Pull the trigger on refinance?
- Thread starter docwag
- Start date
Why are you doing it?
If you throw the extra $100/month towards principal on your current mortgage you'll pay it off in a lot less than 15 years, and you won't have to pay any refinance fees.
If you throw the extra $100/month towards principal on your current mortgage you'll pay it off in a lot less than 15 years, and you won't have to pay any refinance fees.
It's hard to get specific because your numbers don't quite add up.
Existing Loan
Amount: $228,000
Rate: 5.50%
Remaining Term: 16.5 years
Monthly Payment: $1,754
New Loan
Amount: $233,800 (current balance plus closing costs)
Rate: 4.375%
Term: 15 years
Monthly Payment: $1,774
This is only $20 more per month, not $100. I'm not sure where you're off, but you're off.
Based on your numbers though, the easiest way to look at it is like this:
Current Loan Amount: $228,000
Interest rate: 5.50%
Interest due in the next 12 months: $12,540 (228,000 * .055)
New Loan Amount: $233,800
Interest Rate: 4.375%
Interest due in next 12 months: $10,229 (233,800 * .04375)
Interest saved in first year: $2,311.
Break even on $5,800 closing costs = 2.5 years.
Note: Actual interest cost on both loans will be slightly less, because the loans are paid down a little bit with each monthly payment. The difference between 15 years and 16.5 years, is minimal though. Also, the amount of interest saved decreases each year as the loans are paid down, so you'll save a bit less than $2,300 in the second year.
In rough numbers, you'll have recouped your $5,800 investment in slightly more than two years.
The first thing to do is start hammering on the fees. $5,800 seems like a lot. A new title policy will cost you $1,558 in Texas. The rest of the random fees should total around $1,500. You said no "points", but is there a broker trying to slip in a 1% origination fee? Work on that.
Bernard
Existing Loan
Amount: $228,000
Rate: 5.50%
Remaining Term: 16.5 years
Monthly Payment: $1,754
New Loan
Amount: $233,800 (current balance plus closing costs)
Rate: 4.375%
Term: 15 years
Monthly Payment: $1,774
This is only $20 more per month, not $100. I'm not sure where you're off, but you're off.
Based on your numbers though, the easiest way to look at it is like this:
Current Loan Amount: $228,000
Interest rate: 5.50%
Interest due in the next 12 months: $12,540 (228,000 * .055)
New Loan Amount: $233,800
Interest Rate: 4.375%
Interest due in next 12 months: $10,229 (233,800 * .04375)
Interest saved in first year: $2,311.
Break even on $5,800 closing costs = 2.5 years.
Note: Actual interest cost on both loans will be slightly less, because the loans are paid down a little bit with each monthly payment. The difference between 15 years and 16.5 years, is minimal though. Also, the amount of interest saved decreases each year as the loans are paid down, so you'll save a bit less than $2,300 in the second year.
In rough numbers, you'll have recouped your $5,800 investment in slightly more than two years.
The first thing to do is start hammering on the fees. $5,800 seems like a lot. A new title policy will cost you $1,558 in Texas. The rest of the random fees should total around $1,500. You said no "points", but is there a broker trying to slip in a 1% origination fee? Work on that.
Bernard
William Cannon
250+ Posts
Since you owe so much on your house, your fees will be higher since the Loan Origination fee is 1% of the balance. They might be a tad high (~10% - ~15%), but they are inline with what I'm seeing at other banks.
I wouldn't refi unless you break even in 2 years or so.
I wouldn't refi unless you break even in 2 years or so.
William Cannon
250+ Posts
docwag
< 25 Posts
Thanks to all who posted above! Your insight and recommendations are much appreciated. Bernard, you're right. My new payment would be $20 more with a refinance. The mortgage interest / tax implication calculator is a nifty tool. Yes, I have seriously thought of paying extra to principal each month and may well do that. I've been hammering the credit union loan officer and the title company all afternoon between patients and got the closing costs down a mere $100. The credit union has a "standard 1% origination fee--no exceptions". It's a shame such a great rate is tied to hefty closing costs. Going thru the process and exploring all options was fruitful none the less.
