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Should I refinance my mortgage?

Posted: Wed Oct 28, 2020 6:22 pm
by miamivice
We have two loans:

- 3.25%, 30 year fixed, 8 years into payment
- 4% , 15% fixed, 3 years into it

Have option to roll both into brand new 30 year fixed at 2.75%.

The calculators show my payment would go down by about $1,000 per month. A portion would be reduced interest payments due to lower rates and a portion would be due to paying less principle (stretching the 15 year loan into a 30 year loan; starting over on the 30 year loan).

Cost would be about $1,500 or so, plus a few hours time in filing out and signing paperwork.

I am thinking that it makes clear sense to refinance.

Your thoughts?

Re: Should I refinance my mortgage?

Posted: Wed Oct 28, 2020 6:30 pm
by Liberty1100
Do you plan on staying at this house for many more years? 5/10/15 years?

Not knowing anything more than what you said (income, age, family, hopes & dreams), I would think that $1k a month, $12k a year opens up a great amount of possible investing and financial flexibility.

Re: Should I refinance my mortgage?

Posted: Wed Oct 28, 2020 6:47 pm
by exigent
Contact some lenders and see what they can do for you. Find out what the rate would like like on a no-cost refi, and/or what the breakeven period would be for other, lower rates.

Re: Should I refinance my mortgage?

Posted: Wed Oct 28, 2020 6:59 pm
by miamivice
Liberty1100 wrote: Wed Oct 28, 2020 6:30 pm Do you plan on staying at this house for many more years? 5/10/15 years?

Not knowing anything more than what you said (income, age, family, hopes & dreams), I would think that $1k a month, $12k a year opens up a great amount of possible investing and financial flexibility.
Will be at our current house for "a while". Not sure how long. Spouse doesn't want to move, I would like to move. We will eventually but probably later rather than sooner.

Re: Should I refinance my mortgage?

Posted: Wed Oct 28, 2020 7:10 pm
by Trader Joe
miamivice wrote: Wed Oct 28, 2020 6:22 pm We have two loans:

- 3.25%, 30 year fixed, 8 years into payment
- 4% , 15% fixed, 3 years into it

Have option to roll both into brand new 30 year fixed at 2.75%.

The calculators show my payment would go down by about $1,000 per month. A portion would be reduced interest payments due to lower rates and a portion would be due to paying less principle (stretching the 15 year loan into a 30 year loan; starting over on the 30 year loan).

Cost would be about $1,500 or so, plus a few hours time in filing out and signing paperwork.

I am thinking that it makes clear sense to refinance.

Your thoughts?
My thoughts are I would pay off all of my loans and live my life debt free.

Re: Should I refinance my mortgage?

Posted: Wed Oct 28, 2020 7:19 pm
by miamivice
Trader Joe wrote: Wed Oct 28, 2020 7:10 pm
miamivice wrote: Wed Oct 28, 2020 6:22 pm We have two loans:

- 3.25%, 30 year fixed, 8 years into payment
- 4% , 15% fixed, 3 years into it

Have option to roll both into brand new 30 year fixed at 2.75%.

The calculators show my payment would go down by about $1,000 per month. A portion would be reduced interest payments due to lower rates and a portion would be due to paying less principle (stretching the 15 year loan into a 30 year loan; starting over on the 30 year loan).

Cost would be about $1,500 or so, plus a few hours time in filing out and signing paperwork.

I am thinking that it makes clear sense to refinance.

Your thoughts?
My thoughts are I would pay off all of my loans and live my life debt free.
It doesn't make financial sense to me to liquid ~$495,000 of stocks to pay off a loan with an interest rate of 2.75%.

Re: Should I refinance my mortgage?

Posted: Wed Oct 28, 2020 7:27 pm
by megabad
Seems to make sense to refi given your stated low closing costs unless you are moving imminently. Not sure I love extended the term so much, but up to you. You can always make extra principle payments if you desire so probably not a big deal. The market timer in me is thinking that 2.75% guaranteed might be pretty good for the next little while.

Re: Should I refinance my mortgage?

Posted: Wed Oct 28, 2020 7:35 pm
by rockstar
Figure out the average monthly interest savings over a two year period. Figure out the cost to refi. Divide the two to get a close approximation of the number of months needed to break even at the new rate. If you plan on living there longer than the number of months it takes to break even, then a refi looks like a good opportunity to save on interest. If you don't stay there long enough to breakeven, then it doesn't really make sense That's how I figure it. My refi will take me 15 months to breakeven. I plan to stay in this home more than 15 months, so I'm going ahead with it.

