To refinance or not, that is the question...

[RNMOM]

DH and I have refinanced just 2 yrs. ago in May for a 15 yr. at 6.1%. We are considering a refinance again at 3.5%. What confuses me is whether or not it is prudent to pay all those closing costs again. Is it better to just keep the present mortgage and try to pay more on the principle?

I just hate to consider paying $3840 in closing costs. We also can't decide whether to do a 15 yr loan and have an extra $200 free every month or do a 10 yr loan and have payments only $10 less than we pay now.

Right now money is tight for us due to having underemployed adult sons living at home. If we were on our own I know we could save a lot of money on food and other expenses and put money on the principle faster. I am leaning toward the 15 yr loan but would appreciate any input from my DIS friends.

 

[clh2]

For a refi - the closing costs seem very high. Do the include origination points?

Are you using the same lender? Can they reuse the original appraisal, or do you need another one?

The other thing I would take a look at - using an online mortgage calculater is - what happens to the rest of your remaining mortgage if you take the equivalent of your $3800 of closing costs, and just 'apply them" to your current mortgage - what does that do to your final payoff dates etc.

Just keep in mind - if you refi with another 15 year mortgage - eventhough your monthly payment would be decreasing, you would still be paying off the new mortgage for an additional 24 months longer than your current situation.

Many things to consider...good luck with your decision.

 

[tvguy]

My advice:
1) Find a lender with lower closing costs, that's nuts. Most around here will waive all the costs they legally can to get your business.

2) Get the 10 year mortgage. The shorter the mortgage, the better.


We bought in '83 right after interest rates dove from 16% to 12 1/4 for a 30.
Refinanced when rates hit 9 % on a 30.
Refinance when rates hit 6 3/4 on a 15

House has been paid for for 10 years. When I lost my job 5 years ago, the BEST feeling I had was I didn't have a house payment to worry about.

 

[Christine]

The closing costs seem high but that is what my neighbor will be paying on her new refi (but it is a 30 year loan). That might be what the average is. I would shop around and see if you can do better.

Your interest rate change is significant enough to warrant a refinance. The better deal would be a 10 year note, but if you are cash strapped, it's certainly not bad to keep the term at what you have now. Do you still have 15 years left to pay or are you under that. I would not extend the terms of the loan.

 

[golfgal]

My advice:
1) Find a lender with lower closing costs, that's nuts. Most around here will waive all the costs they legally can to get your business.

2) Get the 10 year mortgage. The shorter the mortgage, the better.


We bought in '83 right after interest rates dove from 16% to 12 1/4 for a 30.
Refinanced when rates hit 9 % on a 30.
Refinance when rates hit 6 3/4 on a 15

House has been paid for for 10 years. When I lost my job 5 years ago, the BEST feeling I had was I didn't have a house payment to worry about.

Technically this is not true, especially if the mortgage is at 3.5%. Historically investments gain about 8%, that is will all the ups and downs over the year so if you have a 3.5% mortgage and pay that off instead of putting that money into your investments you LOSE money over time-now, emotionally, there is something to be said for not having a mortgage.

OP, financially it makes sense to refinance if you drop a percentage point or more and plan on staying in your house to recoup the closing costs (5 years or so). If the answers to both are yes, refinance-but I agree, find someone with lower closing costs or negotiate those closing costs.

 

[RachelEllen]

What's the rate difference in a 10 year and 15 year loan? You can always take a 15 year loan and pay it off in 10. You usually lose a little bit in rate in exchange for the security of lower required payments.

Right now, we are on track to pay off our 15 year loan in 11 years. We considered refi'ing to a 7 year ARM, but decided to go to another 15 year fixed and just readjust our payments to pay off in 7.

 

[RNMOM]

I'm not very good at posting quotes so I'll just answer straight out.

Yes, we are using the same lender. The original loan and refi were with them also.

I agree about the closing costs. My DH is one of those guys who will buy a car using the dealer financing and only cares about the final payment amount. I am nervous about tackling this on my own for some reason. I know we must be able to do better with the closing costs. We have very good credit and very little debt, just one car payment and the mortgage. We charge all our expenses but pay it off every month. I haven't payed credit card interest in at least 12 years.

