Refinance, but need to pay loan down $15k to get rate?

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berg
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Refinance, but need to pay loan down $15k to get rate?

Post by berg »

Maybe I'm going crazy, but can't resist considering a refi. I refied only a year ago to get down to 3.25%. I was offered 3% - zero closing costs, but only if I can drop my loan from $525k today to $510k. Is it worth considering it or am I overthinking at such a small difference in rate? Our plan is to pay the minimum and invest any excess cash. My instinct is to just stick with where I am, but just wanted a gut check from the Bogleheads!
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8foot7
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by 8foot7 »

This is probably to get you under the conforming limit so that your loan can be sold to Fannie and Freddie. Rates seem more competitive down there right now due to liquidity. You’ll save about $1,200 a year on interest on that quarter point. It may well be worth doing for no other costs if you have the 15k available.
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BrandonBogle
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by BrandonBogle »

Agreed. If any closing costs are involved vs. just reducing principal, it’s not worth it. But if it is a no-cost refi, do what your heart wants.
JBTX
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by JBTX »

Another way to look at it - if you don't do it that is like having an 8% loan on $15000
Ron Ronnerson
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by Ron Ronnerson »

If I was in your position and could spare the $15k, I’d pay it down and refinance to the lower rate. In 2012, to get a better rate during a refinance, I paid down the balance by $43k.
jharkin
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by jharkin »

If I was you and I had the cash I’d do it. Even better shop around and see if you can get even lower than 3. I think LenderFi had 2.xx for loans under the conforming limit....
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berg
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by berg »

JBTX wrote: Mon Jun 22, 2020 5:39 pm Another way to look at it - if you don't do it that is like having an 8% loan on $15000
Can you help me with the math there? I don't follow.

Only thing is, from a cash flow perspective, I would need to sell some of my taxable investments to cover the $15k - not sure it matters since money is fungible.

The rate + paying down $15k will drop my monthly payment by about $167 per month (if I didn't have to pay down the $15k, the interest saving would be $104 per month).
JBTX
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by JBTX »

berg wrote: Mon Jun 22, 2020 7:17 pm
JBTX wrote: Mon Jun 22, 2020 5:39 pm Another way to look at it - if you don't do it that is like having an 8% loan on $15000
Can you help me with the math there? I don't follow.

Only thing is, from a cash flow perspective, I would need to sell some of my taxable investments to cover the $15k - not sure it matters since money is fungible.

The rate + paying down $15k will drop my monthly payment by about $167 per month (if I didn't have to pay down the $15k, the interest saving would be $104 per month).
525k * .0025= $1312 interest saved per year. Or is the additional annual interest you pay for not refinancing.

$15,000 is the amount you will have to put down, or the additional amount borrowed if you don't refi.

$1312 / $15000 = 8.75%.

For the additional $15k borrowed you pay $1312 more in interest which is like a $15k loan at 8.75%.

The problem with trying to compare payments, like you as re doing above is the refi is always lower, because you are extending your term, typically a few years, as you are starting the mortgage over. So yes your payments will be lower, but with the refi you will have additional payments at the extension if your term. This is where mortgage consultants will usually try to bamboozle you by exaggerating the benefit of the refi.
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by Jack FFR1846 »

I would do it. But then again, my last no cost refi was to save $12 a month.

Any savings went right into the mortgage to pay it down early.
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unclescrooge
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by unclescrooge »

I would not do it.

Most people live in their homes 8 years. Not worth the effort.

Zero fee only!
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BrandonBogle
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by BrandonBogle »

unclescrooge wrote: Mon Jun 22, 2020 9:37 pm I would not do it.

Most people live in their homes 8 years. Not worth the effort.

Zero fee only!
I’m confused. “Zero fee only”, yet that is what the Op is being offered??
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unclescrooge
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by unclescrooge »

BrandonBogle wrote: Mon Jun 22, 2020 9:50 pm
unclescrooge wrote: Mon Jun 22, 2020 9:37 pm I would not do it.

Most people live in their homes 8 years. Not worth the effort.

