Is this a good mortgage refinance?

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Topic Author
hotrodz
Posts: 18
Joined: Thu Jan 18, 2018 7:37 pm
Location: TX

Is this a good mortgage refinance?

Post by hotrodz » Tue May 14, 2019 12:46 pm

-----

Edit for latest rates I'm picking between, both from Citi with relationship pricing for moving over $200k.

$518k loan balance, no plans on leaving the house we're at. Cashflow is not the problem, and I could either apply the $145/month difference towards principal or invest it.

30-yr fixed 3.75% rate, 3.775% APR, monthly payment $2,399

10/1 ARM 3.25% rate, 3.963% APR, monthly payment $2,254

-----

Been shopping for a refinance on Bankrate for a few weeks, getting about 10 calls a day about mortgages so wanted to get some opinions before applying.

Today I got these rates from Ally for a 518k jumbo loan in TX. I currently have a 4.5%, less than 1-year-old, 30-year fixed loan from Chase.

10/1 ARM –
3.490% rate/4.067% APR with $1476 in points and payment of $2323
3.625% rate/4.125% APR with $870 in lender credit and payment of $2362

30 year fixed rate –
3.750% rate/3.801% APR with $1678 in points and payment of $2398
3.875% rate/3.900% APR with $1880 in lender credit and payment of $2435

I'm leaning towards the 30-year fixed because the wife and I plan on staying in this house long term (it's a nice house and has a lot of space to grow into). Last week I saw a 3.125% Amalgamated Bank 10-ARM on Bankrate, but they never reached out (or maybe one of the calls I haven't picked up). For 3.125% I think I'd go with a 10/1 ARM, but for a smaller difference in rate it doesn't seem worth it.

I did look into Citi's relationship mortgage discount but the best I got from them was 4% for 30-year and 3.5% for 10-ARM (no points) after moving $200k in assets.

Appreciate your thoughts!
Last edited by hotrodz on Wed May 15, 2019 5:01 pm, edited 1 time in total.

bloom2708
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Re: Is this a good mortgage refinance?

Post by bloom2708 » Tue May 14, 2019 2:05 pm

I would pick the 10/1 ARM. I might look at 7/1 ARM rates.

The 3.625% looks good. What does the "credit" mean? Do you pay $875 in points to get that rate?

Payment is pretty close to the 3.49% 10/1 ARM.

Chances are high that you will refinance again in the 7 or 10 year window.

We did a 5/1 ARM with great success, but I knew we would pay the mortgage off within the 5 year term. And we did.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

batpot
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Re: Is this a good mortgage refinance?

Post by batpot » Tue May 14, 2019 2:25 pm

bloom2708 wrote:
Tue May 14, 2019 2:05 pm
Chances are high that you will refinance again in the 7 or 10 year window.
Why do you say that?

Topic Author
hotrodz
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Location: TX

Re: Is this a good mortgage refinance?

Post by hotrodz » Tue May 14, 2019 2:35 pm

bloom2708 wrote:
Tue May 14, 2019 2:05 pm
I would pick the 10/1 ARM. I might look at 7/1 ARM rates.

The 3.625% looks good. What does the "credit" mean? Do you pay $875 in points to get that rate?

Payment is pretty close to the 3.49% 10/1 ARM.

Chances are high that you will refinance again in the 7 or 10 year window.

We did a 5/1 ARM with great success, but I knew we would pay the mortgage off within the 5 year term. And we did.
For the 3.625% rate Ally will give $870 towards closing costs.

bloom2708
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Re: Is this a good mortgage refinance?

Post by bloom2708 » Tue May 14, 2019 2:36 pm

batpot wrote:
Tue May 14, 2019 2:25 pm
bloom2708 wrote:
Tue May 14, 2019 2:05 pm
Chances are high that you will refinance again in the 7 or 10 year window.
Why do you say that?
Well, they are refinancing 1 year in to a 30 year fixed.. Rates have stopped going up. Dipped a little even.