We were called to schedule the appraisal so I guess they want a new one. Are these things legislated in any way or is that left up to the individual lender? KWIM? Laws and banks vary so much from state to state.

The interest rate is the same for a 15 yr. or 10 yr. mortgage. Should it be different?

This is why I love you guys...I would never think of many of these things on my own.

 

[LuvOrlando]

I am from a totally different mindset from the other posters. considering the job markets and potential for inflation to jump though the roof I think it is prudent to refinance at the lower interest rates and change to a 30 year fixed. Assuming your loan has no penalties for early payment you can always make the slightly larger payments towards "principle" on your own every month (just note the extra is to go towards principle in the memo section of your check and it is illegal for them to put it anywhere else) and you can pay down a 30 year loan at a 15 or 10 year pace when you want.

The main reason you need to keep your payments down is to leave room for wide swings in basic necessities. I am worried about this because I am worried about inflation, the only reason our inflation rates are so low is that the Fed is keeping interest rates near zero and there have been no moves towards raising prices for basic necessities such as gas or food. However, all this country needs is a nudge in the wrong direction (OPEC or trade war with China) and the whole thing could blow up faster than a bomb. We are nowhere near stable enough for anyone out there to extend themselves further than is absolutely necessary. Frankly, I think you are much better off saving that $200 a month into an emergency fund in a FDIC insured bank and dealing with the mortgage when the world is on more stable ground.

I know what i am saying goes against the gurus but you have to realize that the gurus are depending on your money so they can play with it. They can't make any money if you take care of yourself first but that doesn't mean you shouldn't do it, it just means they will advise you against it. There is nothing in it for them if you play it safe & that is all there is to it.

 

[RNMOM]

LuvOrlando, you make good points. The $200 is between the 10 yr and 15 yr mortgages so that makes it even better, IMHO.

We are very close to retirement ages and I am not working so this makes the dilema harder.

 

[Sanchez]

When you say $3,800 in closing costs does that include interim interest and escrow (taxes and insurance)? Those are not closing costs but are considered prepaid items - items you would pay anyway.

With those items included that final number sounds rather low.

Going from 6% to 3.5% sounds good under almost any circumstance.

 

[ICF]

Thats some crazy high closing costs.

I'm doing a re-fi to get from 5 3/8 to 4 1/4 and my closing costs is $350 or so.

 

[tvguy]

Technically this is not true, especially if the mortgage is at 3.5%. Historically investments gain about 8%, that is will all the ups and downs over the year so if you have a 3.5% mortgage and pay that off instead of putting that money into your investments you LOSE money over time-now, emotionally, there is something to be said for not having a mortgage.
.

OP also notes she and her husband are near retirement age. At least in my book, that alone would be reason enough to get the mortgage paid off pronto.
Not knowing the dollar amounts involved, I'll use what the census says the average mortgage payment is, $684 a month. They'll loose about $3,400 in investment income by going with a 10 year mortgage over a 15 figuriing an 8% return. If they go with the 10 year mortgage, and for 5 months after the mortgage is paid off, put $684 in savings, they will have completely off set the lost investment income, and still have their house paid off 55 months sooner.

 

[ksjayhawks]

The closing costs seem high to me. I would check out other mortgage companies.

I would go with the 10 year mortgage so you can get the mortgage paid off. You can also pay extra when you have it. Then you own your house free and clear and noone can take that away. The mortgage money can then be used to meet expenses in retirement or invested.

I would also have my underemployed adult sons move out of the home. Let them pool their money together and get a place to live. It may not be the best, biggest, coolest place, but they will learn to survive on their own. They not eat like they do at home, but they will learn to grocery shop and make meals that they can afford. Maybe they will even take on a second ie third job to make ends meet. They will survive if they have to and don't have the bank of mom and dad (or in this case the hotel) available to them.

You can then take that extra money and use it towards the mortgage or invest it for your and dh's retirement.

 

[left210]

Where are you getting rates for 3.5%? The lowest I can find in our area are in the low 4s.

 

[castleview]

We're dropping to a 15 from a 20. 5.65% to 3-7/8. It's not much of a payment difference and we're saving three years. It came down to whether or not it was worth adding onto the mortgage and it wasn't until now.