Anyone recently Refi home mortgage? Suggestions?

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financial.freedom
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Joined: Fri Oct 03, 2014 1:18 am

Anyone recently Refi home mortgage? Suggestions?

Post by financial.freedom »

I noticed rates dropped last week. We have 30-year fixed jumbo at 3.625% which is pretty good, but a cursory search shows a few places offering 3.5% 30-year fixed jumbo (credit scores 770, 780). Last time we were able to get rates lower than the cursory search, so we might be able to get 3.4% maybe less if we delve deeper and negotiate, I don't know. Our mortgage is pretty recent -- only 6 months so far, expecting to live in the house about 10 years. We also get $500 per year cash back from Chase, not sure how that factors in.

Is it worth it in our case?

Any recommendations for Refi companies to contact?

Thank you in advance!
davehica
Posts: 43
Joined: Sun May 18, 2014 3:07 pm

Re: Anyone recently Refi home mortgage? Suggestions?

Post by davehica »

We're in a similar position. My sig other and I have an avg credit score of 771. Currently have a 3.875% 30 year fixed jumbo and just started the refinancing process. We are currently rate locked at 3.625% for 60 days, and if our LTV comes back <70% after the appraisal it will drop to 3.5%. Since this is a no cost refi, it's definitely worth it for us. Certainly couldn't hurt for you to reach out to a few of them and provide some preliminary info to see what you can negotiate.

I shopped the rate with about 4 different companies and ended up with eclick.

Regarding the $500 credit, I highly recommend running all of the scenarios through the calculators at mortgage professor. Very helpful. Good luck.

David
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4nursebee
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by 4nursebee »

I saw an ad for quickens rocket mortgage site, signed up, got a quote that seemed ok. We did all the work requested, had two issues with how it worked. For one item that was requested to be uploaded I was told I did not need to send it. A month plus later it was the only thing holding up progress and I did have to upload it. The 2nd thing was that despite everything being done online we got cold called by a foreign sounding voice trying to get bank info out of us. We hung up. When they called again a week or two later they left a number on our machine. I did a net search for the number, could not figure it out. I asked quicken if this was legit, turns out they forgot to tell me that Equifax was going to call to set up a 3rd party call with my current HELOC bank to confirm amounts. So that slowed it down some also.

When everything was set and ready, I looked hard and fast at the numbers. In order to refi 111K, it would cost me nearly 7K, or 6% of the cost, but my payments would lower from 1400 ish to 875ish (600 ish without escrow amounts for T,I) and the rate would be 1/2% lower and locked in. I hated the idea of paying 7K for the peace of mind of lower payment as we face/consider FIRE, especially since the 7K applied to current HELOC would lower our payment by $84 per month.

We ended up not closing on the refi because:
High costs
We can apply our recent buildup of cash, expected tax refund, and an insurance cash out to the mortgage
and within a year cut the HELOC in half and get the same payment

Quicken continued to hassle us for a week or so, acted like they did not read my uploaded letter asking them to close our loan application (everything else they acknowledged normally within an hour) , did not listen when I told them we were not closing on the phone. I'd only given them my google voice number when I applied. When I blocked their number on google, they then started calling my house directly.

Moral of this for anyone considering a refi, evaluate the costs and see if it makes financial sense. It did not for me.
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denovo
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by denovo »

financial.freedom wrote:I noticed rates dropped last week. We have 30-year fixed jumbo at 3.625% which is pretty good, but a cursory search shows a few places offering 3.5% 30-year fixed jumbo (credit scores 770, 780). Last time we were able to get rates lower than the cursory search, so we might be able to get 3.4% maybe less if we delve deeper and negotiate, I don't know. Our mortgage is pretty recent -- only 6 months so far, expecting to live in the house about 10 years. We also get $500 per year cash back from Chase, not sure how that factors in.

Is it worth it in our case?

Any recommendations for Refi companies to contact?