Chances are in a 7-10 year window there will be one "recession" type event. Rates are then lowered to spur the economy. Then raised to keep inflation in check. Repeat.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Topic Author
hotrodz
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Re: Is this a good mortgage refinance?

Post by hotrodz » Tue May 14, 2019 2:45 pm

bloom2708 wrote:
Tue May 14, 2019 2:36 pm
batpot wrote:
Tue May 14, 2019 2:25 pm
bloom2708 wrote:
Tue May 14, 2019 2:05 pm
Chances are high that you will refinance again in the 7 or 10 year window.
Why do you say that?
Well, they are refinancing 1 year in to a 30 year fixed.. Rates have stopped going up. Dipped a little even.

Chances are in a 7-10 year window there will be one "recession" type event. Rates are then lowered to spur the economy. Then raised to keep inflation in check. Repeat.
If I see myself refinancing again then it doesn't seem worth to consider the points option since it will take 8+ years to recoup the difference in paying for points and not receiving the lender credit. I could probably get a better rate (3.5% 10-ARM) by moving $200k to Citi depending on the current dip.
I'm just worried about "forcing" myself to refinance if we indeed stay in this house for 10+ years.

bloom2708
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Location: Fargo, ND

Re: Is this a good mortgage refinance?

Post by bloom2708 » Tue May 14, 2019 3:08 pm

I would edit the original post and show the "total cost" of each refinance option.

The one shows points, one shows a credit, but not the total cost. If you can save .5% with low costs, that may make sense too.

If you save 1% on this refinance. That may have an 8 year re-pay period.

If 2 years from now you can save another 1%. That also may have an 8 year re-pay period. But, the initial 1% is still being "saved" by not paying that additional 1% interest.

1% is significant on a $518k mortgage. Our biggest mortgage was $130k. I refinanced for .75% with low closing costs at one point and then did a 5/1 ARM when we were closing in on paying it off.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

Topic Author
hotrodz
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Location: TX

Re: Is this a good mortgage refinance?

Post by hotrodz » Tue May 14, 2019 3:33 pm

bloom2708 wrote:
Tue May 14, 2019 3:08 pm
I would edit the original post and show the "total cost" of each refinance option.

The one shows points, one shows a credit, but not the total cost. If you can save .5% with low costs, that may make sense too.

If you save 1% on this refinance. That may have an 8 year re-pay period.

If 2 years from now you can save another 1%. That also may have an 8 year re-pay period. But, the initial 1% is still being "saved" by not paying that additional 1% interest.

1% is significant on a $518k mortgage. Our biggest mortgage was $130k. I refinanced for .75% with low closing costs at one point and then did a 5/1 ARM when we were closing in on paying it off.
Thanks for the advice. Ally wouldn't send me any full cost estimate until I decided to officially apply. On the phone, they said the only fees they charge are their $995 origination fee and another $70 fee. I wanted to make sure a refinance is the right choice for me before I start pulling my credit with applications.

bloom2708
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Re: Is this a good mortgage refinance?

Post by bloom2708 » Tue May 14, 2019 3:36 pm

hotrodz wrote:
Tue May 14, 2019 3:33 pm
Thanks for the advice. Ally wouldn't send me any full cost estimate until I decided to officially apply. On the phone, they said the only fees they charge are their $995 origination fee and another $70 fee. I wanted to make sure a refinance is the right choice for me before I start pulling my credit with applications.
The other variable is how long you plan to stay in this house. "Forever home" translates to 5 to 7 years or until "something major" changes. Job, kids, schools, etc.

If you trade up in 5 to 7 years, you lose the opportunity to earn your costs back but are still saving the reduced interest each month.
"We are not here to agree with you; we are here to provoke thoughtfulness." Unknown Boglehead

SovereignInvestor
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Re: Is this a good mortgage refinance?

