Mortgage refi? Can you help?

[HeatherC]

We are thinking of reifinancing and have been playing with the numbers. I have one scenario that I am trying to figure out what I am missing and hope you fellow Disers can help?

Here it is.. we have 15 years left on current mortgage

15 year refinance...option one is to do existing balance only. Save $170 a month.

Option 2...refinance existing balance with additional cash out to payoff ouronly car loan...saves $80 a month on mortgage and $318 a month on car loan....so savings of $400 each month.

Now..I realize this is adding about 14k to our balance which I hate doing. BUT...it saves us $400 a month and we will still be donein 15 years.

What am I missing? This goes against everything you are "supposed" to do, but the numbers make a huge difference in our monthly bills.

Any advice is really appreciated! I must be missing something.

PS..this refinance is also no closing costs.

 

[mickeytattoo95]

It's only my opinion, so take it for what it's worth. I worked in the banking industry for several years and I actually suggested people do this. (This was only because my sales manager told us to do this because we -and he-would make a higher commission on the loan amount.) So, keep that in mind...

Personally, I rolled a car loan into a 2nd mtg HELOC. We never paid that off until we sold the house. I could have had my car paid off in 2 years, but instead I stretched it out to 7. Look at your situation like this. If you put your car into the mortgage, you'll essentially be paying on it for 15 years. Will your car last that long? Do you honestly intend to keep in that long.

If you take the $170 a month you'll be saving with your new mtg, why don't you apply that to the principal balance on your car loan each month. I don't know the term you have left on your car loan, but you could google a calculator that would show you how much faster you could pay your car loan off if you applied an extra $2040 to it per year! I've noticed that once you see that balance dropping quickly, you suddenly want to add more to it and pay it off even quicker. Then, once that car loan is paid off you won't be looking at this as if you "could" save $400 a month, but you will "actually" be saving $488 a month.

 

[3boymthr]

The difference is the amount of interest you will be paying and for how long you will be paying it on the car. You will be paying more in interest and still paying interest and payments on your car 15 years from now. If you intend to keep that car for 15 years - great! If not, I wouldn't do it.

Also, no closing costs doesn't mean any closing costs, it just means no closing costs from the bank and that you won't have to come up with these costs up front - they'll be rolled into your mortgage. There are always costs associated with a mortgage. At the very least you will be paying recording fees for a mortgage discharge and for registering the revised deed with the state. You will also pay a settlement lawyer's fee (about $1,000 maybe a little less), probably a registry runner's fee (about $35) and possibly a homestead fee (if you have one in place it has to be revised) and an MLC (this varies depending upon the town/county you live in but between $25 and $100). If you are using a mortgage broker you will also be paying his fee ($3-$5k). You will probably also have to pay for a new title insurance policy and possibly for an assessment and for someone to look at the deed versus other people's deeds to make sure that there are no conflicts. I work for a lawyer's office processing RE mortgages and refinances - trust me I do 5 or 6 of these a day.

 

[ICF]

Also, no closing costs doesn't mean any closing costs, it just means no closing costs from the bank and that you won't have to come up with these costs up front - they'll be rolled into your mortgage. There are always costs associated with a mortgage....

The costs you laid out may be accurate for your company or what you do, but I've refied my current mortgage with a local bank and never paid more than $250 in total closing costs.

There were no extra fees rolled into the mortgage balance, just amount I paid upfront.

So it is possible to not pay large amounts of $ in closing costs

 

[SueInBoston]

It's only my opinion, so take it for what it's worth. I worked in the banking industry for several years and I actually suggested people do this. (This was only because my sales manager told us to do this because we -and he-would make a higher commission on the loan amount.) So, keep that in mind...

Personally, I rolled a car loan into a 2nd mtg HELOC. We never paid that off until we sold the house. I could have had my car paid off in 2 years, but instead I stretched it out to 7. Look at your situation like this. If you put your car into the mortgage, you'll essentially be paying on it for 15 years. Will your car last that long? Do you honestly intend to keep in that long.

