To Refinance or not to Refinance

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Payoffhouse
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To Refinance or not to Refinance

Post by Payoffhouse » Fri Sep 15, 2017 3:56 pm

Hi,

Need some help and advice.

Background info:
1. House is valued at over $400K.
2. Emergency funds is sitting in savings account accruing very little interest.
3. Our jobs does not offer 401k and we are maximing our Roth IRA.

I am looking to refinance my existing mortgage rate of 5.25%; however, I received a phone call from bank stating that they can only refinance $62K. Therefore, I have the following options:

1.Keep existing fixed mortgage of $132K @5.25% with 15yrs left.

2.Put down $70K and refinance $62K @3.49% (Fixed) for 10 yrs. I will still have between 3-6 months of emergency funds after the down payment. Low Closing cost of $700.

I have no debt except 2 car loans (@2.49% and 3.44%-4 yrs left). I asked Bank if paying off cars would help and it appeared they were not even considering it as a possible option.

What would you do if you were in my shoes?

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Watty
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Re: To Refinance or not to Refinance

Post by Watty » Fri Sep 15, 2017 4:09 pm

Payoffhouse wrote:
Fri Sep 15, 2017 3:56 pm
What would you do if you were in my shoes?
Contact different lenders until you find one that that will refinance the whole balance. Your current lender has a lot of incentive for you to keep paying the high interest rate.

Was there some reason that they said that they would only lend you that much? Even if you income is modest I would think that you could qualify for a lot more than that.

noco-hawkeye
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Joined: Sat Aug 16, 2014 8:20 am

Re: To Refinance or not to Refinance

Post by noco-hawkeye » Fri Sep 15, 2017 4:12 pm

Watty wrote:
Fri Sep 15, 2017 4:09 pm
Payoffhouse wrote:
Fri Sep 15, 2017 3:56 pm
What would you do if you were in my shoes?
Contact different lenders until you find one that that will refinance the whole balance. Your current lender has a lot of incentive for you to keep paying the high interest rate.

Was there some reason that they said that they would only lend you that much? Even if you income is modest I would think that you could qualify for a lot more than that.
Agree 100%. I don't understand why the bank gave you the answer they did, unless there is some extra info you are missing. It should be easy to get better rates than 5.25%, and for the entire balance too.

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greg24
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Re: To Refinance or not to Refinance

Post by greg24 » Fri Sep 15, 2017 4:15 pm

$132K is not a lot of money, and 33% Loan To Value is attractive for a lender.

If you search for other lenders, you are pretty much assured of finding better options.

Payoffhouse
Posts: 70
Joined: Tue May 16, 2017 1:31 pm

Re: To Refinance or not to Refinance

Post by Payoffhouse » Fri Sep 15, 2017 4:16 pm

Watty wrote:
Fri Sep 15, 2017 4:09 pm
Payoffhouse wrote:
Fri Sep 15, 2017 3:56 pm
What would you do if you were in my shoes?

Was there some reason that they said that they would only lend you that much? Even if you income is modest I would think that you could qualify for a lot more than that.
Debt to income ratio too high and they are basing my income on 2016 W2 not 2017 projected income.

new2bogle
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Re: To Refinance or not to Refinance

Post by new2bogle » Fri Sep 15, 2017 4:23 pm

Try https://www.usmtgcapital.com/ (also low cost refinance). They might be able to work around some of the issues.

I am a satisfied customer of theirs (refinanced last year). No other connection to them.

Payoffhouse
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Re: To Refinance or not to Refinance

Post by Payoffhouse » Sat Sep 16, 2017 12:58 am

Anyone for option 2? Cons of option 2?

fundseeker
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Re: To Refinance or not to Refinance

Post by fundseeker » Sat Sep 16, 2017 5:40 am

I'm not sure #2 is a great idea. I haven't done the math, but would some of that $70k be better used to get rid of the car loans, for which you get no tax deduction? You do get a tax deduction on the 5.25 mortgage, so the effective tax rate is less than that, maybe even somewhere down near the car loan rate?

Also, you are on the right track with the 15 year mortgage, and you can pay down the principal with any extra money you have. But, if you go to a 10 year, with its higher payment, and then have a cash flow problem, you cannot reduce your monthly payment. But, with the 15 year, you could stop making extra payments. The point is just that the lower payments of the 15 allow more flexibility.

cherijoh
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Location: Charlotte NC

Re: To Refinance or not to Refinance

Post by cherijoh » Sat Sep 16, 2017 7:00 am

Payoffhouse wrote:
Fri Sep 15, 2017 4:16 pm

Debt to income ratio too high and they are basing my income on 2016 W2 not 2017 projected income.
I think it is typical to look back to a full year's income. An individual paystub could reflect short-term overtime. If you received a considerable pay bump in 2017, then the solution may be to wait until next year to refinance.

