Refinancing, When does it make sense? Am I missing something?

[rafiki]

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[ereks mom]

We are 3 years into a 30 year loan at 6.625%. Now that we know we are staying awhile, we've decided to look into refinancing.

 

While we are able to get a 4-5% rate depending on points, closing costs are rolled into the mortgage, thus our loan balance will increase. We need to stay at a 30 year loan because of the ridiculous taxes here. So we're now at a 27 year, but refinancing would extend it another 3 since it would reset at 30. So why would we want to save $100-$150 per month to have a larger loan balance and longer loan, thus pay more interest? At what point does it make sense?

 

...your new interest rate would drop by 2% or more. So, since your current loan is 6.625%, if you could drop it to 4.625% or lower, it would be worth it.

[KnitWit]

In your case, I don't know that I would. I might try to just pay extra on the principal each month.

 

We refinanced for a lower interest rate, but also went from a 30 to a 15yr mtg. Our payment did go up about $100...but, obviously, the life of the loan was cut in half.

[Scarlett]

We are 3 years into a 30 year loan at 6.625%. Now that we know we are staying awhile, we've decided to look into refinancing.

 

While we are able to get a 4-5% rate depending on points, closing costs are rolled into the mortgage, thus our loan balance will increase. We need to stay at a 30 year loan because of the ridiculous taxes here. So we're now at a 27 year, but refinancing would extend it another 3 since it would reset at 30. So why would we want to save $100-$150 per month to have a larger loan balance and longer loan, thus pay more interest? At what point does it make sense? We've checked through Home Affordable, Lending Tree, and a local bank.

 

Adding our state also has a refinanicing tax, so they charge us 1% of whatever amount we refi.

 

I would think if you can lower it by 2 percentage points you should be able to lessen the term too...closing costs for a refi CAN be small....shop around and get the best rates on that. I probably would not refi if you are going to stay at 30 years though. Have you ran all the numbers through a calculator?

[olan719]

Would it be possible for your lender to allow you to do a 27-year term? So that you don't loss your previous three years.

 

I didn't think this was possible, but we just refinanced for an "odd term" of 14 years. DH didn't want to loss the years we had already invested.

 

I do think if you plan to stay in this home, and you can get a reduction of around 2% in the interest rate, it is definitely worth considering. You'll pay a lot less in the long run.

[Scarlett]

Would it be possible for your lender to allow you to do a 27-year term? So that you don't loss your previous three years.

 

I didn't think this was possible, but we just refinanced for an "odd term" of 14 years. DH didn't want to loss the years we had already invested.

 

I do think if you plan to stay in this home, and you can get a reduction of around 2% in the interest rate, it is definitely worth considering. You'll pay a lot less in the long run.

 

They don't like to do it because it makes it more difficult to sell the loan in bundles....but maybe she could ask for a 20 year loan...

 

It is important to think outside the box on these issues...push the lender to do things your way.

[Marylou]

http://crown.org/Tools/Calculators/

[Michelle in AL]

Obama has a new loan program for refinancing called the DU refinance plus.

 

One restriction is your home must not be worth more than 125% than its value.

 

Our mortgage is through Wells Fargo and is now owned by Fannie Mae.

 

The rate we were quoted was 4.5% - 5%interest depending on the value of our home and $3156 closing costs. Rates are dependent on credit score and loan to value of your home.

 

Our current rate is 6.38%. We'll save 300-500 per month.

 

Thought I'd throw that out there in case someone else wasn't aware of the program.

[Michelle in AL]

On the DU refinance program you could refinance over 20 or 30 yrs. We chose 30, but you could always make an extra payment/year or add more to the principal to pay it down quicker.

[AngieW in Texas]

When we refinanced we went from 24 years left on a 30-year note to a 15-year note. It increased our payments by about $150/month, but will obviously cost us less over time. We rolled all costs into the loan so we paid nothing at closing.