UnBiased Horn
250+ Posts
maybe you are getting a better rate bc of the higher fees. sort of a hidden points
Interest rates and up front fees are one in the same to a mortgage lenders. If they charge more fees, you can get a lower rate. If they charge less fees, the rate is higher. For the lender it all nets out in the wash when the loan is sold to Fannie or Freddie, or back in the olden days, sold to an investment bank for securitization.
When shopping for a loan, you need to find the best COMBINATION of rate and fees, which can vary from person to person.
If you know for sure that you won't be selling your house for a very long time, paying more fees up front in exchange for a lower rate can make a lot of economic sense.
Bernard
When shopping for a loan, you need to find the best COMBINATION of rate and fees, which can vary from person to person.
If you know for sure that you won't be selling your house for a very long time, paying more fees up front in exchange for a lower rate can make a lot of economic sense.
Bernard
docwag
< 25 Posts
Bernard--
I met with a finance guy yesterday and he told me the same thing. I have a very secure job, love the neighborhood we're in and have built our "dream home" 3.5 years ago. His resounding words were "no-brainer" as to this refinance. However, as a physician, I'm geared to be analytical--sometimes overboard.
I met with a finance guy yesterday and he told me the same thing. I have a very secure job, love the neighborhood we're in and have built our "dream home" 3.5 years ago. His resounding words were "no-brainer" as to this refinance. However, as a physician, I'm geared to be analytical--sometimes overboard.
Vince4Heisman
250+ Posts
How about this one...I owe 173,539 on a 30 year loan signed in 06...purchase price was 233K...put down enough to only finance 180K...rate is 5.75
getting quoted a refinance 15YR at 4.375 with 1/2 a point now..no origination fees...3 weeks ago was getting quoted 0 points...i waited, it went up....
lender fees of 1012....title/settlement charges 715...prepaids 3242.43........total costs at lending is 4969.43...have escrow balance right now of about 1700...so lender is going to use that to pay down my balance of original loan to 171.805...
total new balance is 176,780
My old payment was 1700 but I was paying an extra 150 a month so paying 1850 already...was on schedule to pay off this loan in like 22.5 years
New payment is 1975.56 so gonna cost me 125 more a month but gonna shave off 7 years at least....
I know i need to refinance, i guess my quesiton is, is it silly to try to get my quote back down to zero points instead of 1/2 a point? Forgot all of those numbers are baesd on zero points so with 1/2 point guess my costs would go up roughly 850 bucks or so...
I really thought I would see 4.25% but with the market as crazy as it is I want to lock in at 4.375 soon
getting quoted a refinance 15YR at 4.375 with 1/2 a point now..no origination fees...3 weeks ago was getting quoted 0 points...i waited, it went up....
lender fees of 1012....title/settlement charges 715...prepaids 3242.43........total costs at lending is 4969.43...have escrow balance right now of about 1700...so lender is going to use that to pay down my balance of original loan to 171.805...
total new balance is 176,780
My old payment was 1700 but I was paying an extra 150 a month so paying 1850 already...was on schedule to pay off this loan in like 22.5 years
New payment is 1975.56 so gonna cost me 125 more a month but gonna shave off 7 years at least....
I know i need to refinance, i guess my quesiton is, is it silly to try to get my quote back down to zero points instead of 1/2 a point? Forgot all of those numbers are baesd on zero points so with 1/2 point guess my costs would go up roughly 850 bucks or so...
I really thought I would see 4.25% but with the market as crazy as it is I want to lock in at 4.375 soon
Another thing to consider, is the likelihood that you'll pay your new mortgage off early. You may be married to the neighborhood, but I doubt you're married to your mortgage, even at 4.375%. What if you have a really good year next year and decide to pay down some or all of your principal? All the benefit derived from paying the higher fees goes right out the window.
There are a lot of what if's in these matters. I wouldn't say anything is a "no brainer". You could pull the trigger tomorrow and then rates could drop to 4.00% a month later. You never know. Just make the best decision with the data available, do what you gotta do, and live with the consequences.
If you aren't going to sell the house and you have better uses for your future cash than paying down your mortgage, I'd say pull the trigger on the deal you have in hand.
Also, just so everyone knows, mortgage interest is not always deductible. If you make enough money, the deductibility goes away.
Bernard
There are a lot of what if's in these matters. I wouldn't say anything is a "no brainer". You could pull the trigger tomorrow and then rates could drop to 4.00% a month later. You never know. Just make the best decision with the data available, do what you gotta do, and live with the consequences.