Thank you in advance!
The most important x factor in considering whether or not a refinance is worth it is how long you will remain in a home. This calculator covers all the issues. http://www.mtgprofessor.com/calculators ... tor3a.html

In my experience there really isn't much negotiation done in mortgage rates and fees. I would use Zillow Mortgage, Bankrate, and Mtg Professor to get generic quotes based on the information you input. Then get all the info you need ready to fill out the loan application , w2, pay stubs, tax returns, and etc and request a personal quote from all 4 companies on the same day. Lock with whoever gives you the best rate.
"Don't trust everything you read on the Internet"- Abraham Lincoln
cherijoh
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by cherijoh »

financial.freedom wrote:I noticed rates dropped last week. We have 30-year fixed jumbo at 3.625% which is pretty good, but a cursory search shows a few places offering 3.5% 30-year fixed jumbo (credit scores 770, 780). Last time we were able to get rates lower than the cursory search, so we might be able to get 3.4% maybe less if we delve deeper and negotiate, I don't know. Our mortgage is pretty recent -- only 6 months so far, expecting to live in the house about 10 years. We also get $500 per year cash back from Chase, not sure how that factors in.

Is it worth it in our case?

Any recommendations for Refi companies to contact?

Thank you in advance!
Closing costs are highly dependent on location, so without further details we can't say whether it is worth it for you. How much did it cost you to close on your current mortgage? Personally, I'd be surprised if it made sense for a dip of 0.125%. Especially since you don't plan to stay in the house.

On what do you expect to be able to negotiate? You can shop around between lenders, but I doubt you can work with a specific lender to get a "better deal" unless you pay more points. I doubt that you can leverage an offer from a different financial institution the way you can with car dealers when buying a car.
dependapotamus
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by dependapotamus »

I just started the refinance process on a house I've owned for 8 months. Refinancing from a 30 year fixed doctor's loan to a 30 year fixed VA loan. Interest rate is dropping from 4.2% to 3.25%. Total costs not including prepaid escrows will run about $2,000, and we have the cash to pay that at the closing table rather than roll it into financing.

We know we will be in this house for at least 3.5 years, and will most likely keep it as a rental property once we leave as we did with our previous home. As others have mentioned, that is the big deciding factor. When I spoke with our current lender, the best they could offer was about a 0.4% rate reduction with about $3,000 in closing costs. Since my wife and I would want to break even within that guaranteed 3.5 years remaining in the house even our loan officer suggested we pass.

With the refinance we are going with, our payback period is just shy of 1.5 years. So that will actually save us about $2,500 over the next 3.5 years. At that point we're happy to pull the trigger on refinancing.
Ready3Retire
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Location: Midwest

Re: Anyone recently Refi home mortgage? Suggestions?

Post by Ready3Retire »

We also get $500 per year cash back from Chase, not sure how that factors in.
Please clarify, how do you get $500 cash back each year from Chase? Thanks.
Topic Author
financial.freedom
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by financial.freedom »

duplicate, sorry.
Last edited by financial.freedom on Mon Jan 18, 2016 11:37 am, edited 1 time in total.
Topic Author
financial.freedom
Posts: 565
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by financial.freedom »

Ready3Retire wrote:
We also get $500 per year cash back from Chase, not sure how that factors in.
Please clarify, how do you get $500 cash back each year from Chase? Thanks.
https://www.chase.com/mortgage/mortgage ... -cash-back
Topic Author
financial.freedom
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by financial.freedom »

financial.freedom wrote:
cherijoh wrote:
financial.freedom wrote:I noticed rates dropped last week. We have 30-year fixed jumbo at 3.625% which is pretty good, but a cursory search shows a few places offering 3.5% 30-year fixed jumbo (credit scores 770, 780). Last time we were able to get rates lower than the cursory search, so we might be able to get 3.4% maybe less if we delve deeper and negotiate, I don't know. Our mortgage is pretty recent -- only 6 months so far, expecting to live in the house about 10 years. We also get $500 per year cash back from Chase, not sure how that factors in.

Is it worth it in our case?

Any recommendations for Refi companies to contact?

Thank you in advance!
Closing costs are highly dependent on location, so without further details we can't say whether it is worth it for you. How much did it cost you to close on your current mortgage? Personally, I'd be surprised if it made sense for a dip of 0.125%. Especially since you don't plan to stay in the house.

On what do you expect to be able to negotiate? You can shop around between lenders, but I doubt you can work with a specific lender to get a "better deal" unless you pay more points. I doubt that you can leverage an offer from a different financial institution the way you can with car dealers when buying a car.
No, in fact I did negotiate the same way I do with car dealers. I would get a better rate, less points, lower costs etc. and leveraged that against the other lenders. Started with four companies and narrowed it down to two. Those two offered the same rate, zero fees, reimburse appraisal fees etc. and then Chase threw in the $500 cash back per year which sealed the deal.

