I finally got my act together and converted my COSI Home Loan to a fixed rate, 30 year mortgage. For those not familiar with a COSI loan, the interest rate is based on the prime rate, less a fixed percentage. Therefore, if the prime rate goes up (as it has), so goes my loans interest rate.

It’s a bit like an adjustable rate mortgage (ARM) with a few caveats. An ARM is traditionally “fixed” for a short period of time. After that period of time, the rate resets to whatever the current rate is. In my COSI loan, the rate is constant for a year, but then resets each February. There is also a cap as to how much it can adjust in a single year, to the tune of about an extra $20 per month as a limit.

Up until recently, the loan rate hasn’t adjusted much, as the rate lags the prime rate by about 6 months, and the prime rate lags the rest of the market by an additional 6 months. In short, I used the COSI loan to my advantage for as long as I could, but the market is/was about to catch up to me.

The good news is, though, that rather than refinance the entire mortgage, World Savings allowed me to simply convert the existing loan into a fixed rate mortgage. Of course, they’d charge me a $550 fee to do this, but it will save me the $4,000 in closing costs…

Knowing what I know now, I probably would have just stuck with a 30 year loan in the first place. However, initially I was only planning on being in the house for under 5 years. But plans have changed, and so goes the mortgage strategy.

I gambled on a COSI Loan, and basically have broken even, but others haven’t been as fortunate.

Lesson Learned: When rates are at rock bottom, lock them in for a long time, as they can only go higher. If they should go lower, you can always refinance and save money. It’s never good to have to refinance to stop the bleeding!

Leave comments below. Subscribe to Comments