Refinancing advice?

[Burt]

Not enough information.

Take the additional cash you would put into this, assume that you invest it in the stock market and make 6% after tax over the long run and see if you net worth is not higher. That is if you can maintain the savings discipline. If this alternative is better, you'll have more liquidity and greater net worth. If not go with plan A.

 

[dja4260]

A couple of things that might help.

We're not sure where we will be in life in maybe 5 years. I'd like to move. Regardless we would either keep this property as we can rent it for $1500+ or sell it and make 35k today.

We're not financially burdened by our mortgage. We gross 85k and only have student loan dept. We put away over $1200 cash per month into our decent sized saving.


I hope that helps some of you understand where we stand.

I feel that a zero up front refinance to a lower rate and shorter duration is a smart more to make.

I'm not an expert, I just want to make the correct finical decision to benefit my family.

 

[Vikas]

If you can afford the extra payment per month, it is no-brainer to get the zero cost refinance. I refinanced so many times that I have lost count now! I never paid a dime out of my pocket. It makes no sense to pay down. If you take the zero cost refinance and if the rates drop even further, you can do yet another zero cost refinance!

 

[dja4260]

Originally Posted By: Vikas
If you can afford the extra payment per month, it is no-brainer to get the zero cost refinance. I refinanced so many times that I have lost count now! I never paid a dime out of my pocket. It makes no sense to pay down. If you take the zero cost refinance and if the rates drop even further, you can do yet another zero cost refinance!


I like where your head is at.

If I paid $170 extra as I would be with the 15 yr loan, I'd knock pay it off in 18 years. A free refinance is still a money saver...

 

[Cutehumor]

I thought of the same thing like the OP. except I'm not paying PMI. I have a 30 yr loan at 4.25%. thought about going to 15 yrs with mid 3.5% interest to save on morgtgage interest. but! what if I got laid off at my job and no income for six months? the economy is up and down, you never know. I had my first born two years ago, so had to pay for daycare too. I just pay extra on my mortgage. in nearly 3.5 years of my 30 year mortgage, I went from 20% down to 45% equity in my home.

check out bankrate.com for mortgage calculators, play with the numbers. you'll see what's best for you.

 

[PandaBear]

In your case I would totally refi to get rid of the PMI, as well as reduce the total cost over the years by reducing the interest rate.

Everyone talks about how much tax you can deduct from the interest you pay, but most importantly you have to pay the interest first before you can deduct it, and I'd rather pay uncle Sam a bit rather than the banks.

Now going from 15 to 7 years may not be worth it, but 30 to 15 is.

 

[dja4260]

Originally Posted By: PandaBear
In your case I would totally refi to get rid of the PMI, as well as reduce the total cost over the years by reducing the interest rate.

Everyone talks about how much tax you can deduct from the interest you pay, but most importantly you have to pay the interest first before you can deduct it, and I'd rather pay uncle Sam a bit rather than the banks.

Now going from 15 to 7 years may not be worth it, but 30 to 15 is.


I agree and went ahead and locked in the rate. We got 3.5% for 15yr. Nothing out of pocket.

Let the paperwork begin!

 

[threeputtpar]

Originally Posted By: dja4260
Originally Posted By: Vikas
If you can afford the extra payment per month, it is no-brainer to get the zero cost refinance. I refinanced so many times that I have lost count now! I never paid a dime out of my pocket. It makes no sense to pay down. If you take the zero cost refinance and if the rates drop even further, you can do yet another zero cost refinance!


I like where your head is at.

If I paid $170 extra as I would be with the 15 yr loan, I'd knock pay it off in 18 years. A free refinance is still a money saver...


First off, there is no such thing as a no closing cost refi. Just like there is no such thing as no cost maintenance on a new car. There's no such thing as a free lunch, unless you're stealing said lunch. Heck, my credit union doesn't even try to sell a no cost refi, because they know there's no such thing and they're a non profit. You're paying for it, you just can't clearly see it.

Now, if you want to eliminate PMI first we need to know the current LTV ratio of your property. If it's at or below 78%, then you should not be paying PMI. I will guess that when you say you can eliminate PMI with a refi at 15 years, you must be putting up enough cash to get to the 78% LTV, otherwise you will still be paying PMI. If this is the case, just pay enough money against the pricipal of your current loan to get to 78% and then pay the monthly amount you would pay on the 15 year loan going forward. Or you can just start making bi-weekly or weekly payments instead of monthly. This will generate additional principal payments in the months with 5 weeks, shortening your loan duration.

 

[dja4260]

Originally Posted By: threeputtpar
Originally Posted By: dja4260
Originally Posted By: Vikas
If you can afford the extra payment per month, it is no-brainer to get the zero cost refinance. I refinanced so many times that I have lost count now! I never paid a dime out of my pocket. It makes no sense to pay down. If you take the zero cost refinance and if the rates drop even further, you can do yet another zero cost refinance!


