Refinance!!! Go or No Go??

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Topic Author
Hope
Posts: 25
Joined: Tue Dec 30, 2014 1:57 pm

Refinance!!! Go or No Go??

Post by Hope » Tue Aug 13, 2019 10:05 pm

I am into second year of a 20 year mortgage @ 4% with currently $175k balance. A credit union has offered a 15 year mortgage at 3% with zero points. This refinance cost is estimated to be at $5k. I am having a hard time crunching the numbers to determine if its worth moving forward with the refinance. My goal is to reduce the interest paid on the mortgage. I have used a few refinance calculators online but not fully understanding their math or logic. Could use some help here.
Another point to take into consideration is my intention when I took the original mortgage (20 year) was to pay it off in 10 or less yeas.

One of the calculators I used (see image) says it will take me 21 months to break even the refinance cost.
Image

Insights/advice Please??
Thanks.
Last edited by Hope on Wed Aug 14, 2019 9:32 pm, edited 1 time in total.

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unclescrooge
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Re: Refinance!!! Go or No Go??

Post by unclescrooge » Tue Aug 13, 2019 11:06 pm

You're paying 2.875% in closing costs :shock:

See if they will provide any credits towards closing costs.

If your goal is to pay in 10 years, see if they have a 10 or 7 year ARM.

That may have a lower rate.

Starfish
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Re: Refinance!!! Go or No Go??

Post by Starfish » Tue Aug 13, 2019 11:13 pm

All refinancing has to be done and compared with 0 costs. Otherwise is meaningless.
They want to lock you in with upfront costs and points.

seawolf21
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Re: Refinance!!! Go or No Go??

Post by seawolf21 » Wed Aug 14, 2019 2:03 am

Hope wrote:
Tue Aug 13, 2019 10:05 pm
I am into second year of a 20 year mortgage @ 4% with currently $175k balance. A credit union has offered a 15 year mortgage at 3% with zero points. This refinance cost is estimated to be at $5k. I am having a hard time crunching the numbers to determine if its worth moving forward with the refinance. My goal is to reduce the interest paid on the mortgage. I have used a few refinance calculators online but not fully understanding their math or logic. Could use some help here.
Another point to take into consideration is my intention when I took the original mortgage (20 year) was to pay it off in 10 or less yeas.

One of the calculators I used (see image) says it will take me 21 months to break even the refinance cost.
Image

Insights/advice Please??
Thanks.
Not sure what into second year mean. If you are on payment 18 (1.5 years from start) and at $175K remaining, that should mean your original loan is $185K 4% 20 year with monthly payment is $1,121.

II you intend to let the 20 year run its course, total interest remaining would be around $73K.

If you refi to 15 year @ 3% with $5K costs, total interest for the 15 year plus $5k cost is about $47,500.

If you keep your loan and pay it off within the next 96 months you would be ahead of refinancing,

Starfish wrote:
Tue Aug 13, 2019 11:13 pm
All refinancing has to be done and compared with 0 costs. Otherwise is meaningless.
It depends on what your goal is. If the goal is to understand how much interest/cost is being forked over to the lender, you can definitely compare two loans at different rates/costs/terms; you need to build out amortization table in Excel and break out each month's principal and interest.

Starfish
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Re: Refinance!!! Go or No Go??

Post by Starfish » Wed Aug 14, 2019 2:24 am

It is not really possible because of unknown inflation on such a long time horizon.
Approximations can easily go over the loan costs.

ShowMeTheER
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Re: Refinance!!! Go or No Go??

Post by ShowMeTheER » Wed Aug 14, 2019 4:32 am

You should refinance, but not with this lender at this offer. Go find he same rate/term for something well less than half of the fees this lender has quoted you.

Topic Author
Hope
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Joined: Tue Dec 30, 2014 1:57 pm

Re: Refinance!!! Go or No Go??