You're right, it might not be worth the extra work for 0.125% depending upon the variables. Our loan is jumbo, so even small changes in % make a big difference over the 10 or so years we plan to live here.
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financial.freedom
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by financial.freedom »

duplicate
cherijoh
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Location: Charlotte NC

Re: Anyone recently Refi home mortgage? Suggestions?

Post by cherijoh »

financial.freedom wrote:
financial.freedom wrote:
cherijoh wrote:
financial.freedom wrote:I noticed rates dropped last week. We have 30-year fixed jumbo at 3.625% which is pretty good, but a cursory search shows a few places offering 3.5% 30-year fixed jumbo (credit scores 770, 780). Last time we were able to get rates lower than the cursory search, so we might be able to get 3.4% maybe less if we delve deeper and negotiate, I don't know. Our mortgage is pretty recent -- only 6 months so far, expecting to live in the house about 10 years. We also get $500 per year cash back from Chase, not sure how that factors in.

Is it worth it in our case?

Any recommendations for Refi companies to contact?

Thank you in advance!
Closing costs are highly dependent on location, so without further details we can't say whether it is worth it for you. How much did it cost you to close on your current mortgage? Personally, I'd be surprised if it made sense for a dip of 0.125%. Especially since you don't plan to stay in the house.

On what do you expect to be able to negotiate? You can shop around between lenders, but I doubt you can work with a specific lender to get a "better deal" unless you pay more points. I doubt that you can leverage an offer from a different financial institution the way you can with car dealers when buying a car.
No, in fact I did negotiate the same way I do with car dealers. I would get a better rate, less points, lower costs etc. and leveraged that against the other lenders. Started with four companies and narrowed it down to two. Those two offered the same rate, zero fees, reimburse appraisal fees etc. and then Chase threw in the $500 cash back per year which sealed the deal.

You're right, it might not be worth the extra work for 0.125% depending upon the variables. Our loan is jumbo, so even small changes in % make a big difference over the 10 or so years we plan to live here.
My experience is with conforming loans - so that may be the difference. Most lenders don't negotiate much on those unless things have changed. With all those concessions, you should verify that there are no prepayment penalties for refinancing this quickly.

When comparing the benefits, be sure and do a side-by-side amortization schedule. Even though this is relatively new loan, you are resetting the time clock and mortgages have all their interest front loaded.
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jimb_fromATL
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by jimb_fromATL »

It's highly unlikely to be worth refinancing for such a small reduction in the rate. There are closing costs and expenses involved in processing a new mortgage, typically in the range of 1% to 2% or more of the balance of the loan. You'll either have to pay those out of pocket or roll them into the loan, or else they'll be hidden in a slightly higher-than-market interest rate which will recoup the costs to the lender within a few years.

IMO whether it makes any financial sense to refinance is IF for the same amount of money out of pocket -- both up front in closing costs and for the same total monthly payment-- the savings in interest will make up for the closing costs and you will owe no more on the new mortgage than you would have on the old one by the time you expect to sell the home or else by the time it's paid off.

If your net worth for the same money out of pocket is not more by that time, then you've lost money for refinancing. If you have more equity and net worth with the new mortgage for exactly the same total paid out of pocket, you've won.

(If you're considering paying the closing costs out of pocket then you need to compare the results for the refi to paying the same amount as an extra principal payment on the existing mortgage. If the new loan has a lower payment, then you need to compare making the old payment on the new mortgage.)

A lot of people fall into the trap of thinking that a lower rate and/or a lower payment is always going to save money. Not necessarily so. That's because mortgages (and most other loans) are compound interest in reverse. The borrower's debt is the lender's investment with interest calculated --compounded-- monthly on the unpaid balance. So it you stretch out a loan for a longer time with a lower payment, you can often end up paying more total interest -- even if the rate is lower.

Another common misunderstanding is that the difference if the payment is lower on the new mortgage is free money. IMO not so either. Every month you don't pay it on the mortgage gives you roughly the same net result as borrowing the money and financing it at the mortgage rate for the remaining number of months in the loan schedule. So you often need to pay at least as much on the new mortgage as you were on the old one to save the most money – and sometimes to save any money.

Given enough data, we can help you do the math to see if it would pay you to refinance.
  • How much do you owe now?
    What is the payment for the mortgage P&I (Principal & Interest) ? (Not including escrow for T&I)
    Are you paying PMI now?

