does it make sense to refinance

[momz]

we financed our home 10 years ago on a 30 year fixed note, then refinanced 6 years ago to a 20 year note. Our current rate is 5.25. Our home value is now 130K and we owe approximately 84K on it.

So...if we can get a rate of 3.5 or lower fixed on a 10 year note, should we do it? Will it benefit us enough to justify the costs of the refi?

we have a really high credit rating, so I think we would qualify

I really want to knock the years down to get it paid off ASAP.

 

[PiperPizzaz]

Yes, I think so. We bought our home 2001 and refinanced once before to get a lower rate and this time we went down to a 15 yr. Our mortgage is only about $15 more a month.

 

[timmac]

we financed our home 10 years ago on a 30 year fixed note, then refinanced 6 years ago to a 20 year note. Our current rate is 5.25. Our home value is now 130K and we owe approximately 84K on it.

So...if we can get a rate of 3.5 or lower fixed on a 10 year note, should we do it? Will it benefit us enough to justify the costs of the refi?

we have a really high credit rating, so I think we would qualify

I really want to knock the years down to get it paid off ASAP.

Refi is great if you can get the lower interest rate, but why not increase your monthly payments a bit, even if you don't refi? You can still knock down the time to pay it off.

 

[momz]

Refi is great if you can get the lower interest rate, but why not increase your monthly payments a bit, even if you don't refi? You can still knock down the time to pay it off.

we've already done that (well...kinda). We do the bi-weekly payment plan, so we make an extra payment/year doing that. We are well ahead of the amoritization schedule as it is.

does knocking the percentage rate down by 2% and decreasing the length of time from the 14+ years remaining down to 10 years reduce the total amount paid enough to more than cover the cost to refinance?

Even if we refinance, we plan to pay more than the minimum.

 

[mickeyplanner08]

Go for it! It will make a big difference in the total amount you pay in interest. We figured it would only take us about a year to recoup our costs if we went down 1%. We actually refinanced 2 years ago, and I think we are going to do it again!

 

[rockydek]

You have been paying mostly interest...now you are heading to the point of paying mostly principle....I say pay a little more towards your principle...It might be better....You can try the math...and maybe have the house paid off in less than ten years. Also...when you get closer to paying mostly principle...the interest rate no longer matters much...you have already paid most of your interest...why start paying the next bank interest.

 

[Muushka]

www.bankrate.com

Has some great calculators. We needed to do the math to figure out whether or not refi was worth it. The calculators tell you. Good luck!

 

[mikehn]

You have been paying mostly interest...now you are heading to the point of paying mostly principle....I say pay a little more towards your principle...It might be better....You can try the math...and maybe have the house paid off in less than ten years. Also...when you get closer to paying mostly principle...the interest rate no longer matters much...you have already paid most of your interest...why start paying the next bank interest.

Agreed. you really need to evaluate your own situation. If your monthly mortgage payment is allocated more to principal than interest, then it might be more beneficial to keep what you have

 

[kawanku]

This is just my opinion....
YES, you have to refinance..
Why? Because, even if you pay more every month, you pay more on higher interest (5.25% instead of 3.xx%). You can lower it by 2% (200 basis points) - IT IS HUGE....
I know this week rate is hovering around 3.125 - 3.25 for 10 yrs. This is without point, without lender fee. All you pay is closing costs (you have to compare closing costs between companies too... they VARY widely).

I know this is too late to inform you, but for anybody else that would like to sign up to bi-weekly payment - DO NOT do that...
Why?
1. The company that does that charge fee ($250 or more)
2. They don't send your money on bi-weekly basis, since most lender only apply the payment once a month.
3. All they do is sending the payment once a month, and since they collect 13 monthly payment (bi-weekly pmt = 26 pmts in a year = 13 monthly payment), they just send the additional payment at the end of the year.... They keep the money for a while before they send it out.....This might not be the case with each company, but you get the point...
4. You can do the same by doing either:
a. send monthly payment + additional principal (1/12 of your monthly payment). By the time you send your dec pmt, -> you already cover 13 months
b. send monthly payment as usual, and send 2 payments in Dec. This is harder to do if you are not disciplined enough, but the impact is the same for either a or b.

I hope that helps....

 

[Abhay]

I think so, but the tax rate will be higher.

 

[HeyIt'sMe]

I think it makes sense for you to refinance.