[Granny_Weatherwax]

DH and I are refinancing this week. The appraisers were here yesterday. We were 3 years into a 15 year mortgage. Our bank would not let us do a 10 year or a 12 year mortgage and we don't have the funds to do a non-mortgage loan for the amount we need. We are refi -ing another 15 year mortgage going down 2 points and cutting our payment down by $350 dollars. For us it is worth it because my job is touch and go and rerouting our money is better for us. This way if we need that $350 for medical bills or emergencies it is there. If we don't need it we can use it to build up our savings, retirement, college funds or to pay down the mortgage.

[rafiki]

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[cmarango]

Well, if you refi to a lower interest rate then your monthly payments will drop. If you have no problems making your payments now, then you simply keep making the same payments on your new loan, putting the extra money towards principal payment. As long as there is no pre-payment penalty then you will come out way ahead.

 

We just did a refi from 6.25 to 4%. We are planning on putting a bunch of money towards our principal every month and paying off our mortgage in 3 years.

 

http://Www.bankrate.com has some great calculators.

[Brilliant]

Ouch; I've never heard of a refinance tax. And I thought California had every tax known to mankind.

 

Are you a member of a credit union? They might be able to offer a better rate or lower closing costs. We did a lot of checking around earlier this year and finally found a new loan which it made sense to get - we recovered our closing costs (which we paid out of pocket instead of rolling into the new loan) in less than 4 months.

 

We also have >20% equity in our home...if you don't have equity, your options might be limited to what you've been quoted. :(

[Michelle in AL]

Michele, I think the Home Affordable Program and the DU refinance plus are the same. Here's a link I found which makes it sound like they are the same:

 

http://www.mortgageprofessionalsllc.com/index.php?option=com_content&task=view&id=167&Itemid=2

[StephanieZ]

Will your lender run the numbers for you to show you how long you would pay if you added $ to your payment each month to add up to your current monthly payment. I.e., it is a new 30 year loan. . . but if you add that $150/mo to it, you might have it paid down in 22 years instead of 27. . .

 

If you plan to stay in the house more than 5 years, it is probably worth refi-ing; if you plan to stay more than 10 years, it is surely worth it. . . It is harder these days to make it pay to refi b/c of the higher fees and, of course, with that huge tax you pay in your state. Before the mortgage crisis, we had been able to do a refi with TOTAL fees of under 1/2 % of the loan balance, so going from a 6 % to a 4.75% loan was a no-brainer and paid for itself in under a year. . . Now, there is a longer "pay back period" b/c of the higher fees and taxes. It's a shame.

 

Talk with your banker and see if they can run some numbers for you.

[OrganicAnn]

You have to think of Points as interest you either are paying up front or financing. You have to calculate all the interest you are paying in each scenario.

 

For both loans you can obviously make extra principal payments and pay off your loan in a shorter period.

 

We've had mail with deals and for us most of the deals they made to sound good (lower payments but over more months so actually paying more interest), but they were not better deals.

[rafiki]

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[Halftime Hope]

We were able to get a really low percentage rate and low refi cost, but got "snookered" on the packaging of the refi costs, so that they were not tax deductible. Grrr! If the mortgage broker charges you a set fee for loan generation, rather than refi costs as a percentage of your loan, it won't be tax deductible.

 

We didn't lose much, but it was real hassle.

[bookfiend]

The strongest advantage is the ability to continue to make the same payment you are making now, but to apply that extra $150 toward principal each month. Depending on how much is being borrowed, you can save 30-45% of your total interest costs, translating to 10's of thousands saved. If this is your forever home, it is a no-brainer.

[rafiki]

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[claire up north]

check out this link

 

http://www.drcalculator.com/mortgage/

 

I would refinance.

[Scarlett]

Definitely not our forever home. It will take us 3 years just to break even going through Obama's program. I think we're going to pass.

 

Probably a smart move for your situation.

 

Don't ya love this board? Such a wide range of experience to help you pick through your options? :)

[Scarlett]

check out this link

 

http://www.drcalculator.com/mortgage/

 

I would refinance.

 

Oh my! This is a fabulous calculator! I can pay an extra $100 a month on my mortgage and have it paid off in 10 years instead of 15. I just got the mortgage and have only paid one payment...so I plan to do this now. Wow! Thanks for the link.