Mortgage refinance

[momz]

My husband and I are trying to decide if refinancing will benefit us. We currently have a conventional mortgage at 5.25 %. It is on a 20 year loan and the total pay-off is about 96K. We have 16 years left to pay. So....is it possible to get a 10 year mortgage? And if so, would the interast rate to enough lower to justify refinancing?

 

[singnring]

My husband and I are trying to decide if refinancing will benefit us. We currently have a conventional mortgage at 5.25 %. It is on a 20 year loan and the total pay-off is about 96K. We have 16 years left to pay. So....is it possible to get a 10 year mortgage? And if so, would the interast rate to enough lower to justify refinancing?

You already have a low rate.
Why not just find out what the payments would be on a 10 year loan and then make those payments on your current loan.
It will pay off in the same time and you won't have the hassle of the refinance and costs involved in doing so.

Years ago we had considered the same thing and our lender told us that unless it was a couple of points difference in interest rate, it wouldn't be beneficial.

Ask your lender.
Find out what all the costs would be on the refinance and what the exact amount of the total payments would be.
Then ask them if you made the higher payments on the current loan, how much would pay-off be on that loan.

Compare the two amounts for each loan and decide from there.

 

[maddmike]

I agree with the above post. If you refinance it will likely cost you $1000 - $2000. 5.25% is a decent rate. Go to a search engine like yahoo and find a mortage calculator and find what the payment would be for a 10 year loan and make that what you pay each month. The good part about doing that way is if something happened and you could not afford the extra you don't have to pay it.

 

[TxRabbit]

My husband and I are trying to decide if refinancing will benefit us. We currently have a conventional mortgage at 5.25 %. It is on a 20 year loan and the total pay-off is about 96K. We have 16 years left to pay. So....is it possible to get a 10 year mortgage? And if so, would the interast rate to enough lower to justify refinancing?

Mortgage rates vary across providers and states. The only way to know whether or not you would benefit is to run the numbers.

You need a compare what the new interest rate will save you in interest versus the cost of getting that savings, because you will pay closing costs with the refinance. When you compare these numbers, you will see what the breakeven point is. We could save $X.XX a year but it'll cost us $XXXX.XX to do it. So we need to stay here for at least X years to recoup the cost, but thereafter we will have saved money by refinancing. If you are likely to stay in your home for longer than the breakeven point, refinance will save you money.

Also keep in mind that it's likely that your payment will be greater than your current payment, because the of the shorter amortization schedule. So while you may save interest, you might increase your outflow of cash.

What the PP said may be the best way to handle the situation if you are looking to save money on interest. Mortgage payments never change will prepayment, only the maturity date will change. The first part of your payment pays interest the accrued during the previous statement period. The second part pays down principal. The payments are set so that at your maturity date, your last payment will cover accrued interest and principal leaving a zero balance after payment. No more principal to accrue interest.

Now, if you pay more than your required payment, the additional moneys will go toward principal. You may have to specify this if you have an escrow account, so that the money doesn't go there. What happens is that the principal has decreased by greater than the amortization schedule, so the accrued interest is less for the next payment due. But your required payment doesn't change.

Generally, if you pay one extra payment per year, you will pay down a 30 year mortgage in under 22 years, saving thousands of dollars on interest. Anyone can benefit from this kind of "refinancing" without having to pay the charges that would be associated with rewritting your loan.

 

[Darcy03231]

I work in a law office that specializes in real estate closings. The general rule of thumb is that in order to break even on a refinance you have to go down a full percentage point and be staying in the home for a minimum of five years.

 

[RitaE]

I only know of one bank in our area that advertises a 10year Conventional mortgage and I just checked their rate -- 3.99% w/ no points. We refinanced last week and my closing costs were around $750. Most of that was the Title Insurance and Appraisal fee.

As for whether or not it would be worthwhile, I think you'd have to go to one of the websites and run the mortgage calculator to see. My guess is that the numbers won't be jaw dropping.

 

[MrsPooh]

You will most likely find a 10 year from a local smaller bank or credit union. Most of the mortgage companies have 15 year as the shortest they prefer to offer.

Considering your loan amount and current interest rate I doubt it would be worth a refi for you but it never hurts to check.

Like others suggested - your best bet is to pay extra on your monthly payments and just pay it off in 10 years yourself.

 

[KAYLI'S DAD]

I would say run the numbers as well. Around here a 15yr is about 4.5% and the 15 is usually lower than the ten, so you could get a 15 but make the 10yr payments.

 

[fac]

one option is to check with your existing mortage company to see whether they can convert for you.

In my case, we have NVE bank on a 10 years loan. A few years ago, I checked with them to have the interest rate lowered, I think I paid a one time fee of around 2500, but have monthly payment reduced by more than $200.

 

[fkj2]

I would just make an extra payment each month and mark it "principal only."

It should shave several years off of your mortgage, yet allow you the flexibility that should some unexpected event occur, preserve your ability to maintain the current monthly payment you have.