We are in the process of refinancing. We had 22 years left on a 30-year mortgage at 6.0%. We are refinancing to a 20-year fixed mortgage at 4.25%. Our payments are staying the same.

 

[lisaross]

I'm trying to figure out the same for myself..

Originally had a 30 yr mortgage in 97 for 8.7

then refinanced 15yr mortgage in 03 for 5.5

now i have 6 1/2 years left - about 62,000 am thinking of refinancing for a 10 yr for about 3.5 and just making larger payments to get it paid off in the 6 1/2 years...

Think its worth it? i'm not sure - guess i need to find out how much closing will be in NY

any opinions?

 

[hsmamato2]

use a calculator,like on bankrate,etc. I think ours is always so close,we never do...since it should be at least 1 point diff. - ours is 4.8 w/ 20 years left,so it never seems to make sense to pay the refi costs
however, you can also input in those calculators the effect of paying off extra monthly,and see what that changes too,it shows how much interest you'll save....
We plan to pay the extra instead of refi- those calculators are very helpful....I've never seen a refi that costs less than 2-3k.....

 

[RitaE]

I've found that you usually see huge savings in going from a 30 year to a 15 year.

But going from a 15 year down to a 10 or so just isn't that dramatic. I just ran the calculator for a client who has 13 years left on a mortgage at 4.5%. They would save about $14,000 in interest if they refinanced down to a 10 year right now at 3.5% and their payment would go up by about $220 a month.

But if they just paid $220 extra every month on their current mortgage - their savings drops down to around $6000. Given that they hope to pay it off in about 6 years anyway with a lump sum payment from a stock bonus - it really isn't worth the hassle of going through the refinance paperwork and cost.

 

[Jedimike]

I'm not sure if changing the length of your mortgage will be affordable to you, but you dropping your interest rate is ALWAYS a good idea, if it doesn't cost you to do it (I'm referring to closing costs). If you plan on staying in your home until it is paid off, then it is a no brainer, refinance to the lower rate, no questions asked. If you think you'll be leaving your home in the next couple years, then look at the cost savings versus the amount you'll pay for closing costs.

If you owe $84k at 5.25%, then you're paying about $4400 a year in interest (this is an approximation and depends somewhat on how the bank calculates your APR). If you drop to 3.5%, then your annual interest would be approximately $3000, for a difference of $1400 this year. (all other things being equal, i.e., the amount you pay each month, the rate at which you pay, etc). This amount changes as the principle of your loan gets lower, but you'll stay quite a bit by lowering your interest rate. So like I said, if you plan on staying there, then I think you save quite a bit of money over what the closing costs will be. If you plan on selling in a year or two, then you have to weigh the savings vs. the cost of the refinance.

Hope this helps.

 

[akcire]

Just a word of caution.

Most banks will charge a higher rate on a loan lower than 100,000. When my mother refinanced her loan she only owed about $75,000 on her $220,000 property. To get the best rate she refinanced at $101,000 and cashed out of the house. Then for her first payment she sent them $30,000.

If she had not taken the loan at the larger amount, the interest rate would have been nearly 1% more.

 

[momz]

thanks for all the great replys. it's given us more to consider.

i spoke with a mortgage broker today. He quoted me the following info. Considering a loan amount of approximately 86.5K, and rate of 3.25. Our payment including principle, taxes and insurance would be about 1,015 (we currently pay about 1,135). We would need to pay $400 for the appraisal fee, and $16ish for the credit report. In addition, we would need to fund our escrow account, which would be about 2K...but we would get that back when our current mortgage is paid off. The total interest over the life of the loan is just over 14K.

Can you believe that? I'm thinking the only way it could get any better would be when the bank would be paying US the interest....

wow, who ever imagined a 3.25% mortgage rate?

We're almost debt free!!!

 

[HeyIt'sMe]

thanks for all the great replys. it's given us more to consider.

i spoke with a mortgage broker today. He quoted me the following info. Considering a loan amount of approximately 86.5K, and rate of 3.25. Our payment including principle, taxes and insurance would be about 1,015 (we currently pay about 1,135). We would need to pay $400 for the appraisal fee, and $16ish for the credit report. In addition, we would need to fund our escrow account, which would be about 2K...but we would get that back when our current mortgage is paid off. The total interest over the life of the loan is just over 14K.

Can you believe that? I'm thinking the only way it could get any better would be when the bank would be paying US the interest....

wow, who ever imagined a 3.25% mortgage rate?