    Would you pay closing costs out of pocket, or roll the debt into the new mortgage?


jimb
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financial.freedom
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by financial.freedom »

jimb_fromATL wrote:It's highly unlikely to be worth refinancing for such a small reduction in the rate. There are closing costs and expenses involved in processing a new mortgage, typically in the range of 1% to 2% or more of the balance of the loan. You'll either have to pay those out of pocket or roll them into the loan, or else they'll be hidden in a slightly higher-than-market interest rate which will recoup the costs to the lender within a few years.

IMO whether it makes any financial sense to refinance is IF for the same amount of money out of pocket -- both up front in closing costs and for the same total monthly payment-- the savings in interest will make up for the closing costs and you will owe no more on the new mortgage than you would have on the old one by the time you expect to sell the home or else by the time it's paid off.

If your net worth for the same money out of pocket is not more by that time, then you've lost money for refinancing. If you have more equity and net worth with the new mortgage for exactly the same total paid out of pocket, you've won.

(If you're considering paying the closing costs out of pocket then you need to compare the results for the refi to paying the same amount as an extra principal payment on the existing mortgage. If the new loan has a lower payment, then you need to compare making the old payment on the new mortgage.)

A lot of people fall into the trap of thinking that a lower rate and/or a lower payment is always going to save money. Not necessarily so. That's because mortgages (and most other loans) are compound interest in reverse. The borrower's debt is the lender's investment with interest calculated --compounded-- monthly on the unpaid balance. So it you stretch out a loan for a longer time with a lower payment, you can often end up paying more total interest -- even if the rate is lower.

Another common misunderstanding is that the difference if the payment is lower on the new mortgage is free money. IMO not so either. Every month you don't pay it on the mortgage gives you roughly the same net result as borrowing the money and financing it at the mortgage rate for the remaining number of months in the loan schedule. So you often need to pay at least as much on the new mortgage as you were on the old one to save the most money – and sometimes to save any money.

Given enough data, we can help you do the math to see if it would pay you to refinance.
  • How much do you owe now?
    What is the payment for the mortgage P&I (Principal & Interest) ? (Not including escrow for T&I)
    Are you paying PMI now?

    Would you pay closing costs out of pocket, or roll the debt into the new mortgage?


jimb
Thank you for the detailed reply!

I did the math and looks as though you are correct, not worth it.

Currently owe: $1,188,000
Monthly payment: $5,472
No PMI
Roll the debt into the new mortgage.
Detroittl
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by Detroittl »

Would anyone like to advise on my situation? 28 years left on a 353k balance. PMI of 118 a month with about 17 percent equity to loan amount. PMI would go away after about a year if I keep paying it down and IF it goes up in value another 2 percent or so.

I am at 4.375 percent and can refi to about 3.75 percent with 2100 closing costs at guaranteed rate.

I can't deduct PMI currently.
tenkuky
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by tenkuky »

Plug input into Mortgage Professor calculators and check
You can run different scenarios based on how long you intend to remain in house, what savings rate is, tax bracket, additional payments, etc
That's how we decided it was worth it to refi.
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unclescrooge
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by unclescrooge »

financial.freedom wrote:I noticed rates dropped last week. We have 30-year fixed jumbo at 3.625% which is pretty good, but a cursory search shows a few places offering 3.5% 30-year fixed jumbo (credit scores 770, 780). Last time we were able to get rates lower than the cursory search, so we might be able to get 3.4% maybe less if we delve deeper and negotiate, I don't know. Our mortgage is pretty recent -- only 6 months so far, expecting to live in the house about 10 years. We also get $500 per year cash back from Chase, not sure how that factors in.

Is it worth it in our case?

Any recommendations for Refi companies to contact?

Thank you in advance!
If you're only planning on living there for 10 years why don't you have a 10/1 ARM? You'll save about 0.5% on a 30 year fixed.

I have a 2.625 % on a jumbo 7/1 ARM.
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financial.freedom
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by financial.freedom »

unclescrooge wrote:
financial.freedom wrote:I noticed rates dropped last week. We have 30-year fixed jumbo at 3.625% which is pretty good, but a cursory search shows a few places offering 3.5% 30-year fixed jumbo (credit scores 770, 780). Last time we were able to get rates lower than the cursory search, so we might be able to get 3.4% maybe less if we delve deeper and negotiate, I don't know. Our mortgage is pretty recent -- only 6 months so far, expecting to live in the house about 10 years. We also get $500 per year cash back from Chase, not sure how that factors in.

Is it worth it in our case?

Any recommendations for Refi companies to contact?