Payoffhouse wrote:
Sat Sep 16, 2017 12:58 am
Anyone for option 2? Cons of option 2?
The major downside would be that if you lost your job you would still be on the hook for your mortgage (until it's paid off) but have a lot fewer liquid assets to keep you and your family going. Three month is rather light IMO for an emergency fund.

Do you have 4 years left on both of your car loans? How much of your total debt burden do the car payments represent? Since these are clearly longer term car loans, I assume these cars each had a hefty price tag. How much would it cost to pay off one of the car loans?

What is your debt to income ratio (debt = mortgage + car pmt 1 + car pmt 2)?
greg24 wrote:
Fri Sep 15, 2017 4:15 pm
$132K is not a lot of money, and 33% Loan To Value is attractive for a lender.

If you search for other lenders, you are pretty much assured of finding better options.
Without having info on total debt burden, it is difficult IMO to say whether another bank would be more willing to finance a loan. Loan to value is only one part of the picture - OP provided no info on his/her cash flow.

NorCalDad
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Location: Northern California

Re: To Refinance or not to Refinance

Post by NorCalDad » Sat Sep 16, 2017 7:45 am

Payoffhouse wrote:
Sat Sep 16, 2017 12:58 am
Anyone for option 2? Cons of option 2?
Agree with much of what has been said. I would add that it seems like you should be able to beat 3.49% for a 10-year loan if you shop around; PenFed is showing a 3.125% 15-year rate, and I agree with fundseeker that a 15-year is a better approach, since the small difference in interest rate between the 10 and 15 isn't enough to give up the flexibility of the 15.

Another con: You said you don't have 401ks. So the cash you'd put into your home represents a sizable share of your retirement assets, I assume. Depending on your investing horizon, I would rather invest that money for the long haul than pay down the home.

If somehow you can't find a lender this year on the full loan and it's a documentation issue, what about waiting until 2018? Nobody has a crystal ball, but I don't see such a big need to rush into a refi that you'd have to divert so much cash into paying down your mortgage.

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sunny_socal
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Re: To Refinance or not to Refinance

Post by sunny_socal » Sat Sep 16, 2017 9:55 am

Or take a bunch of cash out of the new mortgage, whatever it takes to get someone to approve 15yr mortgage. After the deal closes use the cash to pay down the balance to the original level.

Payoffhouse
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Re: To Refinance or not to Refinance

Post by Payoffhouse » Sun Sep 17, 2017 6:42 am

cherijoh wrote:
Sat Sep 16, 2017 7:00 am
Payoffhouse wrote:
Fri Sep 15, 2017 4:16 pm

Debt to income ratio too high and they are basing my income on 2016 W2 not 2017 projected income.
I think it is typical to look back to a full year's income. An individual paystub could reflect short-term overtime. If you received a considerable pay bump in 2017, then the solution may be to wait until next year to refinance.

Payoffhouse wrote:
Sat Sep 16, 2017 12:58 am
Anyone for option 2? Cons of option 2?
The major downside would be that if you lost your job you would still be on the hook for your mortgage (until it's paid off) but have a lot fewer liquid assets to keep you and your family going. Three month is rather light IMO for an emergency fund.

Do you have 4 years left on both of your car loans? How much of your total debt burden do the car payments represent? Since these are clearly longer term car loans, I assume these cars each had a hefty price tag. How much would it cost to pay off one of the car loans?

What is your debt to income ratio (debt = mortgage + car pmt 1 + car pmt 2)?
greg24 wrote:
Fri Sep 15, 2017 4:15 pm
$132K is not a lot of money, and 33% Loan To Value is attractive for a lender.

If you search for other lenders, you are pretty much assured of finding better options.
Without having info on total debt burden, it is difficult IMO to say whether another bank would be more willing to finance a loan. Loan to value is only one part of the picture - OP provided no info on his/her cash flow.
1. Waiting until 2018 is another possible option.
2. I would have an EF of about 5 months. Not including my wife's income.
3. I have about a little bit over 3 years left on the car loans. I make extra payments every month.
4. The payoffs are about $14k and $22k.
5. According to their calculation debt to income ratio is 55%.
6. I am about $4k/ month cash flow positive after all expenses are paid. This includes wife's salary.
7. Wife is not on loan application and it is not an option.
Last edited by Payoffhouse on Sun Sep 17, 2017 8:18 am, edited 1 time in total.

Cigarman
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Re: To Refinance or not to Refinance

Post by Cigarman » Sun Sep 17, 2017 8:01 am

I did a re-fi to 3.5% five year's ago, 15 year loan on house value of $375k. Had $100k balance on a $260k loan. Paid off some debt and took out cash for some remodeling. Rate was 4.25% for 15 years. I'm surprised you are at such a high rate with a 4k cash flow per month. Your payment can't be too terribly high whether it is currently at 30 or 15 year loan. Regardless of how good the customer service is, you really need to shop this around, perhaps even with a mortgage broker (that's what I used an no closing costs).

