Refinancing advice?

[dja4260]

Thinking about refinancing to lose PMI ($50 per month) and pay off the loan quicker. We're only 8 months into the original loan. Currently have a 30yr fixed @ 4.25%. I can get a 15yr fixed @ 3.625%, nothing out of pocket. I can get 3.25% with $1900 out of pocket. It would take 7 years to break even and I don't know if will still own the house at that point. Might rent it, might sell it, might keep it...Below is the difference.


15 yr total monthly $1079 $129,000 total paid

30 yr total monthly $910 $180,000 total paid

$51,000 saved.

It cost me $168 per month more and we can afford it. Seems like the logical thing to do?

Why doesn't the wife see it my way?

 

[Donald]

Its more complex as the interest is tax deductible for most people. So if you pay an extra $100 in interest with taxes it might only be $60 extra in spendable money.

Aren't there also closing costs?

 

[dja4260]

Originally Posted By: Donald
Its more complex as the interest is tax deductible for most people. So if you pay an extra $100 in interest with taxes it might only be $60 extra in spendable money.

Aren't there also closing costs?


@ 3.625 there are no closing cost. I understand what you mean by deductions based on tax. However that is something I know nothing about. Anyone care to help?

 

[The_Jeff]

My house cost around that and assuming your income is sorta like mine it almost makes sense to take the standard deduction. So mortgage interest won't matter (much).

I'd go for the refi, but grin and bear the higher interest rate for the no closing costs.

 

[supton]

I'm not sure you are doing the math correctly: if you paid the 30yr loan at the dollar rate you could pay the 15yr loan at, then it is not 180k spent. I would be tempted to do that, if future plans are somewhat unknown.

I guess I'd want to shore up the plans first. If payback takes 7 years, but you might be gone before then, then it is money lost.

As to the wife, you're on your own.

 

[ARCOgraphite]

Why would the refi take away the PMI? Isnt that a Loan to debt ratio consideration?
If you want to pay off the house quicker, set up with the bank to make 2 (split) payments a month or more simply just add $100-300 or so a month. With a 7yr break even I would not consider the remorg.

 

[dja4260]

Originally Posted By: supton
I'm not sure you are doing the math correctly: if you paid the 30yr loan at the dollar rate you could pay the 15yr loan at, then it is not 180k spent. I would be tempted to do that, if future plans are somewhat unknown.

I guess I'd want to shore up the plans first. If payback takes 7 years, but you might be gone before then, then it is money lost.

As to the wife, you're on your own.

We do and can continue to pay extra monthly on our current 30yr. We're getting a lower rate and losing PMI cost @ $50 per month. Only $110 of our current $500 mortgage payment is going towards the principal. The interest is so front loaded.

 

[dja4260]

Originally Posted By: ARCOgraphite
Why would the refi take away the PMI? Isnt that a Loan to debt ratio consideration?
If you want to pay off the house quicker, set up with the bank to make 2 (split) payments a month or more simply just add $100-300 or so a month. With a 7yr break even I would not consider the remorg.


Our current lender won't remove PMI because the loan is not old enough. Refinance would be our only option to remove it. the 7 year break even is just for the 3.25%, I'm going with the 3.6% Zero out of pocket cost.

 

[supton]

Just for fun I used the template generator in Excel; and left it at the min payment for your two 15 year loan options. I don't have your numbers but I saw about $1,400 saved on the $1,900 down option. So it is cheaper, even when you take into account the money up front; but it's not thousands cheaper. It doesn't seem to get better if you aggressively pay on either option either.

I'd lean towards the higher rate. $2k out of pocket now won't be made up for a few years. I'm thinking the return isn't there.

For fun: I took the payment on the 15yr/3.625% and added the difference to the current loan. 141k paid total, and payoff late 2029. The refi makes sense, that saves money if it doesn't cost you anything, even if you move in a few years. Move though and I think you'd be sad to have paid to get the lower rate.

 

[JHZR2]

Originally Posted By: Donald
Its more complex as the interest is tax deductible for most people. So if you pay an extra $100 in interest with taxes it might only be $60 extra in spendable money.

Aren't there also closing costs?


Why anyone would want to pay the bank $1 in interest to save 30c in tax is beyond me...

 

[Rand]

is your loan less than 80% of the value of the house? otherwise you will be paying PMI.

IIRC
PMI is usually required for anything more than 80% Loan to value.
unless you put down 20%

for now I'd just pay extra on the loan till you figure it out.

maybe try 1200 and see if you can afford that

Interest would be similarly front loaded on your new loan also. I think your math is not correct for all your options.