If you take the $170 a month you'll be saving with your new mtg, why don't you apply that to the principal balance on your car loan each month. I don't know the term you have left on your car loan, but you could google a calculator that would show you how much faster you could pay your car loan off if you applied an extra $2040 to it per year! I've noticed that once you see that balance dropping quickly, you suddenly want to add more to it and pay it off even quicker. Then, once that car loan is paid off you won't be looking at this as if you "could" save $400 a month, but you will "actually" be saving $488 a month.

Thank you for sharing...I'm in the same situation and your post revealed a point that I didn't think of...

 

[DawnM]

Right. Our last refi cost us a grand total of $400 for the appraisal. We did not roll that into the loan but chose to pay cash for it.

Now, we DID have to pay the escrow for an entire year up front, which was about $2,500, BUT we got a refund on the amount we paid in up front the last time we financed a house, AND that isn't closing costs to the bank, that is money we have to pay for insurance and taxes on our home for 12 months.

We did not roll that into the loan either.

In fact, we rolled nothing into the loan. We took out a loan for the exact amount we still owed.

Just read the fine print first!

The costs you laid out may be accurate for your company or what you do, but I've refied my current mortgage with a local bank and never paid more than $250 in total closing costs.

There were no extra fees rolled into the mortgage balance, just amount I paid upfront.

So it is possible to not pay large amounts of $ in closing costs

 

[DawnM]

Have you run the amortization schedules for what you will be paying in interest if you continue your loan as you currently have it vs. refinancing to a new loan.

I don't care at all how much less I will pay per month, but I do care about that bottom line! How much more will I be paying in interest if I refinance? Will the new loan save me in total cost of my house.

This seems to irritate loan officers as they only care about telling you how much you will "save" per month. I am not saving anything if the bottom line isn't less......I am just stretching the loan out with lower numbers to start with.

The first few years of any mortgage you pay the most interest.

Dawn

 

[Shelly F - Ohio]

We just refinanced and closed our mtg last night and it was a no closing cost loan. We only had to pay $24 for the credit report.

I used this site to help determine what loan option was good for us.

http://www.hsh.com/calc-amort.html

 

[GrnMtnMan]

The costs you laid out may be accurate for your company or what you do, but I've refied my current mortgage with a local bank and never paid more than $250 in total closing costs.

There were no extra fees rolled into the mortgage balance, just amount I paid upfront.

So it is possible to not pay large amounts of $ in closing costs

Low closing costs might be good in the short term, but bad in the long term...it all depends on the rate you are paying.

There's an axiom in economics, and it applies in this situation, and that axiom is: there's no such thing as a free lunch. The mortgage company has to pay its underwriters, loan processors, and all there other people involved in getting you a mortgage. Those people don't work for free.

What likely happened is you are paying a higher interest rate than you otherwise would have been able to get, had you chosen a lower rate and out-of-pocket (or rolled into the loan) closing costs.

Which is a better deal depends on how long you intend to keep the mortgage, and the rates and closing costs associated with the refi.

 

[ICF]

Low closing costs might be good in the short term, but bad in the long term...it all depends on the rate you are paying. ...What likely happened is you are paying a higher interest rate than you otherwise would have been able to get, had you chosen a lower rate and out-of-pocket (or rolled into the loan) closing costs.

15 year fixed at 2 5/8 or 2 7/8....I don't remember for sure and dont feel like looking it up, done last September.

So no, the lack of closing costs didnt impact my rate or term.

 

[Swimalie]

Low closing costs might be good in the short term, but bad in the long term...it all depends on the rate you are paying.

There's an axiom in economics, and it applies in this situation, and that axiom is: there's no such thing as a free lunch. The mortgage company has to pay its underwriters, loan processors, and all there other people involved in getting you a mortgage. Those people don't work for free.

What likely happened is you are paying a higher interest rate than you otherwise would have been able to get, had you chosen a lower rate and out-of-pocket (or rolled into the loan) closing costs..

In our case, the county we live in requires fees like transfer fees to be paid as well (one was a transfer tax of $600). I doubt those will be absorbed by the bank so they are added on in some way by the bank. Either way, you are paying those type of fees. We just refinanced but did it through a company which didn't allow the fees to be rolled in so it cost us $2300 upfront.

 

[GrnMtnMan]

15 year fixed at 2 5/8 or 2 7/8....I don't remember for sure and dont feel like looking it up, done last September.