I like where your head is at.

If I paid $170 extra as I would be with the 15 yr loan, I'd knock pay it off in 18 years. A free refinance is still a money saver...


First off, there is no such thing as a no closing cost refi. Just like there is no such thing as no cost maintenance on a new car. There's no such thing as a free lunch, unless you're stealing said lunch. Heck, my credit union doesn't even try to sell a no cost refi, because they know there's no such thing and they're a non profit. You're paying for it, you just can't clearly see it.

Now, if you want to eliminate PMI first we need to know the current LTV ratio of your property. If it's at or below 78%, then you should not be paying PMI. I will guess that when you say you can eliminate PMI with a refi at 15 years, you must be putting up enough cash to get to the 78% LTV, otherwise you will still be paying PMI. If this is the case, just pay enough money against the pricipal of your current loan to get to 78% and then pay the monthly amount you would pay on the 15 year loan going forward. Or you can just start making bi-weekly or weekly payments instead of monthly. This will generate additional principal payments in the months with 5 weeks, shortening your loan duration.


Correct nothing is free. I can get 3.25% and pay the $1900 in total fees associated with the refinance. It would take me 7 years to break even on that cost. I opted for the 3.5% and no cost out of pocket.

Yes I could pay extra bi weekly. My current lender wouldn't remove PMI unless my current loan as at 75% or I could order a appraisal for $405. We can afford the 15 year deal so that's the route that we're taking. We're also going to save 40+ thousand over the life of the loan. The 30yr interest is so front loaded that if we paid the normal rate it would take 10 years to remove the PMI assuming the house didn't gain anymore value. that's $6000 in PMI that could have been put towards the principal.

 

[Vikas]

I am not understanding the rational for threeputtpar's reply here. OP is getting his interest rate reduced and does not have to pay a dime out of his pocket and he can afford the increased payment.

It does not matter how the actual costs are being paid. Frankly, I am NOT understanding what your motive is to give the advice to stick with his existing loan. What is the upside? I think we had this discussion before. Even if it were to take "only" couple of years to break even with paying closing costs, it will be still financially unwise decision. Yes, a credit union will NOT do a no-cost re-fi, you have to get a mortgage broker to do no-cost re-fi.

We finally had to stop doing this once the principal dropped down. You need to have enough mortgage amount for somebody to do a no-cost re-fi for you but as long as you find one with the lower rate than yours (and you can afford the new payment) there is NO downside.

OP, make sure you get the closing HUD statement a day before closing and make an Excel spread sheet yourself to match every item off that paper. You *will* be writing a big check during the closing (deposit, next month's interest, escrow for real estate taxes and insurance etc) regardless (even though this is a no-cost re-fi) and you want to make sure everything matches to the penny.

 

[HTSS_TR]

Originally Posted By: threeputtpar
First off, there is no such thing as a no closing cost refi ... You're paying for it, you just can't clearly see it.

Yes, there is no cost refinance with higher interest rate.

There are many refinance programs from a same lender:
Lowest interest rate with point and closing cost.
Slightly higher interest rate without point but with closing cost.
Higher interest rate with no closing cost from borrower. Lender hopes that borrower will pay more in the full life of mortgage.

I did refinance many times, always did with no cost, the only fee I paid was county recoding fee which was around $20-25.

 

[javacontour]

Folks have to be careful of what the words mean. No closing costs is not the same as nothing out of pocket.

Some loans touted as nothing out of pocket simply roll the closing costs into the amount borrowed. So you end up with a larger principle amount than the loan you are leaving.

Not saying that's a bad thing. Nor am I saying that's what is happening here.

Just saying you have to understand what the words used mean and how they present in the numbers.

If you get a no-out-of-pocket refi that adds $1200 to your principle but lowers your payment $100/month, then roughly speaking, you break even after 12 months. (Yes I know you pay interest on that so it's not exactly 12 months...)

If you plan to be there long term, it may be worth it to pay a bit more to get the lowest rate. If not, then the lowest possible closing costs may be the way to go, even if the costs are rolled into the new loan.

 

[Vikas]

Of course I am talking about true no closing costs! There are people who end up rolling their closing cost in the loan??? Really???

 

[supton]

Why not? Sure, you pay interest on that amount; but if you are saving money over the long haul, then why not?

 

[Cujet]

Closing costs are not the only "fees" when closing a new loan. Please be 100% aware of all the other costs. Doc stamps, title fee, title insurance, survey costs, and on and on.

You might find it pushes your break even date out a bit more than you had expected.

Remember this fact, the lender/county/insurance companies are experts at making money off of you!