We're almost debt free!!!

This is close to what we paid --- our appraisal was $340 (the appraiser was here yesterday morning) and our credit report was $18.

Other fees were: $9 for flood certification, $69 for tax service fees, $761 for title services and lender's title insurance, and $65 for government recording charges.

We also need to fund our new escrow account but will get a refund of our current mortgage's escrow balance when the mortgage is paid off.

 

[Uncle.Jr]

i'm not sure why everyone is so fixated on fixed rate loans.

i've never had a fixed rate mortgage in my life, purchased my 1st home in 1994 with an ARM, was so happy with it, didn't need to think twice about getting another ARM for my 2nd home in 2003.

when the real estate bubble burst back around 2008, all my friends kept telling me to refi to a fixed cuz rates were so low. but i couldn't justify paying the refi costs AND end up with a HIGHER rate and higher payments just for the peace of mind of having a fixed rate.

funny thing is, they keep reminding me to refi each time they see rates go lower, but my reasoning for not doing it is always the same. but as rates go lower so does my ARM, and currently my rate is 3%. and to top it off, we have just decided to move next summer, so if we had refi'd, we wouldn't have made the refi costs worth the it.

ARMs are not for everyone cuz there are risks, but as long as u know them, u won't be hit with surprises.

I'm trying to figure out the same for myself..

Originally had a 30 yr mortgage in 97 for 8.7

then refinanced 15yr mortgage in 03 for 5.5

now i have 6 1/2 years left - about 62,000 am thinking of refinancing for a 10 yr for about 3.5 and just making larger payments to get it paid off in the 6 1/2 years...

Think its worth it? i'm not sure - guess i need to find out how much closing will be in NY

any opinions?

lisaross,

if u can find a 5/1 ARM with no/low cost it might work out better in your situation.

looking at your numbers $62000 with 6 1/2 years to go at 5.5%, thats close to $1000/month excluding taxes/insurance, am i right?

if u were to go with 10 yr @ 3.5%, your monthly payment will be around $613.

if u went with a 5/1 ARM @ 3%, your monthly payment would be around $261 amortized over 30 yrs.

u have to realize, this takes discipline, but u've already said u plan to pay more each month to pay it down sooner. if u get the 5/1 ARM and pay $1000 a month, which looks like your current payment, that loan would be paid off in under 6 years.

again, this isn't for everyone, but u seem to have a specific goal in mind and this would seem like a good fit in your case. i didn't want u to think ur options were limited to a 10 yr fixed. an added benefit to this is it offers flexibility, in case something comes up, ur monthly obligation is much lower.

 

[lisaross]

thanks for the suggestion - will make some calls this week and take it from their!

i'm not sure why everyone is so fixated on fixed rate loans.

i've never had a fixed rate mortgage in my life, purchased my 1st home in 1994 with an ARM, was so happy with it, didn't need to think twice about getting another ARM for my 2nd home in 2003.

when the real estate bubble burst back around 2008, all my friends kept telling me to refi to a fixed cuz rates were so low. but i couldn't justify paying the refi costs AND end up with a HIGHER rate and higher payments just for the peace of mind of having a fixed rate.

funny thing is, they keep reminding me to refi each time they see rates go lower, but my reasoning for not doing it is always the same. but as rates go lower so does my ARM, and currently my rate is 3%. and to top it off, we have just decided to move next summer, so if we had refi'd, we wouldn't have made the refi costs worth the it.

ARMs are not for everyone cuz there are risks, but as long as u know them, u won't be hit with surprises.





lisaross,

if u can find a 5/1 ARM with no/low cost it might work out better in your situation.

looking at your numbers $62000 with 6 1/2 years to go at 5.5%, thats close to $1000/month excluding taxes/insurance, am i right?

if u were to go with 10 yr @ 3.5%, your monthly payment will be around $613.

if u went with a 5/1 ARM @ 3%, your monthly payment would be around $261 amortized over 30 yrs.

u have to realize, this takes discipline, but u've already said u plan to pay more each month to pay it down sooner. if u get the 5/1 ARM and pay $1000 a month, which looks like your current payment, that loan would be paid off in under 6 years.

again, this isn't for everyone, but u seem to have a specific goal in mind and this would seem like a good fit in your case. i didn't want u to think ur options were limited to a 10 yr fixed. an added benefit to this is it offers flexibility, in case something comes up, ur monthly obligation is much lower.