Thank you in advance!
If you're only planning on living there for 10 years why don't you have a 10/1 ARM? You'll save about 0.5% on a 30 year fixed.

I have a 2.625 % on a jumbo 7/1 ARM.
I'm okay with leaving our HCOL area in 10 years, spouse isn't convinced yet. So it could end up being longer. It's hard to plan that far in advance.
remomnyc
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by remomnyc »

I generally refi if the rate 100 bps lower, so in your case, not worth it. First, I would call your current lender and ask if you can buy down your rate and how much it would cost. This is often the easiest and cheapest thing to do. Next, I would call the major banks (Wells Fargo, Bank of America, Chase, Citi) and a mortgage broker (for coverage on regional and local banks) for quotes. Ask the first bank that pulls your credit what your FICO is and you can provide it to the rest for quotes. I have good credit and find that the rates I get are usually lower than advertised. Also, jumbo rates are currently better than conforming. Finally, I agree you should check out 10/1 ARMs. The rate is running about 62.5 bps lower than the 30-yr.
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jimb_fromATL
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Re: Anyone recently Refi home mortgage? Suggestions?

Post by jimb_fromATL »

financial.freedom wrote:
jimb_fromATL wrote:It's highly unlikely to be worth refinancing for such a small reduction in the rate. There are closing costs and expenses involved in processing a new mortgage, typically in the range of 1% to 2% or more of the balance of the loan.
Thank you for the detailed reply!

I did the math and looks as though you are correct, not worth it.

Currently owe: $1,188,000
Monthly payment: $5,472
No PMI
Roll the debt into the new mortgage.
Hmmm. I mentioned 1% to 2% closing costs that most people have been reporting on their refis, but that's typically for much smaller mortgages. It doesn't cost any more time to process a million dollar mortgage than a $100K mortgage, so the percentage appears to be lower for really big loans. (Conversely, it takes just as much time for a $50K mortgage as it does $100K, so the percentage of closing costs is often higher and more prohibitive on very small loans.)

A quick check shows my credit union charging only about $10,000 closing costs on a $1,188,000 jumbo loan. BAC shows about $20,000. So it appears to be well worthwhile shopping around.

it looks like you could save some money for refinancing IF the closing costs are low enough and IF you stay in the home long enough and IF you make the same payment on the new loan as you are required to make now on the old loan. (It looks like it will take at least 5 years or so to reach the true break-even point where you would owe no more on the new mortgage than you would have on the old mortgage.)

Also, if you have plenty of room to spare in the budget, it looks like some lenders have somewhat lower rates for 15 year loans. As someone else mentioned in this thread you can get an even lower rate on a time-bomb ARM (Adjustable Rate Mortgage). If you are positive you won't have the home before the rate adjusts, that might be worth a gamble.

Here are some numbers to ponder ... and to use as a guide in verifying them through other calculator/sources.

Code: Select all

                     _____	pay up front	   balance	          	  months	  payment	total paid	interest
          current mortgage	          $0	$1,180,000	    3.625%	    354.	 $5431.97	$1,922,916	$742,916
 refi roll in $10000 costs	          $0	$1,190,000	    3.400%	    360.	 $5277.43	$1,899,874	$709,874
   make old pmt on new mtg	          $0	$1,190,000	    3.400%	  342.64	 $5431.97	$1,861,226	$671,226
pay closing costs up front	     $10,000	$1,180,000	    3.400%	    360.	 $5233.08	$1,893,908	$713,908
        old pmt on new mtg	     $10,000	$1,180,000	    3.400%	  337.82	 $5431.97	$1,845,004	$665,004
     pay down existing mtg	     $10,000	$1,170,000	    3.625%	  348.68	 $5431.97	$1,904,017	$734,017
[/size][/b]

The above table shows:
  • If you owe $1,180,000 at 3.625% with 354 months remaining the payment is $5431.97 per month for P&I. The total paid will be $1,922,916 with $742,916 interest.

    If you refi and roll in $10,000 closing costs then $1,190,000 at 3.4% for 360 months has a payment of $5277.43 per month for P&I. The total paid will be 360 x $5277.43 = $1,899,874 with $709,874 interest. The total is $23,043 less than the current mortgage.

    If you make the old payment of $5431.97 then the balance of $1,190,000 at 3.4% will be paid off in 343 months. The total paid will be 342.64 x $5431.97 = $1,861,226 with $671,226 interest. This total is $61,690 less than the current mortgage ... and cuts 11 months of payments.