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StevieG72
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Re: To Refinance or not to Refinance

Post by StevieG72 » Sun Sep 17, 2017 8:15 am

Watty wrote:
Fri Sep 15, 2017 4:09 pm
Payoffhouse wrote:
Fri Sep 15, 2017 3:56 pm
What would you do if you were in my shoes?
Contact different lenders until you find one that that will refinance the whole balance. Your current lender has a lot of incentive for you to keep paying the high interest rate.
+1
Fools think their own way is right, but the wise listen to others.

cherijoh
Posts: 4053
Joined: Tue Feb 20, 2007 4:49 pm
Location: Charlotte NC

Re: To Refinance or not to Refinance

Post by cherijoh » Sun Sep 17, 2017 12:12 pm

Payoffhouse wrote:
Sun Sep 17, 2017 6:42 am
1. Waiting until 2018 is another possible option.
2. I would have an EF of about 5 months. Not including my wife's income.
3. I have about a little bit over 3 years left on the car loans. I make extra payments every month.
4. The payoffs are about $14k and $22k.
5. According to their calculation debt to income ratio is 55%.
6. I am about $4k/ month cash flow positive after all expenses are paid. This includes wife's salary.
7. Wife is not on loan application and it is not an option.

It sounds like you do not have the income (based strictly on your salary) to qualify for the full refinance on top of the two car loans. (Are both car loans in your name?). If your debt to income ratio is 55% based on the information you provided the bank (i.e., not including your wife and her income) then I can certainly understand why they turned you down for the full refinance. That is way high! On paper you would look like a bad risk.

The issue as I see it is that no other bank will be willing to refinance you as long as the application is in your name only and you have this level of debt.

My best recommendation would be to NOT make extra payments on BOTH car loans but to concentrate on paying one of them off as quickly as possible. If only one car loan is in your name then that would be the one to pay off first. If they are both in your name I'd go for the one with the smaller balance. Once that loan is off the books, I'd concentrate on building up a bigger cash cushion for a few months and then trying to apply again for the refinance. You might still not get the full amount, but at least then you would be left with a bit more of a cash cushion. If you did see a significant pay increase in 2017 that should help as well.

Payoffhouse
Posts: 70
Joined: Tue May 16, 2017 1:31 pm

Re: To Refinance or not to Refinance

Post by Payoffhouse » Sun Sep 17, 2017 7:17 pm

cherijoh wrote:
Sun Sep 17, 2017 12:12 pm
Payoffhouse wrote:
Sun Sep 17, 2017 6:42 am
1. Waiting until 2018 is another possible option.
2. I would have an EF of about 5 months. Not including my wife's income.
3. I have about a little bit over 3 years left on the car loans. I make extra payments every month.
4. The payoffs are about $14k and $22k.
5. According to their calculation debt to income ratio is 55%.
6. I am about $4k/ month cash flow positive after all expenses are paid. This includes wife's salary.
7. Wife is not on loan application and it is not an option.

It sounds like you do not have the income (based strictly on your salary) to qualify for the full refinance on top of the two car loans. (Are both car loans in your name?). If your debt to income ratio is 55% based on the information you provided the bank (i.e., not including your wife and her income) then I can certainly understand why they turned you down for the full refinance. That is way high! On paper you would look like a bad risk.

The issue as I see it is that no other bank will be willing to refinance you as long as the application is in your name only and you have this level of debt.

My best recommendation would be to NOT make extra payments on BOTH car loans but to concentrate on paying one of them off as quickly as possible. If only one car loan is in your name then that would be the one to pay off first. If they are both in your name I'd go for the one with the smaller balance. Once that loan is off the books, I'd concentrate on building up a bigger cash cushion for a few months and then trying to apply again for the refinance. You might still not get the full amount, but at least then you would be left with a bit more of a cash cushion. If you did see a significant pay increase in 2017 that should help as well.
1. Yes, both car loans on my name.
2. Yes, that's a possible option to wait to reapply next year and use my 2017 W2 to get approved for bigger loan.

Payoffhouse
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Re: To Refinance or not to Refinance

Post by Payoffhouse » Tue Sep 19, 2017 7:00 pm

****Update*****

I spoke to the bank today and they are willing to give me a $124k loan if I pay-off both my car loans ($34k). What do you guys/ gals think?

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Watty
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Re: To Refinance or not to Refinance

Post by Watty » Tue Sep 19, 2017 9:14 pm

Payoffhouse wrote:
Tue Sep 19, 2017 7:00 pm
****Update*****

I spoke to the bank today and they are willing to give me a $124k loan if I pay-off both my car loans ($34k). What do you guys/ gals think?
If you have the money to pay them off and pay the loan down to $124K then that would drop the interest rate on your mortgage by almost 2%.

The interest rate on the mortgage would be pretty similar to the car loans, if you are able to deduct your mortgage interest it might even be lower.

I would do it.

I would not recommend it be if you needed to then after you get the new mortgage you could get new car loans if you really need to for some reason.

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