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#383448 - 09/28/12 12:00 PM Time to refinance?
nickbuol Offline
connoisseur

Registered: 09/16/04
Posts: 4514
Loc: Marion, IA
With interest rates at all time lows right now, how does one figure out if it is time to refinance?

We are 1 year into our current home ownership and have a special mortgage situation.

When we bought our house, instead of putting 20% down or whatever, we actually took out a second mortgage right from the start (called an 80/20 loan) to fund 100% of the house. Then we took the proceeds from the sale of our previous home and invested that money into this house. That way we increase the equity and get to enjoy the additional space right away.

Anyway, the 80% loan is at 4.25% and is due basically in 29 years.
The remaining 20% loan is at 5.25% and is due in 9 years (it was a 10 year loan with a balloon payment at the end).

Current re-financing rates at our bank are showing at 3.50% with zero points. I would have to pay for an appraisal and whatever the other closing costs are.

Does this make sense? I sounds like it would, but I am just not sure....
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#383449 - 09/28/12 12:55 PM Re: Time to refinance? [Re: nickbuol]
Ken.C Offline
shareholder in the making

Registered: 05/03/03
Posts: 17789
Loc: NoVA
I have a similar question! Curious what y'all have to say.
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I am the Doctor, and THIS... is my SPOON!

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#383451 - 09/28/12 01:57 PM Re: Time to refinance? [Re: nickbuol]
medic8r Offline
axiomite

Registered: 02/05/06
Posts: 6402
Loc: Fredericksburg, Virginia
I refinanced a year ago and it helped my cash flow and debt consolidation significantly. For me, it was a no-brainer.

Everyone's situation is unique, but I would say that if you plan to be in that house indefinitely, or at least for a few years, then you will more than recoup your closing costs and be locked in at historically low interest rates.
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"The Universe is the game of the self, which plays hide and seek forever and ever" - Alan Watts

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#383452 - 09/28/12 02:14 PM Re: Time to refinance? [Re: medic8r]
a401classic Offline
connoisseur

Registered: 11/29/06
Posts: 1194
Loc: Alpharetta, GA
We just refinanced - first new payment due on Oct 1... We found a great rate at 2.75% on a 10 year note coming out of the first half of a 15 year note at 4.875%. Even after pulling some cash for home repairs and such our payments are $100/month lower!

Most calculators will do amortization calculations - run the numbers, you'll know if it makes sense.

Scott
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#383455 - 09/28/12 05:00 PM Re: Time to refinance? [Re: nickbuol]
medic8r Offline
axiomite

Registered: 02/05/06
Posts: 6402
Loc: Fredericksburg, Virginia
Dang, that is a great rate, Scott. A ten year mortgage is awfully aggressive, but if you can swing that monthly payment, then you are not gonna pay anywhere near the total interest of a 30 year or even 20 or 15 year.

I vote for Scott for treasurer of the Axiomoe Fan Club.
_________________________
"The Universe is the game of the self, which plays hide and seek forever and ever" - Alan Watts

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#383458 - 09/28/12 05:53 PM Re: Time to refinance? [Re: nickbuol]
terzaghi Offline
connoisseur

Registered: 04/04/07
Posts: 4848
Loc: Tulsa, Oklahoma
I am waiting on a quote from our previous mortgage broker regarding refinancing as well.

We are under a 4% note for 20 years, was wondering what a 15 year mortgage would cost, what interest rate, and how much closing costs would be. I haven't heard back yet.
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#383460 - 09/28/12 06:46 PM Re: Time to refinance? [Re: nickbuol]
CatBrat Offline
axiomite

Registered: 08/05/09
Posts: 5908
Loc: Milky Way Galaxy
I tried one of the online financial places to refinance, but they either never responded, or got thrown out with the rest of the spam. I guess I need to try again. Never thought about a 10 year note.

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#383504 - 09/30/12 01:22 PM Re: Time to refinance? [Re: nickbuol]
michael_d Offline
connoisseur

Registered: 07/23/04
Posts: 3914
Loc: Up yonder
If you can swing a 15 year at the lower rate, go for it.

General rule of thumb, is to refi if you can gain a whole point or more. Anything less than that, then the refi fees blow the deal.
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#383514 - 09/30/12 11:02 PM Re: Time to refinance? [Re: medic8r]
a401classic Offline
connoisseur

Registered: 11/29/06
Posts: 1194
Loc: Alpharetta, GA
well we didn't get there in one step. We started with a 30. When rates dropped enough we went to a 20, then to a 15. We had 8 years left on that when the college fund wasn't enough and we needed some repairs around the house. When we saw the rates at more than 2 point lower than we were at, it made the 10 yr note possible.

One can usually taka a 30 year note amd make it a 17 year note ny making a 13th payment (all to principal) every year, or most will allow for additional principal to be added whenever you you have the "spare" cash. What we have found over the years is that there is never really any "spare", so we pay heavy on the debt first and live on the rest. Sometimes it works, sometimes we reach for the plastic.

ymmv
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Scott

My HT

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#383515 - 10/01/12 12:16 AM Re: Time to refinance? [Re: a401classic]
pmbuko Offline
shareholder in the making

Registered: 04/02/03
Posts: 16289
Loc: Leesburg, Virginia
That sounds like us, minus the refis, most of the time.

