Which refinance to choose?

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Which refinance to choose?

Post by uclalee »

Currently have a mortgage that was recast during the pandemic to 3.1% at 40 years. Initial loan balance was 865,000. I am about 6 months into this loan.

2 refinance options:
1) Balance 859,000; Rate 2.75%, Closing costs ~6200, point credits ~6200 (so no cost)
2) Balance 859,000; Rate 2.625, Closing costs ~6200, point credits ~2100 (4100 cost)

My monthly payment will bump up a couple hundred per month with either refinance because of shortened term. Wondering what everyone thinks if I should stay where I am, refinance at no cost, or go for the best reasonably priced rate?
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Re: Which refinance to choose?

Post by fabdog »

Assuming your cashflow can handle the payment increase, a quick spreadsheet calc will show you how many months it will take to breakeven on paying the $4100 to get the lower rate

If you can handle the payment, and plan to be in the house a while, I would refi. You'll drop the overall interest that you pay

If you plan to move in 6 months, stay put

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Re: Which refinance to choose?

Post by HomeStretch »

An online Bankrate.com mortgage calculator shows a 30-year $859k loan has a P&I payment of $4,138/mo @ 2.75% and $4,082 @ 2.625% (with $4100 in points). The payback period for option 2 is ~6 years (=4100 / [4138-4082] / 12).

I personally would choose the no-points option 1. It’s a no-brainer to get a lower monthly payment for no out-of-pocket costs. Definitely choose option 1 if you plan to sell the house in the next 6-10 years.

Have you checked the latest posts in the BH Mega Refinance thread for lenders/rates to see if there are any better deals around?

Edit - link to aforementioned thread:
Last edited by HomeStretch on Tue Sep 14, 2021 8:25 am, edited 1 time in total.
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Re: Which refinance to choose?

Post by hand »

Paying for a lower rate at closing assumes you will keep this loan and won't refinance before the break-even point.

Over the last 10 years, this has been a poor bet for most people, but will be a good bet if/when we hit the bottom of the market.
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Re: Which refinance to choose?

Post by FrugalProfessor »

I made an XLSX model here to compare different options: https://frugalprofessor.com/better-amex ... age-promo/
I blog. Taxes are the lowest hanging source of alpha. I eat tax alpha for breakfast.
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