I would convert it to the fixed. I doubt rates will ever be this low again, and frankly if by some odd chance they go lower, you can always refinance when they do.

You might want to ask the question in the finance forum.

I would not risk it either; then again, I'm older, so more risk-adverse. I agree with cpartist.

Get rid of it now. You can always reconvert to a 15 fixed if the rates are favorable later on. I bought without selling and started with a 30 year fixed, when I sold, I recast the loan (Put a large amount toward principal and lowered my payment) as another 30 year fixed, and then when the rates went down again I refinanced to a 15 year fixed. All this activity took place in a period of 3-4 years, but I still came out ahead, obviously.

DO IT! there's really no risk and we're not going to see this forever - especially in an election year.

And you can make higher payments, and pay it off in 20 or 15 years. Or not, if you need the cash flow for something else.

Lock it in. However, there is talk of negative interest rates hitting the market. But you can't go wrong.

I would jump all over that.

As a finance guy I would advise locking in the 30 year rate. There is really no advantage to a 20 year loan and odds are your arm is going to adjust up as soon as it can. Since the prime rate is higher than 3%, your arm is going to probably adjust over 3.375%.

Personally, I would take the whole 30 years to pay the loan back. 3.375% is right at the risk free rate, so pay less and save more (in some investment).

I want a simple interest loan with no pre-payment penalty. - Home loans are rarely, if ever, simple interest and for many people simple interest is going to be worse than effective (compounding) interest. Assuming you pay on time (or in the grace period), then effective interest will pay less than simple, simple will give you an advantage for making your payment a few days early. It is a negligible difference at best. Compounding interest is fine for installment loans since your payment is more more than the interest it will not compound.

Negative interest rates - Any time the interest rate is below the inflation rate we have a negative effective interest rate. Right now in the U.S. we probably have a negative effective interest rate.

Negative nominal rates are happening in Europe and Asia, these are usually government funded programs on commercial paper. The government wants to spur economic growth by giving a negative interest rate and covering that with tax dollars (typically this is done with a tax credit for taking out a loan, but central banks have other methods also). The only way negative interest rates occur without direct government intervention is incredibly rare Foreign currency exchange demands. As a consumer you can't usually take advantage of negative nominal rates unless you start trading on the Forex.

Our bank told us it had to be an extra check and on the bottom, it needed to say, something like "payment toward principal", or they would just put it toward the regular payment. Sounds weird, but if you do it correctly, you can pay the loan off much quicker.

Huh, that's odd. I've overpayed on every mortgage payment I've ever made, and they just automatically sent the surplus to the principle.

Lily'smom. I would be furious if they pulled that sort of "oh gee we didn't know what you wanted to do with this extra money you sent us, silly us" routine. Perhaps I'm spoiled with the banking relationships I've had. Had no idea this happened.

I think that there was some legislation enacted that forced the banks to apply any excess to principal as long as there was not a deficit in escrow, etc. I seem to remember that some banks were doing this and just jamming money into escrow accounts so that they would maximize the loan interest etc and that you had to specify to go towards principal. I think they changed that - and if you want it to go into escrow you have to say that....

I can't find the legal change - but now everything I google is pretty adamant about any additional funds going toward principal.

Hello Everyone, thanks for the feedback. Looks like its unanimous!

I have to wait for 2 weeks before last draw so hopefully that rate holds for a week or so!

I'm in the pay off the loan early camp. We were able to double our payments each month. Thankfully, we didn't have any problem having the extra amount applied to principle. I always paid online and the bank had it set up so you could choose to pay just that month's mortgage payment or add on additional payment (specifying that it would go to principal). At times, I used two different accounts so the regular mortgage would be paid from one account and the second payment applied entirely to principle would come from the other account. I would just do one transaction after another. At other times, it would come from one account but the funds parceled out according to our wishes.

I'm glad I never ran into any issues with the lending institution not applying the extra to principal. That would be really upsetting.

I'd refinanance to a 15 or 30- you can always pay off early.

I'm in the pay off the loan early camp.

Money is so cheap now, it's better to keep the 30 year loan and invest any additional money you have. Over time, the market still beats real estate. Look into mutual funds where the work is done for you.

I'm not going to be political, but I'd take the presidential race into consideration as to what markets and interest rates will do, depending on who is elected, before making that decision.

Actually a good point too IC.

Convert to fixed. Do it now. Do it right away. I have personally seen too many people think they got an awesome rate and kept going "eh.. I will convert later" and when it got time.. they lost their house because the rate went through the roof and they could not get it refinanced.

There is never a good reason not to convert.

R

Just my 2¢ (maybe worth half of that) - Interest rates aren't going to go substantially lower. They are probably under the inflation rate right now, and can't go too much lower.

I also don't think the presidential election will have much effect on the interest rates but it could have a giant effect on the market. Foreign interest rates are going to hold ours down for some time. I guess if we really start getting out of trade deals that our rates could move independently but right now any significant increase in interest rates will lead to larger trade deficits, which we don't want.

I'm not so sure about the ability of interest rates to see significant hikes in the near to medium term. One problem (in addition to what bry911 mentioned) is our home values are correlated to the interest rates. If people's buying power decreases, home values decrease. When people's buying power increases, home values increase. During the late 90s and up until 2008, poor regulations (go read The Big Short for more detail) allowed banks to give money to anybody who asked....greatly increasing buying power, and thus prices. However, when that house of cards collapsed, we had to do something to keep from going into a depression, so we "quantitatively eased" the pain of our economy with artificially low interest rates.

This allowed people to start buying again, and saw some rebound in the value of our homes, as people saw their buying power return.

Given the current condition of our economy, if they start increasing the rates at a rate of more than a quarter point a year, I would expect to see the real estate market (as a whole, obviously some places are immune from these issues) flat line. Which causes other problems.

We've painted ourselves into a bit of corner by lowering the interest rate this far. To be honest, I'm not sure our economy could come to grips with 6% interest on a mortgage any time soon. I could see it getting to 5% if we have a few more really strong years.