How far did mortgage rates drop below your rate before refi

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How far did mortgage rates drop below your rate before refinanced?

Less than 0.5%
1
2%
0.5%
6
11%
greater than 0.5% but less than 1%
14
25%
1%
9
16%
greater than 1% but less than 1.5%
8
15%
1.5%
2
4%
greater than 1.5%
15
27%
 
Total votes: 55

markcoop
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How far did mortgage rates drop below your rate before refi

Post by markcoop » Sat Dec 01, 2012 8:39 am

It sounds like many here have refinanced multiple times of the past few years. I myself have down it 4 times over the past 14 years. I'm curious how much of a drop it took to refinance. It seems the same trend always followed for me: Rates hit lowest rate in a long time, rates dropped by around 0.5% or so, I can recover closing costs in less than 5 years and plan to live in the house greater than 5 years, so why not refinance?
Mark

livesoft
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Re: How far did mortgage rates drop below your rate before r

Post by livesoft » Sat Dec 01, 2012 9:05 am

A drop of 0.5% from 8.5% to 8.0% is not as significant as a drop from 4.0% to 3.5%. But you knew that.
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Grt2bOutdoors
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Re: How far did mortgage rates drop below your rate before r

Post by Grt2bOutdoors » Sat Dec 01, 2012 9:44 am

Depends, first time was 1.5 percent, second time .5, third time .5, maybe in another 6 months rates will come down - not counting on it though.
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markcoop
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Re: How far did mortgage rates drop below your rate before r

Post by markcoop » Sat Dec 01, 2012 10:00 am

livesoft wrote:A drop of 0.5% from 8.5% to 8.0% is not as significant as a drop from 4.0% to 3.5%. But you knew that.
Although that is true, the amount of money you save lowering it 0.5% is the same and the closing costs should also be the same. I would think if it makes sense at 0.5% to refinance, then it would make sense going from 8.5% to 8% or 4.0% to 3.5%, all other things being equal.

For everyone: You can vote up to 3 times.
Mark

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G-Money
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Re: How far did mortgage rates drop below your rate before r

Post by G-Money » Sat Dec 01, 2012 10:03 am

Depends on your definition of mortgage rates. With each refi, I reduced my term, as well as my rate.

Started with a 30-year @ 6%, went to 15-year @ 4.5%, then 7-year @ 3.5%, then 5/5 ARM @ 3.0%, then 5 year @ 1.99%.

I would not say that mortgage rates dropped from 6% to 2% over the last 4+ years, even though my mortgage rate did. 30-year rates dropped only about 2.75% in that span.

Also, perhaps an even bigger consideration is the closing costs. I paid closing costs when I purchased and for my first refi. Paid no closing costs for any of my last 3 refis. Obviously, I pay a slightly higher rate for that privilege.

I would say if you can refi for no closing costs to a rate lower than your current rate, you should do so, even if it's only a small drop. I would be much more discriminating if I had to pay closing costs. Back when I paid closing costs, my (arbitrary) rule of thumb was to have a breakeven of no more than 12-18 months.

For purposes of your poll, I've refi'd 4 times in 4 years, and my personal rate dropped almost exactly 4%, so I'll vote accordingly.
Don't assume I know what I'm talking about.

scrabbler1
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Re: How far did mortgage rates drop below your rate before r

Post by scrabbler1 » Sat Dec 01, 2012 12:47 pm

In my first mortgage back in early 1989, the rate was 10.75% on a 5-year ARM. In 1992, I refi'd into a 1-year ARM at 6%, saving me $200 a month. The rate crept up to 8% in the next 6 years but by then I had paid it off (thanks in part to the savings from the refi).

sscritic
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Re: How far did mortgage rates drop below your rate before r

Post by sscritic » Sat Dec 01, 2012 12:49 pm

markcoop wrote: I myself have down it 4 times over the past 14 years.
Can we hear it for Sigmund? I would down my mortgage from 3% to 2% if rates dropped that low.

Khanmots
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Re: How far did mortgage rates drop below your rate before r

Post by Khanmots » Sat Dec 01, 2012 1:01 pm

Unfortunately your poll doesn't have any measure of break-even time which is important for these comparisons as there's a big difference between dropping your rate 0.5% with instant break-even and 0.5% with 5-10 years until break-even.

