Refinance or not?

[frannn]

We could lower our rate from 6.125 to about 4.5 if we refinance our current loan (17.5 years remaining) to a 15 year loan. We'd save about 30K (net of fees/closing costs rolled into the loan) over the 15 years, but our monthly payment would go up about 45. I'm considering it because we only have one payment left on DH's car loan (yayy!), but my car is over 10 years old, so who knows... I'm hesitant to raise our monthly payment in this economy, as we are paying our bills but do have a credit card balance and three DD's to support. I'm thinking that 30K isn't really 30K when you factor in inflation, etc. Maybe I'm better off putting extra $ towards our currently monthly payment when we have it. Any advise?

 

[minnie1928]

To me, $45 wouldn't make a difference and I'd refi for the lower rate. But that's just me...

 

[hockeyprincess]

Absolutely I would refinance. If you're gonna put extra on the payment anyway, what's another $45 really? $1.50 per day each month. You can swing that to save 30K, right?

 

[HaleyB]

That is an interesting question.

Have you run the numbers on how much you would save by just paying an extra $45 a month? If it is close I would go that route because you can always not ad the $45 if money gets tighter.

For $100,000 mortgage at 6.125% an extra $45 a month cuts the loan by 19 months

For $200,00 it is only 10 months.

to get your exact numbers here is the calculator:

ExtraPaymentsCalculator

 

[wdwfan16]

15 years of $45.month payment is $8100. You save over $30K and that is almost 4xs what you pay.

Do the refi and cut your budget to get more than $45 out of it. Then take the extra and save 1/2 for a car and use the other half on debt. When the car is paid off next month do the same with the money form that car.

 

[HaleyB]

By the way, ignore the 30k. It is meaningless.

What really matters is the final payment date. With the 15 year loan your last payment would be 30 months sooner. The $100,000 example saves you 19 months or almost 2/3rds of what the refi gains you, only you can decide what the flexibility to not pay the $45 is worth to you. Is it worth almost a year longer before the house is paid off?

For the above numbers I entered a loan term of 210 months (17.5 years).

Assumption: you plan to stay in the house long term.

 

[Darcy03231]

I'd definitely do the refi. That's a big drop in interest rates.

 

[a1tinkfans]

We could lower our rate from 6.125 to about 4.5 if we refinance our current loan (17.5 years remaining) to a 15 year loan. We'd save about 30K (net of fees/closing costs rolled into the loan) over the 15 years, but our monthly payment would go up about 45. I'm considering it because we only have one payment left on DH's car loan (yayy!), but my car is over 10 years old, so who knows... I'm hesitant to raise our monthly payment in this economy, as we are paying our bills but do have a credit card balance and three DD's to support. I'm thinking that 30K isn't really 30K when you factor in inflation, etc. Maybe I'm better off putting extra $ towards our currently monthly payment when we have it. Any advise?

IF you have the extra $45. a month Now, why not just pay that as extra PRINCIPAL each month. This eliminates you having additional costs (as you sighted above, bolded)
It also allows YOU to be sure that the $45. is affordable for you each and every month...which appears to be a concern of yours since you also mentioned a possible Car issue. Everyone THINKS that re-fi is the way to go and for many it is. BUT, it is important to realize the "true Value" ie, can you handle this extra and be LOCKED into it? Are you POSITIVE you are staying in that location/house until you finish your loan? Do you have enough $$ elsewhere to pay your typical (credit card debt) and possible extra debt (car$$). Usually your first years to any loan is all the interest up front first.
Since the "re-fi" bonanza has been out there a while, I was curious as to why you chose now, versus weeks/mos. back when many rates were even lower. The reason I ask is it may be better to pay down that CC debt, THEN add the extra Principal each and every month (some let you even pay weekly) and you will SAVE greatly.
Good Luck in your decision!!! Not really as easy as it seems, IMHO.

 

[ceecee]

I personally would pay off the CC and then think of refiancing. You didn't say what the closing costs are or the CC debt, so that's a factor. As well as you may need $ for a car soon.