So no, the lack of closing costs didnt impact my rate or term.

Did you do a streamlined refinance through your existing mortgage holder? If that's the case, yes, closing costs can be quite low.

Or did you shop around for competitive offers and find a no-closing costs 15 loan that also had the lowest interest rate?

I'm not trying to argue, but it's also unrealistic to expect to find a mortgage withe the lowest rate (meaning monthly payment) AND have no closing costs. You might have found an amazing deal, but it wouldn't be helpful to others to suggest that everybody can do that....that's just no the way it works.

 

[DawnM]

This was not true when we refinanced. The only fees to get our rate lower were POINTS and we opted not to pay points as the rate difference was 3.37% vs 3.25%. It would have saved us only two thousand over a 15 year mortgage and we don't plan to stay here 15 years.

Dawn

Low closing costs might be good in the short term, but bad in the long term...it all depends on the rate you are paying.

There's an axiom in economics, and it applies in this situation, and that axiom is: there's no such thing as a free lunch. The mortgage company has to pay its underwriters, loan processors, and all there other people involved in getting you a mortgage. Those people don't work for free.

What likely happened is you are paying a higher interest rate than you otherwise would have been able to get, had you chosen a lower rate and out-of-pocket (or rolled into the loan) closing costs.

Which is a better deal depends on how long you intend to keep the mortgage, and the rates and closing costs associated with the refi.

 

[ICF]

Did you do a streamlined refinance through your existing mortgage holder? If that's the case, yes, closing costs can be quite low.

Or did you shop around for competitive offers and find a no-closing costs 15 loan that also had the lowest interest rate?

I'm not trying to argue, but it's also unrealistic to expect to find a mortgage withe the lowest rate (meaning monthly payment) AND have no closing costs. You might have found an amazing deal, but it wouldn't be helpful to other to suggest that everybody can do that.

I've refi'd with this bank now 3 times in the last few years. The 1st refi, they were not my mortgage holder (it was Citi Mortgage). The last two refi's they were my existing.

In all 3 cases, my closing costs were the same. I only "shopped" the 1st time around...back then I think my rate was 5% or so on a 30 yr (it's been a few years so the % might be off). I called a few different places including 5/3rd bank (our primary bank) and a couple of mortgage places I had heard or seen commericals for. 5/3 had slightly higher closing costs and a slightly higher rate (but were competitive with where I eneded up going) The two mortgage companies had rates about the same as well, but wanted $2K - $3K in closing costs.

If curious, this is who I went thru.... http://www.usavingsbank.com/

 

[GrnMtnMan]

This was not true when we refinanced.

It's always true.

Here's a screenshot from Navy Federal Credit Union...the country's largest Credit Union. Owned and run for the benefit of members, and the mortgage company is non-profit.

The bottom line is there is a sliding scale for closing costs and interest rates....its just the nature of the mortgage industry.

Now you can shop around and find better deals where it might appear that there are no closing costs, but that probably just means that your lender would have offered you an even lower rate had you chose to pay, or roll into the loan, the closing costs.

 

[DawnM]

Believe what you want, but we were given an instant credit for ALL closing costs.

Closing costs were $2,600 and we received $2,600 in instant credit to our account and paid $0.

This does NOT include the appraisal fee, which we did pay out of pocket.

We are certainly not ignorant to "hidden fees." My husband is a CPA and scrutinizes documents with a fine tooth comb.

We took out a loan for the EXACT amount we owed, paid the appraisal and our own taxes and insurance for the year, and we paid no closing costs.

Dawn

It's always true.

Here's a screenshot from Navy Federal Credit Union...the country's largest Credit Union. Owned and run for the benefit of members, and the mortgage company is non-profit.

The bottom line is there is a sliding scale for closing costs and interest rates....its just the nature of the mortgage industry.

Now you can shop around and find better deals where it might appear that there are no closing costs, but that probably just means that your lender would have offered you an even lower rate had you chose to pay, or roll into the loan, the closing costs.

However, just to clarify again, we were offered 3.25% with a closing cost. We opted for the 3.37% which included the $2,600 reimbursement.

 

[Diegosmom]

We are thinking of reifinancing and have been playing with the numbers. I have one scenario that I am trying to figure out what I am missing and hope you fellow Disers can help?