Personally I refinanced when I could do so at no-cost while shaving 0.5%+ off my rate.

In my case this meant that I changed my 4.25% 15yr fixed (with 13 years remaining) into a no-cost 30yr 5/5 ARM at 3% and am paying extra principle so that it's being paid off on a 10yr amortization schedule to ensure that even the worst case (5% rate for years 6-10) has me staying ahead over the length of the loan.

markcoop
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Re: How far did mortgage rates drop below your rate before r

Post by markcoop » Sat Dec 01, 2012 2:42 pm

G-Money wrote:I would say if you can refi for no closing costs to a rate lower than your current rate, you should do so, even if it's only a small drop.
There are always costs other than closing costs: your time, amount of hassle, consideration of other loans (ie., do you close an open HELOC or subordinate it which may cost more). So for a small drop, it may not be worth it. I also don't like to do a no-cost loan. It means you either got a higher rate or extra costs got put into the loan (any amount higher than the current loan amount incur greater fees).

The purpose of this post was to get a feel if people refinance the first time there's a small advantage to do it or do they wait for a larger advantage (risking not being able to do it if rates rise). The poll was not meant to be anything scientific, but rather a simple mechanism to get a feel for what people are doing. In retrospect, I would've preferred not refinancing as often as I did, but I always felt I made a good decision going forward. I'm not confusing strategy with outcome. Just seeing if there was something I can learn from the experience. I may never use this information, but maybe I'll have some wisdom for my kids.
Mark

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Re: How far did mortgage rates drop below your rate before r

Post by RenoJay » Sat Dec 01, 2012 4:03 pm

My house was seriously underwater, so I waited for rates to drop from 6.12% to 4% before deciding to pony up over $300k to get my house in a place where I could even get a refi. Since then I've refi-d twice and am down to 3%.

stlrick
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Re: How far did mortgage rates drop below your rate before r

Post by stlrick » Sat Dec 01, 2012 4:37 pm

markcoop wrote:
livesoft wrote:A drop of 0.5% from 8.5% to 8.0% is not as significant as a drop from 4.0% to 3.5%. But you knew that.
Although that is true, the amount of money you save lowering it 0.5% is the same and the closing costs should also be the same. I would think if it makes sense at 0.5% to refinance, then it would make sense going from 8.5% to 8% or 4.0% to 3.5%, all other things being equal.

For everyone: You can vote up to 3 times.
In terms of dollars saved, both of these statements are incorrect. I put some numbers in a mortgage calculator. $200,000 for 30 years. Mortgage rate in 0.5% steps: 6.00, 5.50, 5.00, 4.50, 4.00, 3.50. The monthly payments would be: $1199.11, 1135.58, 1073.65, 1013.38, 954.84, 898.09.

The bottom line figure, how much the monthly payment goes down if refinancing for a 0.5% drop in interest rate, goes in order as follows: $63.53, $61.93, $60.27, $58.54, $56.75.

In other words, a 0.5% drop is of more value at higher interest rates (in terms of dollars saved monthly).

sscritic
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Re: How far did mortgage rates drop below your rate before r

Post by sscritic » Sat Dec 01, 2012 4:50 pm

Look at total interest paid over the 30 years (you obviously get the same result):

6.0% 231,676.38
5.5% 208,808.08 (save $22,868.30)

3.0% 103,554.90
2.5% 84,487.05 (save $19,067.85)

I am not sure why I knew that, but somewhere in the back of my mind I was pretty sure that the savings at the higher rate were greater. I think it is because with a lower rate, almost all your money goes to principal. Saving 0.5% on a smaller balance is not worth as much as saving 0.5% on a larger balance, which is what the higher interest rate produces.

sport
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Re: How far did mortgage rates drop below your rate before r

Post by sport » Sat Dec 01, 2012 5:08 pm

Here is a different technique that may be of value for a small drop in rates. When I bought my first house, a learned that the same bank was offering the same loan for 0.25% less than my rate, only 6 months into my 20-year loan. This was a time when rates were not changing much. I did not want to incur refinancing costs. So, I went to the bank and asked if I could get the lower rate. I was told to write a letter to the mortgage dept. and ask, so I did. The response was that they would indeed give me the lower rate, but they retained the right to put it back, if rates went up in the future, but no higher than the original rate. Well, future rates went much higher, but the bank apparently forgot about my special arrangement and they never raised it. It shortened the term of my mortgage by 9 months.
Jeff

bobby21
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Re: How far did mortgage rates drop below your rate before r

Post by bobby21 » Sat Dec 01, 2012 6:18 pm

Its not just the rate, its risk too.