    Notice that the $155 lower payment on the new mortgage costs you $38,647 more interest and 17 months in debt. That's proof that the lower payment is not free money. This principle will apply no matter what the rate or how much the closing costs. Time is an exponential factor in compound interest on mortgages. So If you make a lower payment for a longer time at any given rate, it will cost more total interest.

    If you pay the closing costs of $10,000 up front and refinance the balance of $1,180,000 at 3.4% for 360 months the payment will be $5233.08 per month for P&I. The total paid will be 10000 + (360 x 5233.08) = $1,893,908 with $713,908 interest. This saves a total of $29,008 over the existing mortgage.

    If you pay the closing costs of $10000 up front and refinance the balance of $1,180,000 at 3.4% and make the old $5431.97 payment it will be paid off in 337.8 months. The total paid will be 10000 + (337.82 x 5431.97) = $1,845,004 with $665,004 interest. This total is $77,912 less than the current mortgage.

    If you pay the same $10000 on the existing mortgage, the balance of $1,170,000 at 3.625% with the $5431.97 payment will be paid off in 348.7 months. The total paid will be 10000 + (348.68 x 5431.97) = $1,904,017 with $734,017 interest.
So the real apples-to-apples comparison for the same money up front and the same monthly payment shows that refinancing could save $59,013 and 11 months of payments.

If you can find a lower rate, or if you can afford to commit to a shorter loan you can save even more. However, it's worth considering the pros and cons of committing to a 30 year mortgage and making a higher payment to pay it down faster. It will cost somewhat more interest, but gives you an option to drop back to the lower minimum payment if times were to get tough financially.

Since you expect to sell the home in a few years, it's important to realize how long it will be before the savings in interest will make up for the closing costs. The table below shows the status of the loan options after 5 years:
  • Notice in that table that after 60 months you'll owe $1,057,363 on the old mortgage, but if you make only the new minimum payment on the new mortgage you'll owe $1,065,552 at the same point in time. That's $8,188 more debt after 5 years than you would owe on the old mortgage.

    Making the old payment on the new mortgage will drop your new mortgage's balance to $1,055,460 in 5 years. That's $1,903 less than you'd owe on the old mortgage.

    Paying the closing costs out of pocket up front then the same old payment on the new loan; for the same money out of pocket you'll have $1,770 more equity (less debt, more net worth) after 60 months on the new loan compared to paying the money up front on the old loan.

    So IMO the break-even point is really slightly less than 5 years, and then only if you make the higher payment on the new mortgage.


Code: Select all

               in 5. years:		  at month	   balance	    paid	   equity	  interest	% interest in pmts		
          current mortgage		       60.	$1,057,363	$325,918	 $122,637	  $203,281	   62.4%		
 refi roll in $10000 costs		       60.	$1,065,552	$316,646	 $124,448	  $192,197	   60.7%		
   make old pmt on new mtg		       60.	$1,055,460	$325,918	 $134,540	  $191,378	   58.7%		
pay closing costs up front		       60.	$1,056,597	$313,985	 $123,403	  $190,582	   60.7%		
        old pmt on new mtg		       60.	$1,043,610	$325,918	 $136,390	  $189,528	   58.2%		
     pay down existing mtg		       60.	$1,045,379	$325,918	 $124,621	  $201,297	   61.8%		
 
[/size]

Let's look a the status in 10 years in the table below:
  • Notice in that table that after 120 months you'll owe $910,397 on the old mortgage, but if you make only the new minimum payment on the new mortgage you'll owe $918,078 at the same point in time. That's $7,681 more debt after 10 years than you would owe on the old mortgage.

    Making the old payment on the new mortgage will drop your new mortgage's balance to $896,027 in 10 years. That's $14,369 less than you'd owe on the old mortgage.

    Paying the closing costs out of pocket up front then the same old payment on the new loan; for the same money out of pocket you'll have $14,051 more equity (less debt, more net worth) after 120 months on the new loan compared to paying the money up front on the old loan.


