should we refinance?

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should we refinance?

Postby schmitz » Fri Mar 29, 2013 9:08 pm

hope this is the correct sub forum...

anyways, here is the info: we currently have a ~320,000 mortgage at 3.875%. (we actually refinanced a first time back in october, 2012)

we are told we can get 30 year/3.625% when we are eligible to refinance again (no fee refinance, only pay for an appraisal which was $400 last time). we plan on staying in the house at least 5 years...id say 95% chance its over 10 years. we are 35 and 34 years old.

is it worth it? normally id say of course since its probably a saving of about $50/month for basically doing nothing (8 months would recoup the appraisal fee and everything after that is a bonus) but i always forget that it resets the mortgage to a new 30 years. now granted, we would only be 6 months since our last but does this mean we would be adding 6 more monthly payments in exchange for saving ~$50 per month?

doesnt seem so great when I look at it like that. or is my math waaaay wrong? :confused
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Re: should we refinance?

Postby LadyGeek » Fri Mar 29, 2013 9:16 pm

Try running the numbers with this calculator: Mortgage Refinance Calculator: Refinancing One FRM Into Another FRM
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Re: should we refinance?

Postby tj » Fri Mar 29, 2013 9:36 pm

schmitz wrote:hope this is the correct sub forum...

anyways, here is the info: we currently have a ~320,000 mortgage at 3.875%. (we actually refinanced a first time back in october, 2012)

we are told we can get 30 year/3.625% when we are eligible to refinance again (no fee refinance, only pay for an appraisal which was $400 last time). we plan on staying in the house at least 5 years...id say 95% chance its over 10 years. we are 35 and 34 years old.

is it worth it? normally id say of course since its probably a saving of about $50/month for basically doing nothing (8 months would recoup the appraisal fee and everything after that is a bonus) but i always forget that it resets the mortgage to a new 30 years. now granted, we would only be 6 months since our last but does this mean we would be adding 6 more monthly payments in exchange for saving ~$50 per month?

doesnt seem so great when I look at it like that. or is my math waaaay wrong? :confused



Yes if you refi to a new loan, you would have 30 full years of payments. Of course, you could just pay it off 6 months early if that bothers you.
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Re: should we refinance?

Postby Watty » Fri Mar 29, 2013 10:10 pm

i always forget that it resets the mortgage to a new 30 years. now granted, we would only be 6 months since our last but does this mean we would be adding 6 more monthly payments in exchange for saving ~$50 per month?
tj wrote:
schmitz wrote:hope this is the correct sub forum...

anyways, here is the info: we currently have a ~320,000 mortgage at 3.875%. (we actually refinanced a first time back in october, 2012)

we are told we can get 30 year/3.625% when we are eligible to refinance again (no fee refinance, only pay for an appraisal which was $400 last time). we plan on staying in the house at least 5 years...id say 95% chance its over 10 years. we are 35 and 34 years old.

is it worth it? normally id say of course since its probably a saving of about $50/month for basically doing nothing (8 months would recoup the appraisal fee and everything after that is a bonus) but i always forget that it resets the mortgage to a new 30 years. now granted, we would only be 6 months since our last but does this mean we would be adding 6 more monthly payments in exchange for saving ~$50 per month?

doesnt seem so great when I look at it like that. or is my math waaaay wrong? :confused



Yes if you refi to a new loan, you would have 30 full years of payments. Of course, you could just pay it off 6 months early if that bothers you.



Or just pay an extra $50 a month which would reduce the length of the mortage.

One thing to watch out for is that the details of the terms of the loan may not be exactely the same.
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Re: should we refinance?

Postby Outer Marker » Fri Mar 29, 2013 10:13 pm

Yes, you should refi as rates are lower now, and you can do so at little or no cost. However, assuming you have good credit and a conforming loan, you should be able to do better than that not-so-wonderful offer from your current bank. Try amerisave.com, national mortgage alliance, and other internet direct lenders. Looks like you could walk away from the table with a 3.5% rate with all costs covered.
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Re: should we refinance?