I have a 1 month ARM - libor+2% - so I have been paying about 2.5% or so for 2 years now.

Rates for 15 year mortgages fixed are now 2.5% - so I am thinking of refinancing. It will cost me $2500 closing costs, but I think uncle ben with his operation twist may not be good for my 1 month ARM to be risk free any more. Any thoughts?

tj
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Re: How far did mortgage rates drop below your rate before r

Post by tj » Sat Dec 01, 2012 7:55 pm

I started at a 30 year 5.25%. About a year and a half into the loan, I refied to a 15 year 3.625% no closing costs. Right now, the same bank has a 15 year 3.125% or 10 year 2.99% no closing costs, it doesn't really seem like ab big enough difference to make the jump. There's also the PenFed 5/5 ARM at 2.75% with no costs, but I'm not sure the savings would really be worth it, especially if rates go up...it would be a gamble, but also motivate to pay down the loan faster...

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G-Money
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Re: How far did mortgage rates drop below your rate before r

Post by G-Money » Sat Dec 01, 2012 9:58 pm

markcoop wrote:There are always costs other than closing costs: your time, amount of hassle, consideration of other loans (ie., do you close an open HELOC or subordinate it which may cost more). So for a small drop, it may not be worth it. I also don't like to do a no-cost loan. It means you either got a higher rate or extra costs got put into the loan (any amount higher than the current loan amount incur greater fees).
I agree there are always "costs", but for me, they were de minimus. I don't think I spent more than an hour or two on any refi. I didn't have a HELOC or other home loans. And with each of my no closing cost loans, I couldn't find any other lender offering lower rates with closing costs for the same loan term. I know that nothing was added to the principal balance. So while those closing costs may have been baked into the rate, they were still the best rates available.

Incidentally, if you know of anyone offering a rate better than 1.99% fixed for 5 years, with or without closing costs, I'm all ears.
Don't assume I know what I'm talking about.

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G-Money
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Re: How far did mortgage rates drop below your rate before r

Post by G-Money » Sat Dec 01, 2012 10:08 pm

tj wrote:I started at a 30 year 5.25%. About a year and a half into the loan, I refied to a 15 year 3.625% no closing costs. Right now, the same bank has a 15 year 3.125% or 10 year 2.99% no closing costs, it doesn't really seem like ab big enough difference to make the jump. There's also the PenFed 5/5 ARM at 2.75% with no costs, but I'm not sure the savings would really be worth it, especially if rates go up...it would be a gamble, but also motivate to pay down the loan faster...
How much do you value your time? Figure it takes you 4 hours to apply for the refi, do any follow-up, and go through the closing (it typically took me much less). You can save about $600 in one year (assuming the 2.99% rate), $1100 in two years, $2000 over 4 years, etc. If the loans are truly no cost, I'd think it's a no-brained to go for it.
Don't assume I know what I'm talking about.

Novine
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Re: How far did mortgage rates drop below your rate before r

Post by Novine » Sat Dec 01, 2012 10:15 pm

Agree with G-Money. My current loan is about 0.5% over current rates. I ran the numbers and with closing costs that I had on the last loan, the numbers don't make sense. But if I jumped to a no-cost refinance, it would be worth the time and effort to get that kind of savings.

john94549
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Re: How far did mortgage rates drop below your rate before r

Post by john94549 » Sun Dec 02, 2012 12:29 am

We were at 5.25%. Our re-fi is at a blended rate of roughly 3.3 or thereabouts. The main chunk is at 3.4 (Fannie Mae) and the balance at prime minus 0.2. The main chunk is 30 year fixed, no points, normal closing costs. The HELOC balance is adjustable, of course, but I don't see rates going up anytime soon. All things considered, not a bad deal.