 

[frannn]

I had originally decided not to refinance several months ago, but then the rates went even lower. I just got a letter from my current lender, Citimortgage, which offered us a 500 credit to refinance. This would offset their 500 application fee, LOL. I know 45 doesn't seem like a large amount/month, but I am wondering if I have to replace my car, and if my property taxes go up (again), then the extra 45 might be on top of a larger amount that would cause issues. On the other hand, that extra 45/month wouldn't make a huge difference in a credit card balance, either. I thought the way to go would be a rate modification, but I was told Citibank doesn't offer that. I really need to take a hard look at our budget and see what makes sense. I would love to move out of NY, but DH wants to be close to his family, so I don't know if we will be here for the entire course of the loan.
I should also try to figure out the current market value of our home.

 

[DISdreamin']

I looked into refinancing and there were a whole bunch of issues that made me decide not to do it. The biggest were closing costs and appraisal fees. We would have been out about $4K right off, and that isn't money I particularly want to part with in this economy! Our drop in interest rate was smaller than yours (~0.35 less), so that may have made a difference in the bottom line, but I'd look really carefully into the full cost of a refi, and obviously only do it if you will definitely be in the house long enough to recoup those expenses.

 

[Swimalie]

Are you contributing the fullest amount to your and your husband's Roth IRA's and retirement accounts and the kids' 529 plans? I would consider these first. Then I would look in to paying extra towards the principal each month instead of refinancing in case you are looking at a car payment in the near future with your car. One thing you can do is take your current monthly payment and divide it by 12. Then add that amount in each month to your payment. This will reduce how long you pay by 7 years just by doing that simple thing and you aren't locking your self in to a higher required payment (even though $45 isn't much) and you aren't giving the bank any refinance fees.

 

[HeatherC]

I don't think we will see interest rates this low for a very long time...if ever.

We just re-financed again...have done it several times over the past couple years as the rates have dropped. Never had to pay closing costs until this time, however.

When we bought our home 9 years ago, the rate was 8.75% for a 30 year loan. We just closed last week on a re-finance and our new interest rate is now just 4.25%. We have shaved years off the loans and saved a ton in interest (over the life of the loan) in addition to lowering our monthly payments.

You have to take all the numbers into consideration. Look at how much you will save over the life of the loan. Even with closing costs, it still made sense for us to do it. It may not make sense in your situation.

Also figure out how much you will be saving if you pay off the loan in 15 years versus 17.5. That is 2 1/2 years less of mortgage payments you would have to make. In addition to saving on the interest, you would also not have to make that principal payment that last 2 1/2 years.

Good luck whatever you decide!

 

[sk!mom]

You'll knock 2.5 years off of the loan and save $30,000 by paying only $45 more- a minimal increase. I would jump on it.

 

[DawnM]

We just did this exact same thing. We went from a 5.37 to a 4.37 with no points. Our payment went up almost $300/mo though! YIKES!

But it was worth it to us as so much more will go to principal each month, we will break even after 10 months, and we will save $200K or so off the interest if we stay here 15 years.

Dawn

 

[Heidijs]

Definitely! We refinanced from a 27 year mortgage at 6% down to a 15 yr at 4.625% Our payments went up $100 but so what, we looked at the savings over the years!

 

[MayMom]

Which companies are offering rates like 4.25 and 4.37%?

 

[DawnM]

We went through a local broker. Everything we found online was more.

We had additional issues because DH works for a company that audits several of the larger banks and he can't use any of the banks his company audits due to conflict of interest.

But we got it to work out in the end.

Dawn

Which companies are offering rates like 4.25 and 4.37%?

 

[Heidijs]

We have a Freddie Mac mortage through our local small town bank. I just recently look at the FM website and I saw a 15 year dropped BELOW 4.50% for a short time. It's still down there...let's see, today it's at...yep, even today it's at 4.45% for a 15 and 5.06 for a 30....but we had outstanding credit scores so we easily got the lowest rate at the time...

http://www.freddiemac.com/