Postby Mudpuppy » Fri Mar 29, 2013 10:51 pm

Make sure that it's really a no-cost refi and that they are not adding all the fees into the principal of the new loan. In addition to considering the resetting of the loan term, it's also not a good deal to cut your interest rate by 0.25% if you end up adding more to the principal.
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Re: should we refinance?

Postby lillypie » Sat Mar 30, 2013 3:00 am

Your post is EXACTLY the choice I just went though. We ended up biting the bullet and went to a 15 year at 2.75% no cost refi. We paid down to 300K to keep the payments down. If you can swing it...I suggest taking a look at the 15 year. We also entertained a 7/1 arm with a plan to pay down early.
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Re: should we refinance?

Postby schmitz » Wed Apr 03, 2013 12:13 pm

thanks for all the help and suggestions!
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Re: should we refinance?

Postby midareff » Wed Apr 03, 2013 12:57 pm

Outer Marker wrote:Yes, you should refi as rates are lower now, and you can do so at little or no cost. However, assuming you have good credit and a conforming loan, you should be able to do better than that not-so-wonderful offer from your current bank. Try amerisave.com, national mortgage alliance, and other internet direct lenders. Looks like you could walk away from the table with a 3.5% rate with all costs covered.



March 22, 2013, I closed on a 30 year 3.0% mortgage with PenFed. Check them out online.
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Re: should we refinance?

Postby Meg77 » Wed Apr 03, 2013 1:49 pm

I am a banker and have originated mortgages in the past. I would never try to sell someone a new mortgage just to save $50 a month or 0.25% on the rate - especially when they just refinanced a few months before! Are you going to refinance every 6 months with every fluctuation in rates? You should wait until you can at least shave a half a point off the rate. With this deal - if it's even legit and they aren't sneaking in fees - it would be 8 months before you break even just on the appraisal closing costs. And I'm not sure how they are able to waive title fees - there will have to be a new deed recorded, etc...Anyway you'd be starting over your amortization schedule so building equity that much slower. And you'll have to wrestle with the approval process for 30-60 days sending in and justyifying all your financial details with countless emails and explanations. I feel like you're missing the forest for the trees. You have a great mortgage. Don't kick yourself every time rates drop a little bit below the one you've got. You'll drive yourself nuts.
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Re: should we refinance?

Postby schmitz » Fri Apr 05, 2013 1:31 pm

thanks again for all the help.

i have a slight update - he is now offering a 15 year at 2.875%. can someone help me with the math here?

so right now im at 30 year/3.875% - my current payment (including insurance and prop taxes escrowed in) is about $2160. (total interest paid in 30 years = $221,000)

he is saying my new payments (again including everything) on the 15 year/2.875% would be about $700 more per month. (total interest paid in 15 years = $74,000)

so (if my math is right) i am paying an extra $700 per month for 15 years less and should save $147,000 in interest over the loan.

but if I keep my loan now and just add my own $700 per month extra to principal, it says I should pay it off in 16 years and pay $112,000 in interest. so without refinancing it would cost me in essence: $35,000 over about 15-16 years. so about $2200-$2300 per year.

does this all seem right? now would it be worth it to refinance? i guess the big question is can I afford $700 extra per month because refinancing adds risk. i can always stop adding $700 if i keep my current loan but if i refinance to the 15 year i have to pay it. right now we could afford $700 per month...in 5 years? in 10 years? who knows?

i was using this site btw: http://www.bankrate.com/calculators/mor ... lator.aspx
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Re: should we refinance?

Postby VgSince1982 » Fri Apr 05, 2013 4:38 pm

I like to look at the math a little more simply. It provides a better starting point than computing years and years worth of payments.