Post by Hope » Wed Aug 14, 2019 9:22 pm

Thanks everyone for sharing your insights. I have tried to answer most of your suggestions and would like to continue figuring out a way forward that makes sense in my situation.
unclescrooge wrote:
Tue Aug 13, 2019 11:06 pm
You're paying 2.875% in closing costs :shock:
See if they will provide any credits towards closing costs.
If your goal is to pay in 10 years, see if they have a 10 or 7 year ARM.
That may have a lower rate.
How one might ask them about credits? Does "credit" mean removing some costs of the closing altogether or can it also mean they can roll that cost into the loan in which case I will have to pay the cost over the period of the loan with interest.
7 or 10 year ARM makes sense to me.
seawolf21 wrote:
Wed Aug 14, 2019 2:03 am
Hope wrote:
Tue Aug 13, 2019 10:05 pm
I am into second year of a 20 year mortgage @ 4% with currently $175k balance. A credit union has offered a 15 year mortgage at 3% with zero points. This refinance cost is estimated to be at $5k. I am having a hard time crunching the numbers to determine if its worth moving forward with the refinance. My goal is to reduce the interest paid on the mortgage. I have used a few refinance calculators online but not fully understanding their math or logic. Could use some help here.
Another point to take into consideration is my intention when I took the original mortgage (20 year) was to pay it off in 10 or less yeas.

One of the calculators I used (see image) says it will take me 21 months to break even the refinance cost.
Image

Insights/advice Please??
Thanks.
Not sure what into second year mean. If you are on payment 18 (1.5 years from start) and at $175K remaining, that should mean your original loan is $185K 4% 20 year with monthly payment is $1,121.

II you intend to let the 20 year run its course, total interest remaining would be around $73K.

If you refi to 15 year @ 3% with $5K costs, total interest for the 15 year plus $5k cost is about $47,500.

If you keep your loan and pay it off within the next 96 months you would be ahead of refinancing,
So to give a little bit of context. Originally it was a $240k loan, I made a couple of balloon payments earlier this year to bring the principal down... not sure what I was thinking. So now the current balance is $175k @4%. If I dont make any extra payments, I will pay off the entire loan in 154 months and during this time, I would have paid $48,763 in interest.
If I refinance and get a 15 year FRM @ 3% (with 6k cost) and pay it off in 154 months, I would pay $35,972 in interest. Adding the cost makes it $41,972. So I will be saving ~$6k with refinancing at this rate. This may help understand my specific situation. Do you think I should go for it? Now if I can get the same refi loan at a lower , it might make sense to go for it? THoughts????
ShowMeTheER wrote:
Wed Aug 14, 2019 4:32 am
You should refinance, but not with this lender at this offer. Go find he same rate/term for something well less than half of the fees this lender has quoted you.
I talked to two credit unions , one had $7,800 as cost and the other one at $6000. What I have read is these costs can be rolled into the loan but then I will be paying the costs with interest over time. No Cost Refinance is another option but the rate will be a little high.

BogleMelon
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Re: Refinance!!! Go or No Go??

Post by BogleMelon » Wed Aug 14, 2019 9:29 pm

"One of the funny things about stock market, every time one is buying another is selling, and both think they are astute" - William Feather

martint
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Re: Refinance!!! Go or No Go??

Post by martint » Wed Aug 14, 2019 9:35 pm

Hope wrote:
Wed Aug 14, 2019 9:22 pm

I talked to two credit unions , one had $7,800 as cost and the other one at $6000. What I have read is these costs can be rolled into the loan but then I will be paying the costs with interest over time. No Cost Refinance is another option but the rate will be a little high.
Sounds like they are charging you discount points. Check out Provident.com or AimLoan.com. Provident shows 3.125% no points today (but you’d still be on the hook for closing/paperwork costs) or you could do some reverse points to get truly zero costs.

Reverse points would be something like this: for a $175k loan, they give you a 0.25% higher interest rate and also give you $1,750 in credits towards closing costs.

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unclescrooge
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Re: Refinance!!! Go or No Go??