Post by SovereignInvestor » Tue May 14, 2019 4:20 pm

IMO the ARM has too little of interest savings to warrant it because you'll need to refinance it of you stay there long term and the closing costs incurred on next refi, may negate any interest savings.

25Bps savings isn't a lot. I have 10/1 ARM over 30Y fixed but got a 87 5bP discount on rate. Yield curve flattened a bit since then.

Good luck!

Golf maniac
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Location: Florida

Re: Is this a good mortgage refinance?

Post by Golf maniac » Tue May 14, 2019 4:36 pm

Personally I would not go with any bank that won’t provide a closing cost estimate in writing before application. There is no reason they cannot provide this and there are numerous disclosures on these estimates that they can change. Closing costs can vary tremendously so getting 2 or 3 estimates is a good idea.

I agree the ARM choices seem to have a lower spread then normal, this is probably because of the current flatter yield curve.

Topic Author
hotrodz
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Joined: Thu Jan 18, 2018 7:37 pm
Location: TX

Re: Is this a good mortgage refinance?

Post by hotrodz » Tue May 14, 2019 7:01 pm

Thanks guys. This is what I got for today’s rates from Citi with no points.

30 yr fixed 3.75 3.775 apr

10 yr ARM 3.25 3.963 apr

GT99
Posts: 184
Joined: Wed Jun 20, 2018 5:26 pm

Re: Is this a good mortgage refinance?

Post by GT99 » Tue May 14, 2019 8:33 pm

hotrodz wrote:
Tue May 14, 2019 2:45 pm

If I see myself refinancing again then it doesn't seem worth to consider the points option since it will take 8+ years to recoup the difference in paying for points and not receiving the lender credit. I could probably get a better rate (3.5% 10-ARM) by moving $200k to Citi depending on the current dip.
I'm just worried about "forcing" myself to refinance if we indeed stay in this house for 10+ years.
Unless there is something you didn't share, I'm getting 5 years, almost on the nose to recoup the difference in paying for points. $1476 - (-870) = $2346/$39 difference = 60.15 months.

Regardless, you can't make the decision without knowing closing costs, unless you assume they are the same.

Looking at your last post with the 3.75 vs 3.25 rates, the 10 year arm looks like a no-brainer. It would be nice if you included the payments and didn't make us calculate it, but based on my calculation, that half point will save you $144.57 per month with the 10 yr ARM, which is $17,348 over 10 years. That's an absolute no-brainer in my mind. Even if after 10 years you pay $1500 in closing costs to refinance to a 5.25% mortgage, that higher rate is now on less then $400,000. Just doing some quick math, I think your break even point in that scenario is around 15 years (not including possible returns on your savings over the first 10 years).

Topic Author
hotrodz
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Joined: Thu Jan 18, 2018 7:37 pm
Location: TX

Re: Is this a good mortgage refinance?

Post by hotrodz » Tue May 14, 2019 9:23 pm

GT99 wrote:
Tue May 14, 2019 8:33 pm
hotrodz wrote:
Tue May 14, 2019 2:45 pm

If I see myself refinancing again then it doesn't seem worth to consider the points option since it will take 8+ years to recoup the difference in paying for points and not receiving the lender credit. I could probably get a better rate (3.5% 10-ARM) by moving $200k to Citi depending on the current dip.
I'm just worried about "forcing" myself to refinance if we indeed stay in this house for 10+ years.
Unless there is something you didn't share, I'm getting 5 years, almost on the nose to recoup the difference in paying for points. $1476 - (-870) = $2346/$39 difference = 60.15 months.

Regardless, you can't make the decision without knowing closing costs, unless you assume they are the same.

