a rate hike after five years, still exists. (Rate hike after 5-years may wipe out the beneifts in the first five years -- reminder: I refinanced from a 7/23 balloon mortgage.) But I feel this is the risk that is worth to take.
Overall, what a sweet deal!
P.S. This is the Part II of my post-mortem refinancing series. Check out the other parts, too:
Refinancing Closed, Part I: Closing Details