Post by unclescrooge » Wed Aug 14, 2019 9:39 pm

Hope wrote:
Wed Aug 14, 2019 9:22 pm
Thanks everyone for sharing your insights. I have tried to answer most of your suggestions and would like to continue figuring out a way forward that makes sense in my situation.
unclescrooge wrote:
Tue Aug 13, 2019 11:06 pm
You're paying 2.875% in closing costs :shock:
See if they will provide any credits towards closing costs.
If your goal is to pay in 10 years, see if they have a 10 or 7 year ARM.
That may have a lower rate.
How one might ask them about credits? Does "credit" mean removing some costs of the closing altogether or can it also mean they can roll that cost into the loan in which case I will have to pay the cost over the period of the loan with interest.
7 or 10 year ARM makes sense to me.
seawolf21 wrote:
Wed Aug 14, 2019 2:03 am
Hope wrote:
Tue Aug 13, 2019 10:05 pm
I am into second year of a 20 year mortgage @ 4% with currently $175k balance. A credit union has offered a 15 year mortgage at 3% with zero points. This refinance cost is estimated to be at $5k. I am having a hard time crunching the numbers to determine if its worth moving forward with the refinance. My goal is to reduce the interest paid on the mortgage. I have used a few refinance calculators online but not fully understanding their math or logic. Could use some help here.
Another point to take into consideration is my intention when I took the original mortgage (20 year) was to pay it off in 10 or less yeas.

One of the calculators I used (see image) says it will take me 21 months to break even the refinance cost.
Image

Insights/advice Please??
Thanks.
Not sure what into second year mean. If you are on payment 18 (1.5 years from start) and at $175K remaining, that should mean your original loan is $185K 4% 20 year with monthly payment is $1,121.

II you intend to let the 20 year run its course, total interest remaining would be around $73K.

If you refi to 15 year @ 3% with $5K costs, total interest for the 15 year plus $5k cost is about $47,500.

If you keep your loan and pay it off within the next 96 months you would be ahead of refinancing,
So to give a little bit of context. Originally it was a $240k loan, I made a couple of balloon payments earlier this year to bring the principal down... not sure what I was thinking. So now the current balance is $175k @4%. If I dont make any extra payments, I will pay off the entire loan in 154 months and during this time, I would have paid $48,763 in interest.
If I refinance and get a 15 year FRM @ 3% (with 6k cost) and pay it off in 154 months, I would pay $35,972 in interest. Adding the cost makes it $41,972. So I will be saving ~$6k with refinancing at this rate. This may help understand my specific situation. Do you think I should go for it? Now if I can get the same refi loan at a lower , it might make sense to go for it? THoughts????
ShowMeTheER wrote:
Wed Aug 14, 2019 4:32 am
You should refinance, but not with this lender at this offer. Go find he same rate/term for something well less than half of the fees this lender has quoted you.
I talked to two credit unions , one had $7,800 as cost and the other one at $6000. What I have read is these costs can be rolled into the loan but then I will be paying the costs with interest over time. No Cost Refinance is another option but the rate will be a little high.
Ask for lender credits to offset/lower closing costs.

Of the closing costs, some are prepaid costs, such as taxes, and insurance. What the fees once you remove those costs? These costs are those ones that can be lowered via credits. They are usually easier to get if you have a larger loan balance.

JBTX
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Re: Refinance!!! Go or No Go??

Post by JBTX » Wed Aug 14, 2019 9:47 pm

Hope wrote:
Tue Aug 13, 2019 10:05 pm
I am into second year of a 20 year mortgage @ 4% with currently $175k balance. A credit union has offered a 15 year mortgage at 3% with zero points. This refinance cost is estimated to be at $5k. I am having a hard time crunching the numbers to determine if its worth moving forward with the refinance. My goal is to reduce the interest paid on the mortgage. I have used a few refinance calculators online but not fully understanding their math or logic. Could use some help here.
Another point to take into consideration is my intention when I took the original mortgage (20 year) was to pay it off in 10 or less yeas.

One of the calculators I used (see image) says it will take me 21 months to break even the refinance cost.
Image

Insights/advice Please??
Thanks.
1% = $1750 of interest savings per year. That covers the $5000 up front cost in 3 years. If that were my best option I'd probably take that.

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Nate79
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Re: Refinance!!! Go or No Go??

Post by Nate79 » Wed Aug 14, 2019 9:54 pm

I only look at no cost refi's. It's pretty trivial to search for mortgage refi companies to get the best rates and losest/no costs.

JBTX
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Re: Refinance!!! Go or No Go??