Here it is.. we have 15 years left on current mortgage

15 year refinance...option one is to do existing balance only. Save $170 a month.

Option 2...refinance existing balance with additional cash out to payoff ouronly car loan...saves $80 a month on mortgage and $318 a month on car loan....so savings of $400 each month.

Now..I realize this is adding about 14k to our balance which I hate doing. BUT...it saves us $400 a month and we will still be donein 15 years.

What am I missing? This goes against everything you are "supposed" to do, but the numbers make a huge difference in our monthly bills.

Any advice is really appreciated! I must be missing something.

PS..this refinance is also no closing costs.

Ok the point that I think you are missing is that you say you are saving $400 a month if you roll the car loan in...but how much longer is the car loan...Lets say 2 years...so for 2 years you are saving $400 vs $170 but after that 2 years the savings drop to $80 vs $170.

At the end of the 15 years you would have paid out more money with the car loan added to mortage...but if you are looking to save some money now and have other bills that this "savings" might go to then you might net more.

 

[GrnMtnMan]

I'm not trying to argue, but it's also unrealistic to expect to find a mortgage withe the lowest rate (meaning monthly payment) AND have no closing costs.

I'm not sure what we're disagreeing about because you make my point yourself: you paid a higher rate for no closing costs.

However, just to clarify again, we were offered 3.25% with a closing cost. We opted for the 3.37% which included the $2,600 reimbursement.

Here's how the closing costs were 'hidden' from you.

The going rate for mortgages when you took out your loan was 3.25%. You chose to pay +0.12% more to not pay anything out of pocket up front.

What happens is that your bank knows that if it sells a 3.37% mortgage to the secondary market (Fannie Mae, Freddie Mac, or a big Wall Street bank) it will get more from that buyer than it loaned to you. So if you borrowed $100, it is actually going to get $102 from the secondary market holder because your interest rate is higher than current market rates. Your bank then uses that $2 premium to pay all the costs that were involved in your closing.

Even if your bank isn't going to sell your loan, it still has to 'mark-to-market' the difference between 'market' rates and 'note' rates and reflect that gain or loss on their income statement.

 

[DawnM]

yes, I am aware of that, but it was the same cost to us, actually a savings overall.

Pay around $2,000 now to save around $2,000 over the next 15 years or pay $2,000 in interest over 15 years. Considering we don't plan to even live here half of that time, we came out ahead.

I don't consider that "hidden." We were well aware of that going in. But I do call that interest cost and not closing costs.

Dawn

I'm not sure what we're disagreeing about because you make my point yourself: you paid a higher rate for no closing costs.

Here's how the closing costs were 'hidden' from you.

The going rate for mortgages when you took out your loan was 3.25%. You chose to pay +0.12% more to not pay anything out of pocket up front.

What happens is that your bank knows that if it sells a 3.37% mortgage to the secondary market (Fannie Mae, Freddie Mac, or a big Wall Street bank) it will get more from that buyer than it loaned to you. So if you borrowed $100, it is actually going to get $102 from the secondary market holder because your interest rate is higher than current market rates. Your bank then uses that $2 premium to pay all the costs that were involved in your closing.

Even if your bank isn't going to sell your loan, it still has to 'mark-to-market' the difference between 'market' rates and 'note' rates and reflect that gain or loss on their income statement.

 

[HeatherC]

OP here! Thanks for all the responses.

To answer a couple questions.

1. Only closing cost is application fee and $20 credit report...so we won't be financing that.

2. We still owe about 4 1/2 years on the car. If we only owed two years or less, I wouldn't even consider it. Stupid..expensive minivan.

3. We are not moving anytime in the forseeable future. Plan is to pay off this house in under 15 years..buy a condo somewhere warmer and snowbird.

4. Running the amortization table, we would pay about the same interest even financing more because of the rate drop.

Everything in me says not to finance a car like that. But the numbers say otherwise.

Another consideration is that our oldest dd is a sophomore in high school. So 2 1/2 years till college. Will it look better on paper if we owe more for financial aid? If that were the case, owing more on a mortgage might be a small benefit.

My brain keeps coming up with all these scenarios and I get more confused by the minute.

thanks again!