Code: Select all

             in 10. years:		  at month	   balance	    paid	   equity	  interest	% interest in pmts
          current mortgage		      120.	  $910,397	$651,836	 $269,603	  $382,233	   58.6%
 refi roll in $10000 costs		      120.	  $918,078	$633,291	 $271,922	  $361,369	   57.1%
   make old pmt on new mtg		      120.	  $896,027	$651,836	 $293,973	  $357,863	   54.9%
pay closing costs up front		      120.	  $910,363	$627,969	 $269,637	  $358,332	   57.1%
        old pmt on new mtg		      120.	  $881,985	$651,836	 $298,015	  $353,821	   54.3%
     pay down existing mtg		      120.	  $896,036	$651,836	 $273,964	  $377,872	    58.%
[/size]

jimb
Topic Author
financial.freedom
Posts: 565
Joined: Fri Oct 03, 2014 1:18 am

Re: Anyone recently Refi home mortgage? Suggestions?

Post by financial.freedom »

jimb_fromATL wrote:
financial.freedom wrote:
jimb_fromATL wrote:It's highly unlikely to be worth refinancing for such a small reduction in the rate. There are closing costs and expenses involved in processing a new mortgage, typically in the range of 1% to 2% or more of the balance of the loan.
Thank you for the detailed reply!

I did the math and looks as though you are correct, not worth it.

Currently owe: $1,188,000
Monthly payment: $5,472
No PMI
Roll the debt into the new mortgage.
Hmmm. I mentioned 1% to 2% closing costs that most people have been reporting on their refis, but that's typically for much smaller mortgages. It doesn't cost any more time to process a million dollar mortgage than a $100K mortgage, so the percentage appears to be lower for really big loans. (Conversely, it takes just as much time for a $50K mortgage as it does $100K, so the percentage of closing costs is often higher and more prohibitive on very small loans.)

A quick check shows my credit union charging only about $10,000 closing costs on a $1,188,000 jumbo loan. BAC shows about $20,000. So it appears to be well worthwhile shopping around.

it looks like you could save some money for refinancing IF the closing costs are low enough and IF you stay in the home long enough and IF you make the same payment on the new loan as you are required to make now on the old loan. (It looks like it will take at least 5 years or so to reach the true break-even point where you would owe no more on the new mortgage than you would have on the old mortgage.)

Also, if you have plenty of room to spare in the budget, it looks like some lenders have somewhat lower rates for 15 year loans. As someone else mentioned in this thread you can get an even lower rate on a time-bomb ARM (Adjustable Rate Mortgage). If you are positive you won't have the home before the rate adjusts, that might be worth a gamble.

Here are some numbers to ponder ... and to use as a guide in verifying them through other calculator/sources.

Code: Select all

                     _____	pay up front	   balance	          	  months	  payment	total paid	interest
          current mortgage	          $0	$1,180,000	    3.625%	    354.	 $5431.97	$1,922,916	$742,916
 refi roll in $10000 costs	          $0	$1,190,000	    3.400%	    360.	 $5277.43	$1,899,874	$709,874
   make old pmt on new mtg	          $0	$1,190,000	    3.400%	  342.64	 $5431.97	$1,861,226	$671,226
pay closing costs up front	     $10,000	$1,180,000	    3.400%	    360.	 $5233.08	$1,893,908	$713,908
        old pmt on new mtg	     $10,000	$1,180,000	    3.400%	  337.82	 $5431.97	$1,845,004	$665,004
     pay down existing mtg	     $10,000	$1,170,000	    3.625%	  348.68	 $5431.97	$1,904,017	$734,017
[/size][/b]

The above table shows:
  • If you owe $1,180,000 at 3.625% with 354 months remaining the payment is $5431.97 per month for P&I. The total paid will be $1,922,916 with $742,916 interest.

    If you refi and roll in $10,000 closing costs then $1,190,000 at 3.4% for 360 months has a payment of $5277.43 per month for P&I. The total paid will be 360 x $5277.43 = $1,899,874 with $709,874 interest. The total is $23,043 less than the current mortgage.

    If you make the old payment of $5431.97 then the balance of $1,190,000 at 3.4% will be paid off in 343 months. The total paid will be 342.64 x $5431.97 = $1,861,226 with $671,226 interest. This total is $61,690 less than the current mortgage ... and cuts 11 months of payments.

    Notice that the $155 lower payment on the new mortgage costs you $38,647 more interest and 17 months in debt. That's proof that the lower payment is not free money. This principle will apply no matter what the rate or how much the closing costs. Time is an exponential factor in compound interest on mortgages. So If you make a lower payment for a longer time at any given rate, it will cost more total interest.

    If you pay the closing costs of $10,000 up front and refinance the balance of $1,180,000 at 3.4% for 360 months the payment will be $5233.08 per month for P&I. The total paid will be 10000 + (360 x 5233.08) = $1,893,908 with $713,908 interest. This saves a total of $29,008 over the existing mortgage.

