refinancing your house?

[binny]

I asked on the main board but I will ask here well.


When does it make sense to refi?


If youre going to save a lot per month but it will take you a while to make up the fees that you pay (that are of course wrapped into the new mortgage), does tha make sense?

If it's going to improve your credit score? is that enough?


What are your criteria for making this decision?

 

[klj27]

We refinanced three years ago when our interest rate would drop by almost 2 points. We figured that it would take two years to recoup the closing costs and after that we would be building extra principle. We also changed from a 30 year to a 15 year mortgage. Our payment increased by about $75 a month, but the portion of our payment that went to our principle increased by about $250 a month! We have a lot more equity in our house because of our refinance.

 

[QT Pooh]

Sometimes, you can recoup fees faster than you think. For example, if the value of your house has gone up, you get instant equity in your home. It may be enough that if you had PMI before, you may not have to pay it now (if you break 20% equity).

My advice is to check the many refinancing calculators that are available on the web or talk to a mortgage lender. I don't know how refinancing on your house would improve your credit score (it's still long term debt regardless) unless you're having trouble paying your current mortgage/bills, but if that's the case, don't expect a great interest rate on a re-finance either.

 

[crisi]

Do your math for the breakeven point.

As to PMI, you can usually get it dropped with an appraisal - cheaper than a refi.

There are other factors. We refinanced, got a lower rate, but to us what was more important was we lowered our monthly obligation by $300. We overpay our mortgage, but we'd had a scare where we though my husband was going to get laid off (they offered him a different job two days before his last day), and I was interested in getting the bills down to the point where we could pay all the obligations with my income alone (smaller than his).

Other people do it to get cash out - I think its a bad idea - but if you've truly turned a new leaf, increasing your mortgage to get out from under credit card debt may make sense. You'd need to weigh that.

 

[robsmom]

What "experts" usual suggest is to look at the impact to your monthly cash flow and also to the total amount that the loan will cost you.

For cash flow calcuate what the interest decrease will save you on a monthly basis. So let's say it saves you $100 per month. Then divide your total one time fee costs by this. So if your fees are $2000 that would be 20. So on a strictly cash flow basis you would recoup your fees in 20 months. Will you be staying in the house that long. If yes then refinancing will increase your cash flow and may be a good idea.

For the total amount that the loan will cost you - add up all of your new mortgage payments and add up the old ones left until the end of the loan. Which is higher? One of the things that people misunderstand in re-financing is that their loan may be going down per month because they are stretchng the loan out. Let's say you are 6 yrs into a 30 yr mortgage and you refinance for 30 yrs. you are taking your remaining mortgage balance and paying if off in 30 yrs instead of 24. Even if you didn't change your interest rate you would still save money each month but you have payments for 6 more years. So it is important to understand if your cash flow improvements are really from your interest rate change or just from making more payments. On the flip side, the previous poster mentioned a 15 yr mortgage. If you move to a shorter mortgage you may actually pay more each month but would be done sooner. assume again that you are 6 yrs into your 30 yr - 15 yrs of payments left instead of 24.

Without details i don't really know why your fico score improves but assuming it does, i guess the question is does that save you money. Does a better FICO score get you a lower interest rate on another loan? If you get savings from that it may be an added reason to re-finance.

Hope this helps

 

[tinaluis]

Does your existing mortgage company offer a "no closing costs" refinance? We've refinanced twice with our existing company -- the first time we had to pay closing costs but went from a 30 year to a 15 year. The second time they had a no closing cost deal and we went from a 15 year to a 10 year. There wasn't anything listed about a no closing cost deal on their website but I knew of someone else who'd taken advantage of the offer so I asked. The operator had to check with her supervisor but came back and said that they did have such a program. It's worth a try.

 

[minnie1928]

Does your existing mortgage company offer a "no closing costs" refinance? We've refinanced twice with our existing company -- the first time we had to pay closing costs but went from a 30 year to a 15 year. The second time they had a no closing cost deal and we went from a 15 year to a 10 year. There wasn't anything listed about a no closing cost deal on their website but I knew of someone else who'd taken advantage of the offer so I asked. The operator had to check with her supervisor but came back and said that they did have such a program. It's worth a try.

We got a package delivered from a large bank (can I post the name?) advertising to refi our loan at no cost, not one red penny! I work for a bank so I compared the offer to what was on the market and it was GREAT!

One other thing, someone above mentioned PMI. Here's what we a couple of years ago, we bought a house with very little down so the lender wanted to charge PMI. Instead we did a traditional mortgage for 80% of the price, and another loan for the remaining 20%. The payment for the 2 loans was withing $5 of the PMI loan payment. Difference being was that we could deduct the interest on the 20% loan, but PMI is completely a fee - not tax deductible. So while our payment was basically the same either way, it lowered our tax bill to go with a second loan.

Good luck!

 

[elgerber]

Does your existing mortgage company offer a "no closing costs" refinance? We've refinanced twice with our existing company -- the first time we had to pay closing costs but went from a 30 year to a 15 year. The second time they had a no closing cost deal and we went from a 15 year to a 10 year. There wasn't anything listed about a no closing cost deal on their website but I knew of someone else who'd taken advantage of the offer so I asked. The operator had to check with her supervisor but came back and said that they did have such a program. It's worth a try.

A no closing cost mortgage is not always the deal it seems, as the rates are higher than regular refinances. If the mortgage company charges no fees, then they charge a higher rate because they have to make their money somewhere.

 

[disneysteve]

Everyone has given great advice so far. Let me add one thing you don't often hear mentioned. We constantly hear about 15 or 30 year loans. Guess what. Those aren't the only options. You can get a 20 year or a 25 year too. Last time we refinanced, we were about 4 years into a 30 year loan. We refinanced to a 25 year loan. So our interest rate dropped, our monthly payment dropped and we actually shortened our repayment period by about a year.

 

[Firedog]

Don't forget, making one extra payment a year on a 30-year mortgage will take it down to approximately 21 years.

 

[Muushka]

Our lender offered us the 'no cost' refi, and we took them up on it! The paperwork was a pain, but we save 1/2% on the APR. The lender thought they were going to make out well because we had our mortgage down to about 10 years and they upped it to 15 years with the lower monthly payment. But we still pay the monthly rate we paid before the refi and the extra $200 which was always paid to get rid of the dang thing! We figure it should be done in about 5 or 6 years. YAY!