Re: Should I refinance my mortgage?

Posted: Thu Oct 29, 2020 1:46 pm
by Golf maniac
Based on your stated costs and reduction in payment amount, it is a no brainer to refi. Now is this the best deal you can get? Only you can answer by pricing other lenders. One possible idea is to look at a 15 year mortgage to see if you can afford it. You can go to AIM loan online and see what they offer, it takes 5 minutes.

Re: Should I refinance my mortgage?

Posted: Thu Oct 29, 2020 2:17 pm
by wfrobinette
miamivice wrote: Wed Oct 28, 2020 6:22 pm We have two loans:

- 3.25%, 30 year fixed, 8 years into payment
- 4% , 15% fixed, 3 years into it

Have option to roll both into brand new 30 year fixed at 2.75%.

The calculators show my payment would go down by about $1,000 per month. A portion would be reduced interest payments due to lower rates and a portion would be due to paying less principle (stretching the 15 year loan into a 30 year loan; starting over on the 30 year loan).

Cost would be about $1,500 or so, plus a few hours time in filing out and signing paperwork.

I am thinking that it makes clear sense to refinance.

Your thoughts?
I bet you can get lower than 2.75 as well.

Re: Should I refinance my mortgage?

Posted: Thu Oct 29, 2020 3:32 pm
by Outer Marker
Definately refi. I'd roll both loans into an even lower rate 15 year loan with enough lender credits to cover closing costs. I'm currently working on a 15 year refi at 2.5% with $4,800 in credits. Whether you stay in the house or not is irrelevant. The equity goes straight to your net worth either way.

Re: Should I refinance my mortgage?

Posted: Tue Nov 03, 2020 2:04 pm
by miamivice
OK, I crunched some numbers.

Of the $1,000 decrease in my monthly payment, about $220 is from lower interest and the balance because I am stretching out to loans (the 22 years becoming 30 year; 15 year to 30 year). In addition, my plan was to payoff the 15 year in next 2-5 years and I would lose that option.

Looking at the numbers, I would payoff the refinance cost in about 12 months or so however I would lose the option to payoff the 15 year early and reduce both principle and interest payments there.

I'm not getting super excited about saving $200 a month or so in interest payments for a $2200 up front cost. Am I missing something?

Re: Should I refinance my mortgage?

Posted: Wed Nov 04, 2020 2:27 pm
by Outer Marker
OP, recheck today's rates with loan depot. I just got 15 years at 2.125 from loan depot with a $9,000 lender credit on $700,000. Amazing.

Re: Should I refinance my mortgage?

Posted: Thu Nov 05, 2020 12:15 am
by presto987
OP, it seems like a no-brainer to refinance; I don't understand your last post.

Because your interest rate would be significantly lower than your existing rates, you are going to save a lot of interest, and your total monthly payment is going to be lower.

It seems that you're really excited about the possibility of repaying your 15-year mortgage early, because then your total payment would go down at that point. If you want to replicate that with the new loan, you can just make additional principal payments equal to whatever you would have otherwise done. Then, once you've paid down a significant amount of extra principal, you can ask your lender if they're willing to recast your mortgage. This will lower your monthly payment similar to what you were looking to do by paying off your 15-year mortgage. If your lender doesn't offer a recast option, or if they charge excessive fees for it, then you can just refi again. (I recasted my old mortgage with BofA a couple of years ago and did not have to pay a fee).

My only other suggestion is that depending where you are located, your loan size, etc., you can probably do better than 2.75% with $1500 or $2200 of costs. Rates have been improving over the past couple of weeks. Plus many lenders will allow you to increase your rate in exchange for lender credits to offset your closing costs. If you can bring your net closing costs to zero (or better) then you will be better off immediately, i.e. no need to wait 12 months to pay off the refi cost.

Re: Should I refinance my mortgage?

Posted: Thu Nov 05, 2020 2:10 am
by placeholder
miamivice wrote: Wed Oct 28, 2020 7:19 pm It doesn't make financial sense to me to liquid ~$495,000 of stocks to pay off a loan with an interest rate of 2.75%.
There is a contingent here that is so averse to debt that they will always recommend getting rid of it regardless of the financial sense so just ignore them.