Post by JBTX » Wed Aug 14, 2019 9:57 pm

unclescrooge wrote:
Tue Aug 13, 2019 11:06 pm
You're paying 2.875% in closing costs :shock:

See if they will provide any credits towards closing costs.

If your goal is to pay in 10 years, see if they have a 10 or 7 year ARM.

That may have a lower rate.
Don't know where OP lives, but that isn't uncommon in TX for a modest size loan. You pretty much have an appraisal and full title search and insurance even on a refi. Title companies seem to be a protected industry here.

Big Dog
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Re: Refinance!!! Go or No Go??

Post by Big Dog » Wed Aug 14, 2019 10:29 pm

Nate79 wrote:
Wed Aug 14, 2019 9:54 pm
I only look at no cost refi's. It's pretty trivial to search for mortgage refi companies to get the best rates and losest/no costs.
Exactly. That way, if rates drop further, you can refi again, all for 'no-costs.' Yes, the rates will be higher, but zero out of pocket is the key.

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Nebowictz
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Re: Refinance!!! Go or No Go??

Post by Nebowictz » Thu Aug 15, 2019 6:32 am

We are currently refinancing with Provident Funding right now.

Based on their rates and payments on 30 year loans, every .125% rate reduction had different break even points based on the monthly payment. Reducing the loan from 4% to 3.875% or 3.75% had a 4.4 year break even but taking it down to 3.625% or 3.5% jumped to 5.9 year break even.

I have no idea how long we will be in the home (could be a few years, could be a decade) so we are doing a higher interest rate and getting credits back. I'd rather have the money in my account right now. We have no closing costs (or any other fees, don't forget to factor them all in) and will only need to put down money for the escrow account (which we will then get back from our other lender).

seawolf21
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Re: Refinance!!! Go or No Go??

Post by seawolf21 » Thu Aug 15, 2019 7:59 am

Nebowictz wrote:
Thu Aug 15, 2019 6:32 am
We are currently refinancing with Provident Funding right now.

Based on their rates and payments on 30 year loans, every .125% rate reduction had different break even points based on the monthly payment. Reducing the loan from 4% to 3.875% or 3.75% had a 4.4 year break even but taking it down to 3.625% or 3.5% jumped to 5.9 year break even.

I have no idea how long we will be in the home (could be a few years, could be a decade) so we are doing a higher interest rate and getting credits back. I'd rather have the money in my account right now. We have no closing costs (or any other fees, don't forget to factor them all in) and will only need to put down money for the escrow account (which we will then get back from our other lender).
How do you calculate break even? Refinance mean you are restarting the 30 year payment schedule. Depending on how far along you are in current mortgage, it is possible break even is actually further in the future than calculated. If your goal is to improve cash flow via a lower monthly payment, then it is a different story.

finfire
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Re: Refinance!!! Go or No Go??

Post by finfire » Thu Aug 15, 2019 9:12 am

I pitted multiple lenders against each other and saved thousands on costs by the end of it.

Make sure you make them compete for your business.

Golf maniac
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Re: Refinance!!! Go or No Go??

Post by Golf maniac » Thu Aug 15, 2019 10:21 am

The closing costs will vary by state and the $6k may not be unreasonable. I would refi if I were the OP if I knew for sure I would be in the house 5 years. I agree you can pit your two best offers against each other and see if they will reduce costs or rates. Make sure you always get the offer in writing and not just a promise over the phone. Check all the numbers closely to ensure they don’t roll some of the costs in the principal amount.

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Nebowictz
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Re: Refinance!!! Go or No Go??

Post by Nebowictz » Thu Aug 15, 2019 11:12 am

seawolf21 wrote:
Thu Aug 15, 2019 7:59 am
How do you calculate break even? Refinance mean you are restarting the 30 year payment schedule. Depending on how far along you are in current mortgage, it is possible break even is actually further in the future than calculated. If your goal is to improve cash flow via a lower monthly payment, then it is a different story.
Those break even numbers were comparing Refi to Refi at the various interest rates and closing costs, not Refi to Current loan. So after we determined we were going to Refi, we looked at the different offerings and comparing. Compared to our current loan anything is better. We found a great deal on a house last year but it was the time period when mortgage rates peaked. So we are barely into our loan will be able to do a lower payment and interest rate for no cost.

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