Looking at your last post with the 3.75 vs 3.25 rates, the 10 year arm looks like a no-brainer. It would be nice if you included the payments and didn't make us calculate it, but based on my calculation, that half point will save you $144.57 per month with the 10 yr ARM, which is $17,348 over 10 years. That's an absolute no-brainer in my mind. Even if after 10 years you pay $1500 in closing costs to refinance to a 5.25% mortgage, that higher rate is now on less then $400,000. Just doing some quick math, I think your break even point in that scenario is around 15 years (not including possible returns on your savings over the first 10 years).
Thanks for your reply. The 8+ years I referenced was for the 30year fixed from Ally.
Sorry I didn't include the payments cause it was brand new information when I shared. I agree with your $145/month calc, not sure what you meant by the $1500 in closing costs though. Closing costs for this loan are probably around 5k (I don't have the official estimate yet).

If my calcs are right, at the end of the 10year 3.25% 10-ARM period I'd have paid $120,500k in principal and $150k in interest, while saving $17,348.
For the 3.75% 30y fixed loan, I'd have paid 175k in interest and 113k in principal at the 10-year mark.

If after 10 years with the ARM we refinanced to something like 5.25% the breakeven looks about what you said (14 years total).

Hard to know what we're gonna be up to 14 years from now but this does make the 10/1 ARM look good.

nepats
Posts: 294
Joined: Mon Jul 20, 2009 11:56 am

Re: Is this a good mortgage refinance?

Post by nepats » Wed May 15, 2019 8:22 am

hotrodz wrote:
Tue May 14, 2019 7:01 pm
Thanks guys. This is what I got for today’s rates from Citi with no points.

30 yr fixed 3.75 3.775 apr

10 yr ARM 3.25 3.963 apr
are these with the relationship discount? If so, how many AUM are required?

Topic Author
hotrodz
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Joined: Thu Jan 18, 2018 7:37 pm
Location: TX

Re: Is this a good mortgage refinance?

Post by hotrodz » Wed May 15, 2019 8:48 am

nepats wrote:
Wed May 15, 2019 8:22 am
hotrodz wrote:
Tue May 14, 2019 7:01 pm
Thanks guys. This is what I got for today’s rates from Citi with no points.

30 yr fixed 3.75 3.775 apr

10 yr ARM 3.25 3.963 apr
are these with the relationship discount? If so, how many AUM are required?
Yes these are. Have to move over $200k or more.

nepats
Posts: 294
Joined: Mon Jul 20, 2009 11:56 am

Re: Is this a good mortgage refinance?

Post by nepats » Wed May 15, 2019 9:41 am

hotrodz wrote:
Wed May 15, 2019 8:48 am
nepats wrote:
Wed May 15, 2019 8:22 am
hotrodz wrote:
Tue May 14, 2019 7:01 pm
Thanks guys. This is what I got for today’s rates from Citi with no points.

30 yr fixed 3.75 3.775 apr

10 yr ARM 3.25 3.963 apr
are these with the relationship discount? If so, how many AUM are required?
Yes these are. Have to move over $200k or more.
that's great! Thanks for the info

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F150HD
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Re: Is this a good mortgage refinance?

Post by F150HD » Wed May 15, 2019 9:55 am

Did you look here?

https://www.aimloan.com/

Topic Author
hotrodz
Posts: 18
Joined: Thu Jan 18, 2018 7:37 pm
Location: TX

Re: Is this a good mortgage refinance?

Post by hotrodz » Wed May 15, 2019 10:17 am

F150HD wrote:
Wed May 15, 2019 9:55 am
Did you look here?

https://www.aimloan.com/
I did, thank you. Their rates are good but not as good as 3.75 w/o points for 30y or 3.25 w/o points for 10/1 arm.

GT99
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Re: Is this a good mortgage refinance?

Post by GT99 » Wed May 15, 2019 10:30 am

hotrodz wrote:
Tue May 14, 2019 9:23 pm
GT99 wrote:
Tue May 14, 2019 8:33 pm

Unless there is something you didn't share, I'm getting 5 years, almost on the nose to recoup the difference in paying for points. $1476 - (-870) = $2346/$39 difference = 60.15 months.

Regardless, you can't make the decision without knowing closing costs, unless you assume they are the same.

