Refinance and pre-payment

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sks
Posts: 50
Joined: Thu Feb 05, 2015 12:59 am

Refinance and pre-payment

Post by sks »

Hello, I am in the process of refinancing my loan. Both my current and new loan doesn't have any pre-payment penalty. So my question is that - is it better to do any extra payment before the refinance so that my principle is less OR it doesn't matter if you pre-pay now vs after refinance process is done?
runner23
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Joined: Sat Oct 17, 2015 8:45 am

Re: Refinance and pre-payment

Post by runner23 »

I am in the same process and would like a smaller loan balance, so I just told the new lender make the loan for $5k less than my outstanding principle with current lender. I will bring that difference to the closing with additional cash to close. Do not think it makes a huge difference in the grand scheme of things.
ved
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Re: Refinance and pre-payment

Post by ved »

Your monthly payment will depend on the loan amount....so if you pre-pay before the loan is taken out your monthly payment will be lower than if you make an additional principal payment after the refinance.
Of course, your loan term will be shorter.

So, if you are planning to pay some significant amount - I would do it pre-refinance...so that cash flow for the term of the loan is better
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RickBoglehead
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Re: Refinance and pre-payment

Post by RickBoglehead »

Principal...

You can get the loan for whatever amount you want less. Simply play with a mortgage calculator and see the difference in payments.

No impact on loan term though.
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chevca
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Re: Refinance and pre-payment

Post by chevca »

sks wrote: Thu Apr 11, 2019 7:56 pm Hello, I am in the process of refinancing my loan. Both my current and new loan doesn't have any pre-payment penalty. So my question is that - is it better to do any extra payment before the refinance so that my principle is less OR it doesn't matter if you pre-pay now vs after refinance process is done?
Depends what you want to have happen. As ved said, you can lower the monthly payment by putting it down up front, or you can shorten the loan term by putting it down just after the mortgage starts. You still have the higher payment with the second way though.

Personally, I would just put it down up front and have the lower balance and lower payment. Then pay it down with extra cash if you choose going forward.
DVMResident
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Re: Refinance and pre-payment

Post by DVMResident »

I would also check the interest rate for different LTV. If you can bring cash to close, you maybe able to knock a little interest off. Typically 20-25% is optimal with no benefit beyond-but good to check with the lender.
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CAsage
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Re: Refinance and pre-payment

Post by CAsage »

Whatever you do, don't trust the new refinance to close in time to "make" your current payment. I had one of them fail that, and of course I was then hit with late fees. Make the payment on the old loan on schedule, or try to make the new loan take over right AFTER that.
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Topic Author
sks
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Joined: Thu Feb 05, 2015 12:59 am

Re: Refinance and pre-payment

Post by sks »

Thanks everyone. I decided to pre-pay now 25K and doing refinance for 10Y ARM 541K @3.375 with LTV 42.5%. I did not get any reduction in rate as I think rates are already very competitive. My goal is to get rid of this debt as quickly as possible.
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