 

[Quattro Pete]

Originally Posted By: dja4260
15 yr total monthly $1079 $129,000 total paid

30 yr total monthly $910 $180,000 total paid

$51,000 saved.

It cost me $168 per month more and we can afford it. Seems like the logical thing to do?


What would the difference be if you paid your current loan in 15 years instead of 30?

If you can afford a higher pmt right now, just do it, without refinancing. This in itself should save you some interest expense. But you will still have the ability to make smaller minimum monthly payments (based on the current 30-year-loan) if you happen to fall on hard times and are not able to pay more than bare minimum for a while until you get back on your feet again.

 

[hattaresguy]

I wouldn't bother refinancing, having a longer term gives you some flexibility if money gets tight.

You can turn your 30 year note into a shorter one and save a bundle of interest by paying more on the principle. Their are plenty of online calculators to aid you in that.

The interest rate only really matters if you carry the note for the full term, if you pay it off in 12-20 years your affective rate is lower because your paying interest for fewer years.

 

[SatinSilver]

Never heard of refinancing just to get rid of pmi. If your current mortgage holder says you have 20% equity then they should drop it. Gone are the days where different banks had different values on real estate. Now each lender should have the same valuation on each property since regulations are much tighter. Appraisers are much more conservative now. I'm assuming you put 5% down 6 months ago. Maybe there were some significant improvements. Plus I thought you were moving to North Carolina?

Originally Posted By: dja4260
I was told by my mortgage broker (family friend) that lenders must cancel the PMI automatically by law, when borrowed balance hits 78%.

 

[redbone3]

Mortgage brokers make a living by refinancing houses. You always pay the closing costs (they can be hidden in a myriad of ways). The big question is: Will you own the house long enough to make it worthwhile? The second consideration is is: I'm only paying 3+% on the mortgage and that is deductible, If I invested the difference between the old and new mortgage cost I might end up better off (and I would have some capital). It's nice having capital!

 

[wkcars]

The difference in interest is big if you assume the loan goes the full term. You would need to figure what it would be if you took the same amoumt of time paying off the mortgage. You probably have the payment schedule for you current loan, you can estimate one for the 15 year refi, then assume you pay the monthly payment for x years while saving up a lump sum and making one final lump sum payment, or you can figure out adding a certain amount extra each month until the loan is paid off and figuring the difference in interests that way. There are calculators out there you can try, or some excel spreadsheet templates you can find to estimate these.

 

[SatinSilver]

Have the place you're considering fax a Good Faith Estimate with an itemization of the closing costs/fees etc. See how they react to that. The only number on there that's not a hard charge is the pre-paid interest itemization. Most places that do this have a prepayment penalty clause.

 

[99Saturn]

OP, sorta tough IMO to comment not knowing all the details about where you stand with current LTV, and the original purchase price as well as current outstanding on the mortgage.

Couple of things I caught from some comments in the thread.
1. AFAIK, refinancing in itself is not going to get rid of your PMI, you will need to reappraise to close and assuming you reappraise with a LTV better than 80% that you will discharge PMI. I think that is what the broker is getting to, as someone else mentioned, you should be discharging PMI automatically at a 78% LTV.
2. Financing the closing costs could be another option. You could very well end up ahead because of the difference in the rate, but you really have to answer the question of how long you expect to be in the house. As others have noted, if you don't carry the loan to term those numbers don't hold water.

 

[99Saturn]

Originally Posted By: JHZR2
Originally Posted By: Donald
Its more complex as the interest is tax deductible for most people. So if you pay an extra $100 in interest with taxes it might only be $60 extra in spendable money.

Aren't there also closing costs?


Why anyone would want to pay the bank $1 in interest to save 30c in tax is beyond me...

I think the point here is you can't used just interest as the breakeven calculation if you're deducting the interest, you need to use interest less whatever you're saving in taxes, which means a longer breakeven.

I thought this was in reference to the 7 year payback the OP mentioned?

 

[HTSS_TR]

Originally Posted By: dja4260
Thinking about refinancing to lose PMI ($50 per month) and pay off the loan quicker. We're only 8 months into the original loan. Currently have a 30yr fixed @ 4.25%. I can get a 15yr fixed @ 3.625%, nothing out of pocket. I can get 3.25% with $1900 out of pocket. It would take 7 years to break even and I don't know if will still own the house at that point. Might rent it, might sell it, might keep it...Below is the difference.


15 yr total monthly $1079 $129,000 total paid

30 yr total monthly $910 $180,000 total paid

$51,000 saved.

It cost me $168 per month more and we can afford it. Seems like the logical thing to do?

Why doesn't the wife see it my way?

Go with 15 years with no closing cost, you save $50 PMI and lower interest rate. This is the best option for you.