We just bailed on our failed experiment in real estate by successfully negotiating a short-sale on our town home with both our lenders. We were told that most lenders won't give you the time of day unless you start missing payments. The payments weren't a problem for us -- it was the home repairs, space issues, and the fact that we bought at the peak and the market had fallen so far that were getting to us -- so we didn't want to play that game. Luckily our real estate agent was amazing and kept on top of the lenders until we found some mutually acceptable terms. We're still waiting for any negative credit rating fallout to occur, but it should be minimal.
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#383619 - 10/03/12 07:48 PM Re: Time to refinance? [Re: pmbuko]
Ray3 Offline
connoisseur

Registered: 02/02/04
Posts: 2843
Loc: Rochester, NY
The question you need to answer is a simple one with a no-brainer answer - What direction are interest rates going to go in the next 10-20 years?

BTW, the answer to the above question should also point you completely away from an adjustable rate mortgage.

At current lowest ever rates, you can win three ways. First, get the lower rate and pay less interest over time.

Second, you REALLY need to think about looking at a 15 year mortgage. The payments will be a bit higher, but the contribution to principal is MUCH higher and much faster. Upon a sale, the accelerated equity accrual can yield a very nice result for available funds to purchase the next house.

Third and best. The amount you end up paying on a 15 year mortgage is incredibly less than on a 30 year mortgage.

Get yourself an amortization calculator and play with the permutations. Once you see the difference between a 15 year and 30 year mortgage, you will be stunned.

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#383627 - 10/03/12 08:22 PM Re: Time to refinance? [Re: Ray3]
dakkon Offline
connoisseur

Registered: 02/08/04
Posts: 1846
Nick, it will take you several years to make up for your closing costs as well as the other associated costs... This needs to be accounted for in your cost/benefit analysis...


The interest differential is just over a percent or so... depending on Credit..

It also depends on how much if any you pay over your required mortgage payment.. The larger the payment you pay the less it will be worth it for you... I have a buddy who bought a 200,000$ house at 6% interest. he has no desire to re-finance, it's not worth it for him.. He and his wife pay twice the scheduled payment, which means they will not be paying that much interest anyhow....


So, are you making the minimum payment; or are you guys making extra payments? If you are making an extra payment, how much extra?


As far as a 15 year loan like the others have stated. I would personally NOT recommend this.. I would recommend a 30 year fixed mortgage, while making payments that would correlate to a 15 year mortgage. This way if there are any future financial troubles, one can reduce the payment by 1/2 and not "get in trouble with the mortgage company". However, if you get a 15 year mortgage you're locked into a larger payment....



Bottom line..... Nick, if you pay extra then it will be less worth it for you to re-finance. The larger the extra payment becomes, the less benefit you will realize.

Also, keep in mind, if you make 1 extra payment a year on your mortgage that will have a very significan impact on the over all interest paid... So, you are able to make just 1 extra payment a year you very well may be at the same point that you would after having refinanced...

Also, giving the mortgage companies even more cash (closing costs), if you were to put the re-finance fees as well as appraisal costs into your current principal you may be ahead over all... A lot of mortgage brokers want to get people to re-finance... That's a pretty good source of revenue for them~~


So, i think it would not be worth it for you.. There are to many other ways for you to get ahead given your situation, and having only closed 1 year ago.

I hope this helps Nick...

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#383637 - 10/03/12 11:03 PM Re: Time to refinance? [Re: nickbuol]
CatBrat Offline
axiomite

Registered: 08/05/09
Posts: 5908
Loc: Milky Way Galaxy
I had often thought should I pay extra on my 30 year mortgage, or should I put that extra to work in a retirement fund? Given the current state of the economy and my age, I always opted for the retirement fund.

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#383653 - 10/04/12 08:16 AM Re: Time to refinance? [Re: nickbuol]
dakkon Offline
connoisseur

Registered: 02/08/04
Posts: 1846
it all depends on interest rates... if the rate on your mortgage is higher than what your making in the market then the house is a better place to put your cash... right now it is an especially hard time to decide between the two.. returns and rates are about eequal right now... personally if it was close i would always default to the mortgage... the logic behind this is that everyone NEEDs shelter....


with that wing said, cat... me and you invest in similar ways... my retirement account is + 5.3% right now... my " trading account" is up about 300% right now, just have to sell apple before it tanks, should that happen....

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#383654 - 10/04/12 08:37 AM Re: Time to refinance? [Re: nickbuol]
CatBrat Offline
axiomite

Registered: 08/05/09
Posts: 5908
Loc: Milky Way Galaxy
I just wish I had more time to study the various stocks. I plan on making it my full time job whenever I end up losing my job. I just hope that's later than sooner.

The small company I work for has been on a downward spiral the past few years.

On the housing issue, I look at it this way. If I short my retirement fund and invest in the house and I lose employment when the house is 3/4 paid for. I could lose the house to foreclosure. With retirement funds and the skill to make it grow in retirement, I at least have a fighting chance.


Edited by CatBrat (10/04/12 08:45 AM)

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#383656 - 10/04/12 10:06 AM Re: Time to refinance? [Re: nickbuol]
CatBrat Offline
axiomite

Registered: 08/05/09
Posts: 5908
Loc: Milky Way Galaxy
Just checked my 401k. It's setting at 6.66% for the year. Whoopie! Not!

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