Re: Should I refinance my mortgage?

Posted: Thu Nov 05, 2020 4:44 am
by Savingscaptain
How much assets do you have? Call citi and wells fargo, fill a full application with credit check, don't about worry about score hit, then send them your loan estimate. See which one will beat. Once you select one, tell them the other offered you a lender credit.

Also do a 10/1 arm but make 15y payment amount. You will pay off more principle.

If you want to really milk it, once you have your final loan estimate, send it to BBVA. They will match. Then just park 25k ina CD for a year and get 0.7 closing cost credit to pretty much pay for all your costs.

Re: Should I refinance my mortgage?

Posted: Thu Nov 05, 2020 11:20 am
by miamivice
presto987 wrote: Thu Nov 05, 2020 12:15 am OP, it seems like a no-brainer to refinance; I don't understand your last post.
I dunno….I'm slammed with things to do right now so am concerned about the hours spent on a loan application. I'm have had a nice experience with my current lender for the last 8 years (they have processed every payment on time and handled the escrow account well too without me doing anything) and am unsure if the new lender will be just as good.

Regarding assets, I have enough that I could pay off both mortgages today if I wanted to...but I don't want to.

I think the bottom line for me is that 1/2 point off the primary mortgage isn't enough to get me excited today. Financially it is an ok decision but not great decision. The 1.25 points off the second mortgage is enough to get me excited but I want to pay this off in the next 3-5 years anyway. So I don't think I am there yet in terms of savings to justify the work, risk, and upfront financial cost.

Re: Should I refinance my mortgage?

Posted: Thu Nov 05, 2020 11:56 am
by Outer Marker
miamivice wrote: Thu Nov 05, 2020 11:20 am
presto987 wrote: Thu Nov 05, 2020 12:15 am OP, it seems like a no-brainer to refinance; I don't understand your last post.
I dunno….I'm slammed with things to do right now so am concerned about the hours spent on a loan application. I'm have had a nice experience with my current lender for the last 8 years (they have processed every payment on time and handled the escrow account well too without me doing anything) and am unsure if the new lender will be just as good.

Regarding assets, I have enough that I could pay off both mortgages today if I wanted to...but I don't want to.

I think the bottom line for me is that 1/2 point off the primary mortgage isn't enough to get me excited today. Financially it is an ok decision but not great decision. The 1.25 points off the second mortgage is enough to get me excited but I want to pay this off in the next 3-5 years anyway. So I don't think I am there yet in terms of savings to justify the work, risk, and upfront financial cost.
There is zero up front financial cost. You can take negative points and get paid by a new lender to take a lower rate. It is cash positive on day one. It took me less than an hour to apply and upload my W2, paystubs, etc. to Loan Depot. You are greatly over-estimating the burden, and under-estimating the benefits. This is a no brainer.

Re: Should I refinance my mortgage?

Posted: Thu Nov 05, 2020 12:12 pm
by mervinj7
miamivice wrote: Wed Oct 28, 2020 6:22 pm We have two loans:

- 3.25%, 30 year fixed, 8 years into payment
- 4% , 15% fixed, 3 years into it

Have option to roll both into brand new 30 year fixed at 2.75%.

The calculators show my payment would go down by about $1,000 per month. A portion would be reduced interest payments due to lower rates and a portion would be due to paying less principle (stretching the 15 year loan into a 30 year loan; starting over on the 30 year loan).

Cost would be about $1,500 or so, plus a few hours time in filing out and signing paperwork.

I am thinking that it makes clear sense to refinance.

Your thoughts?
Seems pretty straightforward. I would do a refinance but get more quotes for a no-cost one from other lenders.

Re: Should I refinance my mortgage?

Posted: Thu Nov 05, 2020 12:36 pm
by Meg77
Banker here. Refinancing definitely makes sense given the drop in interest rate and how long you plan to stay, but don't confuse matters by looking at the drop in your payment. As you point out, that fluctuates a lot more based on amortization than anything.

Why not go for a 15 or 20 year amortization instead? You would still be stretching out the term of the 15 year loan but not on the 30. Overall you may be keeping roughly to the same repayment schedule which is prudent. I'm sure your payment would still drop somewhat. Just food for thought. Depends on what you plan to do with the extra cash flow and how tight your budget is of course (for example if you aren't maxing out retirement then it may make sense to take more of a payment drop and up retirement contributions; if you think you'll mostly spend the excess then that's a vote in favor of the forced savings of a higher monthly mortgage payment).