The loan on our rental property is 2.25%. It's an adjustable tied to LIBOR. As our banker said "we don't write stuff like that any more." Weirdly enough, I was in his office the day the rate fell off the cliff (from 5.75 to 2.25). He suggested we not re-fi that particular loan. I did note that the monthly payment remained just about the same, however, as our "interest only" began to include amortization. My wife still giggles, however, when she's paying more toward principal reduction than interest. So, I guess that's good.

I'm old enough to remember interest rates from the late 70's - early 80"s. Heck, interest rates changed so fast they needed a chalkboard.

tj
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Re: How far did mortgage rates drop below your rate before r

Post by tj » Sun Dec 02, 2012 1:23 am

G-Money wrote:
tj wrote:I started at a 30 year 5.25%. About a year and a half into the loan, I refied to a 15 year 3.625% no closing costs. Right now, the same bank has a 15 year 3.125% or 10 year 2.99% no closing costs, it doesn't really seem like ab big enough difference to make the jump. There's also the PenFed 5/5 ARM at 2.75% with no costs, but I'm not sure the savings would really be worth it, especially if rates go up...it would be a gamble, but also motivate to pay down the loan faster...
How much do you value your time? Figure it takes you 4 hours to apply for the refi, do any follow-up, and go through the closing (it typically took me much less). You can save about $600 in one year (assuming the 2.99% rate), $1100 in two years, $2000 over 4 years, etc. If the loans are truly no cost, I'd think it's a no-brained to go for it.

I just checked and it seems that bank has more strict requirements now. LTV must be 60% or less, and minimum loan is 125k.


When I did my re-fi a year ago, I had higher LTV and lower loan value. Consequently, the bank is Fremont Bank and they only do loans in California and a few of the bordering states (I don't remember which)

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Re: How far did mortgage rates drop below your rate before r

Post by usorry » Sun Dec 02, 2012 11:04 am

For me the rates have to be low enough to outrun the refi costs within 18-24 months. That is of course if the purpose is saving money on interest expense. The purpose of the refi is important. Some folks in an ARM might want to refi to lock a current rate. Or some financial economists are trying to extend their balance out as far as possible to manage inflation risks. For me, I'm managing interest expense and principal reduction. I still make the same payment amount as my original mortgage an apply the excess to principal each month.

I've been in my house for 5 years. Here we're my rates.
30yr - 6%
30yr - 5.125%
30yr - 4.5%
5/5 - 3.25%
5/5 - 2.75%

porcupine
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Re: How far did mortgage rates drop below your rate before r

Post by porcupine » Sun Dec 02, 2012 11:13 am

livesoft wrote:A drop of 0.5% from 8.5% to 8.0% is not as significant as a drop from 4.0% to 3.5%. But you knew that.
True, but a drop of 0.5% would be much more significant on a principal of $1 million than $100k (hope no one has made this point yet).

- Porcupine

scrabbler1
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Re: How far did mortgage rates drop below your rate before r

Post by scrabbler1 » Sun Dec 02, 2012 1:04 pm

usorry wrote:For me the rates have to be low enough to outrun the refi costs within 18-24 months. That is of course if the purpose is saving money on interest expense. The purpose of the refi is important. Some folks in an ARM might want to refi to lock a current rate. Or some financial economists are trying to extend their balance out as far as possible to manage inflation risks. For me, I'm managing interest expense and principal reduction. I still make the same payment amount as my original mortgage an apply the excess to principal each month.
The 18-24 month range to recover refi costs is what I read in my research in my 1992 refi. It took me about that long to get mine back. For me, it wasn't so much locking in a favorable ARM but to get out of an unfavorable one when interest rates tumbled in 1991. The new rate on the 1-year ARM was so low (6%) compared to the old rate on the 5-year ARM (10.75%) that the lifetime upper limit on the new loan was only a little higher (12%) than on my previous loan, and it would take 3 years of capped increases (of +2% per year) to get there. Instead, it went up only about 2% in 6 years. Had I stayed with the previous loan, I would have seen only a -2% max change in 1994, or down to 8.75%, a lousy proposition.

markcoop
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Re: How far did mortgage rates drop below your rate before r