Looking at your last post with the 3.75 vs 3.25 rates, the 10 year arm looks like a no-brainer. It would be nice if you included the payments and didn't make us calculate it, but based on my calculation, that half point will save you $144.57 per month with the 10 yr ARM, which is $17,348 over 10 years. That's an absolute no-brainer in my mind. Even if after 10 years you pay $1500 in closing costs to refinance to a 5.25% mortgage, that higher rate is now on less then $400,000. Just doing some quick math, I think your break even point in that scenario is around 15 years (not including possible returns on your savings over the first 10 years).
Thanks for your reply. The 8+ years I referenced was for the 30year fixed from Ally.
Sorry I didn't include the payments cause it was brand new information when I shared. I agree with your $145/month calc, not sure what you meant by the $1500 in closing costs though. Closing costs for this loan are probably around 5k (I don't have the official estimate yet).

If my calcs are right, at the end of the 10year 3.25% 10-ARM period I'd have paid $120,500k in principal and $150k in interest, while saving $17,348.
For the 3.75% 30y fixed loan, I'd have paid 175k in interest and 113k in principal at the 10-year mark.

If after 10 years with the ARM we refinanced to something like 5.25% the breakeven looks about what you said (14 years total).

Hard to know what we're gonna be up to 14 years from now but this does make the 10/1 ARM look good.
The $1500 in closing costs was just an arbitrary number I made up for reference - been a while since I've done a refinance, but I thought the closing costs on a refi were typically much lower than on a purchase (I was thinking <$1000 typically). $5000 sounds awfully high for a refi, but I may be wrong.

Topic Author
hotrodz
Posts: 18
Joined: Thu Jan 18, 2018 7:37 pm
Location: TX

Re: Is this a good mortgage refinance?

Post by hotrodz » Wed May 15, 2019 12:30 pm

GT99 wrote:
Wed May 15, 2019 10:30 am
hotrodz wrote:
Tue May 14, 2019 9:23 pm
GT99 wrote:
Tue May 14, 2019 8:33 pm

Unless there is something you didn't share, I'm getting 5 years, almost on the nose to recoup the difference in paying for points. $1476 - (-870) = $2346/$39 difference = 60.15 months.

Regardless, you can't make the decision without knowing closing costs, unless you assume they are the same.

Looking at your last post with the 3.75 vs 3.25 rates, the 10 year arm looks like a no-brainer. It would be nice if you included the payments and didn't make us calculate it, but based on my calculation, that half point will save you $144.57 per month with the 10 yr ARM, which is $17,348 over 10 years. That's an absolute no-brainer in my mind. Even if after 10 years you pay $1500 in closing costs to refinance to a 5.25% mortgage, that higher rate is now on less then $400,000. Just doing some quick math, I think your break even point in that scenario is around 15 years (not including possible returns on your savings over the first 10 years).
Thanks for your reply. The 8+ years I referenced was for the 30year fixed from Ally.
Sorry I didn't include the payments cause it was brand new information when I shared. I agree with your $145/month calc, not sure what you meant by the $1500 in closing costs though. Closing costs for this loan are probably around 5k (I don't have the official estimate yet).

If my calcs are right, at the end of the 10year 3.25% 10-ARM period I'd have paid $120,500k in principal and $150k in interest, while saving $17,348.
For the 3.75% 30y fixed loan, I'd have paid 175k in interest and 113k in principal at the 10-year mark.

If after 10 years with the ARM we refinanced to something like 5.25% the breakeven looks about what you said (14 years total).

Hard to know what we're gonna be up to 14 years from now but this does make the 10/1 ARM look good.
The $1500 in closing costs was just an arbitrary number I made up for reference - been a while since I've done a refinance, but I thought the closing costs on a refi were typically much lower than on a purchase (I was thinking <$1000 typically). $5000 sounds awfully high for a refi, but I may be wrong.
I'm moving forward with an application for the 10/1 today so I'll have better numbers by the end of the day probably. I was just guessing from the numbers I got from better.com

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