If you aren't going to sell the house and you have better uses for your future cash than paying down your mortgage, I'd say pull the trigger on the deal you have in hand.
Also, just so everyone knows, mortgage interest is not always deductible. If you make enough money, the deductibility goes away.
Bernard
I think that if you are looking to stay in the house for 15-20 years you might want to look at the total cash outlay as part of your decisoin.
Even though you might be paying $125 more a month over the course of 15 years you will have paid the house off with the refi and not without.
You could also look into what kind of principle reduction you would have with the additional $125 payment against principle on your existing loan. There would be an additional $22,500 in principle payments over 15 years not counting the compounded reduction in interest.
Even though you might be paying $125 more a month over the course of 15 years you will have paid the house off with the refi and not without.
You could also look into what kind of principle reduction you would have with the additional $125 payment against principle on your existing loan. There would be an additional $22,500 in principle payments over 15 years not counting the compounded reduction in interest.
Vince4Heisman
250+ Posts
I plan on being in this house for probably 10 years for sure...
I ran the numbers on adding the extra 125 to my existing payment...if i did it right says I would have off 11 years of the existing loan instead of 7 starting that point...so still think the refinance is better deal...saves me another 20K in lifetime interest
I ran the numbers on adding the extra 125 to my existing payment...if i did it right says I would have off 11 years of the existing loan instead of 7 starting that point...so still think the refinance is better deal...saves me another 20K in lifetime interest
Here is slightly different twist. Why not get a Home Equity Loan with no closing costs at a lower rate, and gradually convert your mortgage loan to your Home Equity Loan?
I'll use mine as an example, and this is IF I had the ability to pay an extra $150 or more a month on a home loan.
1. We owe 116k on a 30 year at 6 3/8%.
2. House is probably worth 160k, so get the max loan which is 12k. (160k X .8 = 128k) Pentagon FCU periodically runs an internet special Home Equity Loan at 4.99%. It's on right now.
NO closing costs, except pay for appraisal.
Anyway, get the Equity loan, immediately use the loan to pay down the home loan, payoff the equity loan in 5-7 years,(max term is 10 years), then repeat the process.
If your mortgage is fairly young, like ours,2005, you have time to repeat the process three or more times. IMO, by the time you do this three times, you will probably have your loan pretty close to paid off, and most likely slice about 5 years off the original loan, depending upon the value of your home.
And the really great thing is that when you pay down the mortgage with a large lump sum, you are greatly impacting the amount of principal you pay each month.
And the downside? just the $350 for an appraisal.
I'll use mine as an example, and this is IF I had the ability to pay an extra $150 or more a month on a home loan.
1. We owe 116k on a 30 year at 6 3/8%.
2. House is probably worth 160k, so get the max loan which is 12k. (160k X .8 = 128k) Pentagon FCU periodically runs an internet special Home Equity Loan at 4.99%. It's on right now.
NO closing costs, except pay for appraisal.
Anyway, get the Equity loan, immediately use the loan to pay down the home loan, payoff the equity loan in 5-7 years,(max term is 10 years), then repeat the process.
If your mortgage is fairly young, like ours,2005, you have time to repeat the process three or more times. IMO, by the time you do this three times, you will probably have your loan pretty close to paid off, and most likely slice about 5 years off the original loan, depending upon the value of your home.
And the really great thing is that when you pay down the mortgage with a large lump sum, you are greatly impacting the amount of principal you pay each month.
And the downside? just the $350 for an appraisal.
Hornin Hong Kong
1,000+ Posts
what sort of rates can i get in manhattan for a Jumbo 70 LTV loan?
30 year
or 5/225 Interest only ARM
30 year
or 5/225 Interest only ARM
Vince4Heisman
250+ Posts
Mine was thru bank of american here in clear lake...my original loan was thru them so i know i am saving some off of the traditional fees....I will have to look into the home equity loan deal
The home equity loan twist makes no economic sense compared to a full refinance. You're only paying down $12k at 4.99%. You still have $104k at 6.375%. It's better than having it all at 6.375%, but you get nowhere near the interest savings of refinancing the entire debt at 5.00% or less.
Bernard
Bernard
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