Post by markcoop » Sun Dec 02, 2012 1:27 pm

stlrick wrote:In other words, a 0.5% drop is of more value at higher interest rates (in terms of dollars saved monthly).
Interesting. So even though the percentage decline is smaller at the higher interest rates, the dollars saved is greater.
G-Money wrote:And with each of my no closing cost loans, I couldn't find any other lender offering lower rates with closing costs for the same loan term. I know that nothing was added to the principal balance. So while those closing costs may have been baked into the rate, they were still the best rates available.
That's a hard statement to believe. I find it's very hard to really compare rates these days.
Mark

harikaried
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Re: How far did mortgage rates drop below your rate before r

Post by harikaried » Sun Dec 02, 2012 4:31 pm

Got the initial mortgage and refinanced for a total of 4 loans in the last 4 years:

5.250% 30-yr fixed ($2000/mo, initial mortgage Aug 2009)
4.375% 30-yr fixed (-0.88%, $1800/mo, -$200/mo, refinance Aug 2010)
3.875% 30-yr fixed (-0.50%, $1650/mo, -$150/mo, refinance Aug 2011)
2.758% 5/1 ARM (-1.12%, $1400/mo, -$250/mo, refinance Aug 2012)

Cottage
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Re: How far did mortgage rates drop below your rate before r

Post by Cottage » Sun Dec 02, 2012 7:28 pm

I purchased in 2007 -- $225k, 5% down, no PMI, 6.25%, 30-yr fixed. Refinanced in 2010 to another 30-yr fixed at 4.25%, had been paying ahead, paid down a bit more to satisfy the loan (appraisal came in a bit lower than orig. purchase price). Just refi'd again this past summer - another 30-yr fixed, paid down a bit more again, 3.5%. I've stuck with the 30-yr loans because I want to feel comfortable that I could still pay my mortgage if I lost my job and had to string together part-time slots. I also am mildly obsessed with paying ahead as much as I can, though, so I don't plan to pay for 30 years.

Rolling into the long loan repeatedly is probably not boglehead-ish enough, but it's what I'm comfortable with for my circumstances. Did the whole "debt-thing" in my younger days, now I abhor debt of any kind, so I just try to strike a balance between chipping away at the mortgage, and saving as much as I can. Not earning major money, so this works for me.

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G-Money
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Re: How far did mortgage rates drop below your rate before r

Post by G-Money » Sun Dec 02, 2012 7:59 pm

markcoop wrote:
G-Money wrote:And with each of my no closing cost loans, I couldn't find any other lender offering lower rates with closing costs for the same loan term. I know that nothing was added to the principal balance. So while those closing costs may have been baked into the rate, they were still the best rates available.
That's a hard statement to believe. I find it's very hard to really compare rates these days.
I've found quite the opposite. Especially for longer terms (15- or 30-year fixed rate mortgages), it's very easy to get anonymous GFEs from several reputable lenders in the span of 15 minutes. Try Amerisave, Aimloan, NMA, Firstib, and maybe some local lenders. You can compare rates and closing costs fairly easily, then.

As for whether the non-closing cost loans I had were actually the lowest rates. From memory, when I closed on PenFed's 5/5 ARM in early 2012 (first 5 years at 3%), it was either the lowest or nearly the lowest 5 year ARM I could find. I believe someone else was offering something in the 2.875% range, but with significant closing costs. I have a low balance, so it was an easy decision.

This summer, I closed on PenFed's 5 year HEL at 1.99% with no closing costs (including no appraisal). I have looked occasionally since then to see if there's anything better. The best I have found is HELOCs with a promotional rate of 1% for the first year. I suppose in 2 years, I may go for a deal like that, but not when I still have another 4+ years to go. When the balance is sufficiently low, I may try the 0% balance transfer game with credit cards. But as it stands, PenFed's 5 year HEL is still the best rate I could find, with or without closing costs. I meant what I posted before, though:
G-Money wrote:Incidentally, if you know of anyone offering a rate better than 1.99% fixed for 5 years, with or without closing costs, I'm all ears.
Don't assume I know what I'm talking about.

porcupine
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Re: How far did mortgage rates drop below your rate before r

Post by porcupine » Sun Dec 02, 2012 9:04 pm

G-Money wrote:[...]As for whether the non-closing cost loans I had were actually the lowest rates. From memory, when I closed on PenFed's 5/5 ARM in early 2012 (first 5 years at 3%), it was either the lowest or nearly the lowest 5 year ARM I could find. I believe someone else was offering something in the 2.875% range, but with significant closing costs. I have a low balance, so it was an easy decision.