Zero fee only!
I’m confused. “Zero fee only”, yet that is what the Op is being offered??
It may be zero fee, but it requires a loan paydown of about 3%.
I would not do it.

But if you are racing to pay down your mortgage, or feel you cannot invest better than a 3.5% mortgage, then your strategy will be different.
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Watty
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by Watty »

berg wrote: Mon Jun 22, 2020 5:13 pm Maybe I'm going crazy, but can't resist considering a refi. I refied only a year ago to get down to 3.25%. I was offered 3% - zero closing costs, but only if I can drop my loan from $525k today to $510k.
If you refinance now at 3% then that may mean that it may not be cost effective to refinance again if the rate drops to 2.75% percent in a few months if you cannot find another no cost loan then.

Be sure to check the fine print of this refinance agreement. I have a no cost HELOC that I set up where I will need to repay lender paid closing costs if I closed out the line of credit within three years. If you have something like that in your new mortgage then it might not be cost effective to refinance again it rates drop to 2.75%. even if you can find another zero cost loan then.

I would be tempted to wait an see if the rates drop another eighth or quarter of a point.
surfstar
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by surfstar »

We're in a very similar situation.
3.5% but only down to 3.08% (condo vs SFR maybe?)
~$9k to get down to $510k
We'll save ~$140/mo. 3.5% REFI was done last Oct. New loan is actually 29 year, cutting 4 months off loan. We'll just use our cash savings that was going to be invested in a taxable account for the paydown instead. I don't believe we'll beat this rate anytime soon, but who knows... (rates have gone up slightly since we locked) http://www.mortgagenewsdaily.com/mortga ... daily.aspx
Topic Author
berg
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by berg »

Watty wrote: Mon Jun 22, 2020 10:53 pm
berg wrote: Mon Jun 22, 2020 5:13 pm Maybe I'm going crazy, but can't resist considering a refi. I refied only a year ago to get down to 3.25%. I was offered 3% - zero closing costs, but only if I can drop my loan from $525k today to $510k.
If you refinance now at 3% then that may mean that it may not be cost effective to refinance again if the rate drops to 2.75% percent in a few months if you cannot find another no cost loan then.

Be sure to check the fine print of this refinance agreement. I have a no cost HELOC that I set up where I will need to repay lender paid closing costs if I closed out the line of credit within three years. If you have something like that in your new mortgage then it might not be cost effective to refinance again it rates drop to 2.75%. even if you can find another zero cost loan then.

I would be tempted to wait an see if the rates drop another eighth or quarter of a point.
I know it is just a guessing game, but curious why you think it might go even lower?

unclescrooge wrote: Most people live in their homes 8 years. Not worth the effort.

Zero fee only!
I’m confused. “Zero fee only”, yet that is what the Op is being offered??
It may be zero fee, but it requires a loan paydown of about 3%.
I would not do it.

But if you are racing to pay down your mortgage, or feel you cannot invest better than a 3.5% mortgage, then your strategy will be different.
I am not racing to pay down. In fact, current plan is to hold for the full 30 years or at the very least until my wife's retirement target date which is 25 years. But given that philospohy of holding for a long time, I thought a lower interest rate would be even more beneficial.

-----------

Curious - if I were to move forward, does anyone see any issue with using investments to pay down the $15k? I have enough losses from TLH to limit any capital gains.
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BrandonBogle
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by BrandonBogle »

berg wrote: Tue Jun 23, 2020 12:51 pm Curious - if I were to move forward, does anyone see any issue with using investments to pay down the $15k? I have enough losses from TLH to limit any capital gains.
No, no problem with it. Just realize that you are losing a little bit of nominal tax rate deduction. But that won’t be for $15k anyways, so you will lose out on maybe a few years worth of offsetting your nominal taxes years from now.
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Watty
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Re: Refinance, but need to pay loan down $15k to get rate?

Post by Watty »

berg wrote: Tue Jun 23, 2020 12:51 pm I know it is just a guessing game, but curious why you think it might go even lower?
It is a 50/50 chance that they will either go up or down from here. :D
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