    If you pay the closing costs of $10000 up front and refinance the balance of $1,180,000 at 3.4% and make the old $5431.97 payment it will be paid off in 337.8 months. The total paid will be 10000 + (337.82 x 5431.97) = $1,845,004 with $665,004 interest. This total is $77,912 less than the current mortgage.

    If you pay the same $10000 on the existing mortgage, the balance of $1,170,000 at 3.625% with the $5431.97 payment will be paid off in 348.7 months. The total paid will be 10000 + (348.68 x 5431.97) = $1,904,017 with $734,017 interest.
So the real apples-to-apples comparison for the same money up front and the same monthly payment shows that refinancing could save $59,013 and 11 months of payments.

If you can find a lower rate, or if you can afford to commit to a shorter loan you can save even more. However, it's worth considering the pros and cons of committing to a 30 year mortgage and making a higher payment to pay it down faster. It will cost somewhat more interest, but gives you an option to drop back to the lower minimum payment if times were to get tough financially.

Since you expect to sell the home in a few years, it's important to realize how long it will be before the savings in interest will make up for the closing costs. The table below shows the status of the loan options after 5 years:
  • Notice in that table that after 60 months you'll owe $1,057,363 on the old mortgage, but if you make only the new minimum payment on the new mortgage you'll owe $1,065,552 at the same point in time. That's $8,188 more debt after 5 years than you would owe on the old mortgage.

    Making the old payment on the new mortgage will drop your new mortgage's balance to $1,055,460 in 5 years. That's $1,903 less than you'd owe on the old mortgage.

    Paying the closing costs out of pocket up front then the same old payment on the new loan; for the same money out of pocket you'll have $1,770 more equity (less debt, more net worth) after 60 months on the new loan compared to paying the money up front on the old loan.

    So IMO the break-even point is really slightly less than 5 years, and then only if you make the higher payment on the new mortgage.


Code: Select all

               in 5. years:		  at month	   balance	    paid	   equity	  interest	% interest in pmts		
          current mortgage		       60.	$1,057,363	$325,918	 $122,637	  $203,281	   62.4%		
 refi roll in $10000 costs		       60.	$1,065,552	$316,646	 $124,448	  $192,197	   60.7%		
   make old pmt on new mtg		       60.	$1,055,460	$325,918	 $134,540	  $191,378	   58.7%		
pay closing costs up front		       60.	$1,056,597	$313,985	 $123,403	  $190,582	   60.7%		
        old pmt on new mtg		       60.	$1,043,610	$325,918	 $136,390	  $189,528	   58.2%		
     pay down existing mtg		       60.	$1,045,379	$325,918	 $124,621	  $201,297	   61.8%		
 
[/size]

Let's look a the status in 10 years in the table below:
  • Notice in that table that after 120 months you'll owe $910,397 on the old mortgage, but if you make only the new minimum payment on the new mortgage you'll owe $918,078 at the same point in time. That's $7,681 more debt after 10 years than you would owe on the old mortgage.

    Making the old payment on the new mortgage will drop your new mortgage's balance to $896,027 in 10 years. That's $14,369 less than you'd owe on the old mortgage.

    Paying the closing costs out of pocket up front then the same old payment on the new loan; for the same money out of pocket you'll have $14,051 more equity (less debt, more net worth) after 120 months on the new loan compared to paying the money up front on the old loan.


Code: Select all

             in 10. years:		  at month	   balance	    paid	   equity	  interest	% interest in pmts
          current mortgage		      120.	  $910,397	$651,836	 $269,603	  $382,233	   58.6%
 refi roll in $10000 costs		      120.	  $918,078	$633,291	 $271,922	  $361,369	   57.1%
   make old pmt on new mtg		      120.	  $896,027	$651,836	 $293,973	  $357,863	   54.9%
pay closing costs up front		      120.	  $910,363	$627,969	 $269,637	  $358,332	   57.1%
        old pmt on new mtg		      120.	  $881,985	$651,836	 $298,015	  $353,821	   54.3%
     pay down existing mtg		      120.	  $896,036	$651,836	 $273,964	  $377,872	    58.%
[/size]

jimb
Wow! I am really impressed and appreciative! Will sit down with my spouse tonight and go through the numbers. We also need to have a discussion about how long we plan to live in our HCOL area. Thank you so much!
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