This summer, I closed on PenFed's 5 year HEL at 1.99% with no closing costs (including no appraisal). I have looked occasionally since then to see if there's anything better.[...]I meant what I posted before, though:
G-Money wrote:Incidentally, if you know of anyone offering a rate better than 1.99% fixed for 5 years, with or without closing costs, I'm all ears.
For about 18 months, you will still have (un)closing costs with Penfed's HEL, so you might want to wait until summer 2014 before you open those ears ;-)

- Porcupine

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G-Money
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Re: How far did mortgage rates drop below your rate before r

Post by G-Money » Sun Dec 02, 2012 9:43 pm

porcupine wrote:For about 18 months, you will still have (un)closing costs with Penfed's HEL, so you might want to wait until summer 2014 before you open those ears ;-)

- Porcupine
Valid point. For me, those closing costs would total a whopping $165. :D So I'll keep my ears open anyway. :greedy
Don't assume I know what I'm talking about.

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Ducks
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Re: How far did mortgage rates drop below your rate before r

Post by Ducks » Mon Dec 03, 2012 1:10 am

We bought our house in 2010 with a 4.5% 30 year fixed and thought we did great. Earlier this year we refi'ed into a 3.65%.
Getting our Ducks in a row since 2008.

john94549
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Re: How far did mortgage rates drop below your rate before r

Post by john94549 » Mon Dec 03, 2012 6:34 am

Just when one thinks rates can't go any lower, they go lower.

That said, borrowing rates today (historically) are pretty good. Well, better than pretty good.

Now, will the prime rate or LIBOR go to "negative"? Will Stanford play Wisconsin in the Rose Bowl in 2013?*

As they say, anything is possible.

*Getting tickets. You betcha. Assume there might be a few Bogleheads in attendance. As they say, wear red.

porcupine
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Re: How far did mortgage rates drop below your rate before r

Post by porcupine » Mon Dec 03, 2012 7:49 am

G-Money wrote:
porcupine wrote:For about 18 months, you will still have (un)closing costs with Penfed's HEL, so you might want to wait until summer 2014 before you open those ears ;-)

- Porcupine
Valid point. For me, those closing costs would total a whopping $165. :D So I'll keep my ears open anyway. :greedy
Don't know what loan those costs were incurred for. Here in FL, had they not been waived, ours would've been a (really) whopping 2% of the loan amount - quite a lot in the context of the 1.99% rate, eh? :oops:

- Porcupine

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Re: How far did mortgage rates drop below your rate before r

Post by bungalow10 » Mon Dec 03, 2012 7:56 am

I bought my house almost exactly 10 years ago.

6% 30-year fixed
5.375% 30-year fixed
4.75% 30-year fixed
3.75% 15-year fixed
3.25% 15-year fixed
2.375 15-year fixed

We also have a rental unit purchased in 2007. We started with a 30-year fixed at 6.8%, went down to 5.75%, then to 5%, then to 4.25% (still 30 year).

I'm hoping to never refinance again.
An elephant for a dime is only a good deal if you need an elephant and have a dime.

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G-Money
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Re: How far did mortgage rates drop below your rate before r

Post by G-Money » Mon Dec 03, 2012 12:22 pm

porcupine wrote:
G-Money wrote:
porcupine wrote:For about 18 months, you will still have (un)closing costs with Penfed's HEL, so you might want to wait until summer 2014 before you open those ears ;-)

- Porcupine
Valid point. For me, those closing costs would total a whopping $165. :D So I'll keep my ears open anyway. :greedy
Don't know what loan those costs were incurred for. Here in FL, had they not been waived, ours would've been a (really) whopping 2% of the loan amount - quite a lot in the context of the 1.99% rate, eh? :oops:

- Porcupine
That's very interesting. I've seen several others here post that their penalty for paying off the PenFed 5 year HEL inside of 2 years was under $200. As a percentage of the principal balance at the time of closing, my prepayment penalty was about 0.18%. Perhaps there are significantly higher taxes, recording fees, or title insurance down in FL? Certainly appears to be worth sticking out the 24 months in your case.
Don't assume I know what I'm talking about.

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