Start with the principal and interest (P+I) portion of your payment:

Your mortgage company computes your current month's interest by multiplying your monthly rate (yearly divided by 12) and your loan balance. That's it. Anything else in your P+I payment is principal and you are paying yourself back.

Right now, at $320,000 and 3.875%, this month's interest owed is $1033. (320000 times .03875 divided by 12)

If you changed to 3.625%, this month's interest owed is $967. (320000 times .03625 divided by 12)

If you changed ot 2.875%, this month's interest owed is $767. (320000 times .02875 divided by 12)

Anything else is your own payback. Once the bank computes a monthly payment, then you must pay that or more each month. That guarantees the bank gets its money back on time or sooner.

While you can compute how much you save over X years, but there is no guarantee you'll be in this house or in this loan in X years. Your choice should work for the short term and the long term.

And be careful about having the principal amount of the new loan increase. If a goal of yours is to stay on track paying it off, then you should only increase the principal amount if it indeed the best option (sometimes it is.)

My two cents!
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Re: should we refinance?

Postby YttriumNitrate » Fri Apr 05, 2013 8:04 pm

schmitz wrote:so (if my math is right) i am paying an extra $700 per month for 15 years less and should save $147,000 in interest over the loan.


Don't forget about that tricky little devil called "inflation"...$100 dollars today may only be worth $97 a year from now (or $63 fifteen years from now). You'll certainly save money (in absolute terms) if you go with the 15 year, but you should consider the value of the money as well.
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Re: should we refinance?

Postby Outer Marker » Sat Apr 06, 2013 8:18 am

schmitz wrote:the is now offering a 15 year at 2.875%.

so right now im at 30 year/3.875% - . . . . i guess the big question is can I afford $700 extra per month because refinancing adds risk. i can always stop adding $700 if i keep my current loan but if i refinance to the 15 year i have to pay it. right now we could afford $700 per month...in 5 years? in 10 years? who knows?


A full point lower in interest will clearly net you substantial savings whether you are looking at the short, medium or long term. You haven't given us enough information to answer the second question on risk -- how stable is your job; how in demand are your skills; and how long would your emergency fund last you? If you have cushion in your current budget and sufficient resources to carry you for a while in the event of job loss, I personally wouldn't be scared away from the large savings by committing to the higher payment.
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Re: should we refinance?

Postby TroutMD » Sat Apr 06, 2013 9:16 am

Yes, a 15 year note is cheaper and saves you considerably because you have 15 years less interest!

The downside is the increased payment, which is a big issue to many people.

We just refi to a 10 year note (from a 15) at 2.75% (down from 4.375%). Our payments are more (considerably more than a 30), but we can easily afford it so its not a big deal.

Shorter terms save you interest in the long run; but they cost more each month. Plus, on a 15, you are paying about 50/50 P&I from the start, on a 30, its like 95% of your payment goes to interest for years!
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Re: should we refinance?

Postby Watty » Sat Apr 06, 2013 10:58 pm

VgSince1982 wrote:I like to look at the math a little more simply. It provides a better starting point than computing years and years worth of payments.

Start with the principal and interest (P+I) portion of your payment:

Your mortgage company computes your current month's interest by multiplying your monthly rate (yearly divided by 12) and your loan balance. That's it. Anything else in your P+I payment is principal and you are paying yourself back.

Right now, at $320,000 and 3.875%, this month's interest owed is $1033. (320000 times .03875 divided by 12)

If you changed to 3.625%, this month's interest owed is $967. (320000 times .03625 divided by 12)

If you changed ot 2.875%, this month's interest owed is $767. (320000 times .02875 divided by 12)




If you are able to deduct your mortgage interest then need to also adjust by that. For example if you are in the 25% tax bracket and the cost of $100 in mortgage interest is $75.

One key thing to also consider if you are maxing out all your tax advantaged retirement accounts that you and any spouse could use. It would take some compelling argument to justify paying $700 a month extra to get a 15 year mortgage if you could be putting that into a deductible 401K instead.
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