Re: Should I refinance my mortgage?

Posted: Thu Nov 05, 2020 7:46 pm
by presto987
Rates have continued to improve. You should be able to get a lender credit to cover any upfront costs. And possibly still lower your rate compared to 2.75%.

If you tell us your state, loan amount, and LTV, we can probably suggest a lender that will make this a smooth process.

You will save thousands of dollars in interest.

Re: Should I refinance my mortgage?

Posted: Fri Nov 06, 2020 3:59 pm
by miamivice
OK, I just checked better.com and I can lock today at 2.625 (30 year fixed) with $200 in lender credits. I think this hits my number to get excited - 5/8 off current rate for fixed mortage, 1 3/8 off for fixed home equity line of credit. Will save about $270 a month in interest compared to what we are paying today. Total out of pocket costs, excluding the escow, taxes, insurance, interest prepaids, is right about $2000. That means I will pay off the refinance cost on the 8th month after refinancing which is excellent.

I think I will move forward with this and lock today. Any reason I shouldn't wait until Monday? I clearly don't know what the rates will do on Monday and think that locking today makes sense.

Any reason not to go with Better.com? They seem to have a nice interface and the rates are good. I see they are rated well.

Should I try to negotiate better terms?

Re: Should I refinance my mortgage?

Posted: Fri Nov 06, 2020 4:41 pm
by Outer Marker
miamivice wrote: Fri Nov 06, 2020 3:59 pm OK, I just checked better.com and I can lock today at 2.625 (30 year fixed) with $200 in lender credits. I think this hits my number to get excited - 5/8 off current rate for fixed mortage, 1 3/8 off for fixed home equity line of credit. Will save about $270 a month in interest compared to what we are paying today. Total out of pocket costs, excluding the escow, taxes, insurance, interest prepaids, is right about $2000. That means I will pay off the refinance cost on the 8th month after refinancing which is excellent.

I think I will move forward with this and lock today. Any reason I shouldn't wait until Monday? I clearly don't know what the rates will do on Monday and think that locking today makes sense.

Any reason not to go with Better.com? They seem to have a nice interface and the rates are good. I see they are rated well.

Should I try to negotiate better terms?
That seems a bit high in today's feeding frenzy of falling mtge rates. I'd check Loan Depot and Amerisave for comparison. I think you can do better both on rate and credit. Pays to shop around.

I'd lock it this evening, if possible. You never know . . .

Don't count the escrow, taxes, insurance and prepaids as "costs." All of that you're going to get back from your prior lender in the form of a check. Its a complete wash. The fees that count are:

-lender orgination fees (negative), vs. offsetting credits (positive)
-appraisal fee
- gov't recording and stamp taxes
-settlement agent fee
-Title insurance - make sure you get a "reissue rate".

Done right, you should be zero or cash positive the day you sign the papers.

Have fun! :beer

Re: Should I refinance my mortgage?

Posted: Fri Nov 06, 2020 7:26 pm
by presto987
A few comments:

- Better.com is very good, and I do recommend them. However, most of the time their initial pricing is not that great, and you can do a lot better by asking them to beat another offer.

- If this is currently your best offer, then you should probably lock today if you haven't already. With Better, there is not too much harm in locking, because they are open to price matching other offers even after you lock.

- You can almost certainly improve your offer if you shop around. One quick thing you can try is to do a search on bankrate.com. If Loan Cabin operates in your state, you should apply to them, get a Loan Estimate, and then ask Better to beat it. If LC doesn't operate in your state, check LenderFi. (Note that LenderFi's online rate quote tool doesn't give their best rates. If you apply, you can typically get around 0.25% off your rate compared to the website).

- As Outer Marker suggests, it is possible to do your refi at no cost (or a lower cost) by picking a higher interest rate. This will mean that you can save your $2000, and your refi will pay for itself on day 1. Of course your interest rate will be higher, but the cost savings is enough that usually it would take over 3-4 years for the interest savings to be worthwhile. If you intend to pay down a significant amount of the principal during that timeframe, and if you are open to refinancing again at some point, then the upfront cost savings are likely to be more helpful than the slightly lower interest rate.