Should I refinance?

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Topic Author
erdo
Posts: 36
Joined: Sat Feb 14, 2015 8:31 pm

Should I refinance?

Post by erdo » Sun Nov 17, 2019 8:42 am

Hello all,

I recently bought a new home earlier this year, but had locked in the interest rate three months in advance. I have a 15/1 ARM at 4%. My mortgage for was for $550,000, I am paying enough monthly to pay off in 15 years. My current balance is $538,000. I didn’t shop around too much when I first bought the home because the builder offered $12,000 to get a mortgage through on of their preferred banks. Interest rates have fallen since, and I am wondering if it is worth it for me to refinance to a 15 year fixed. I do plan on staying in this home long term but having to pay closing costs again makes me wonder if it is worth it to refinance. Wanted to see if anyone had any recommendations.

darkhorse
Posts: 122
Joined: Mon Dec 17, 2012 4:13 pm

Re: Should I refinance?

Post by darkhorse » Sun Nov 17, 2019 8:45 am

Yes I think you could benefit significantly from refinance.
Make sure current mortgage does not have any early payment penalities

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RickBoglehead
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Location: In a house

Re: Should I refinance?

Post by RickBoglehead » Sun Nov 17, 2019 8:46 am

erdo wrote:
Sun Nov 17, 2019 8:42 am
Hello all,

I recently bought a new home earlier this year, but had locked in the interest rate three months in advance. I have a 15/1 ARM at 4%. My mortgage for was for $550,000, I am paying enough monthly to pay off in 15 years. My current balance is $538,000. I didn’t shop around too much when I first bought the home because the builder offered $12,000 to get a mortgage through on of their preferred banks. Interest rates have fallen since, and I am wondering if it is worth it for me to refinance to a 15 year fixed. I do plan on staying in this home long term but having to pay closing costs again makes me wonder if it is worth it to refinance. Wanted to see if anyone had any recommendations.
I recommend you checkout current rates at sites like Bankrate.com, and use one of the many "should I refinance" calculators on the web to determine breakeven. I suspect the answer is to refi to a fixed loan.

Curious wording - paying enough to pay off a 15 year loan in 15 years?
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

HomeStretch
Posts: 4024
Joined: Thu Dec 27, 2018 3:06 pm

Re: Should I refinance?

Post by HomeStretch » Sun Nov 17, 2019 9:13 am

Assuming no prepayment penalties for current mortgage and you plan to stay in house long term. It is a straight forward mathematical calculation to determine whether refinancing makes sense.

The refi closing costs divided by your monthly P&I savings equals the pay back period. A pay back period shorter than 2-4 years is a no brainer in favor of refinancing. Longer payback could make sense too.

To calculate your monthly P&I savings, use an online mortgage calculator to calculate the monthly payment for $538k loan for 15 years at your current rate (4%) versus the refi rate. I used $538k and 15 years as an example - use the appropriate loan amount and term. If you have 14 years left on current mortgage, use 14 years your my payback analysis so you payoff the current or refi loan over remaining 14 years rather than extend the loan term to 15 years.

Plano
Posts: 30
Joined: Sun Nov 03, 2019 4:21 pm

Re: Should I refinance?

Post by Plano » Sun Nov 17, 2019 11:47 am

Unless you’re in a HCOL area, your refi amount will still be jumbo. If you are willing to pay down the mortgage (about $50K) to get the balance lower than jumbo, then your rate will be substantially lower. I like the Mortgage Professor’s calculators: https://www.mtgprofessor.com/calculators.htm There is one for figuring out your rate of return on the mortgage pay-down after tax considerations, which you can compare to earnings if you invest the $50K instead.

It’s a controversial topic here, whether to give up some liquidity in order to pay off a mortgage faster. But I would refi even if you are still in jumbo, as long as there’s no prepayment penalty. Your refi costs should be lower than normal, as the appraisal will probably be waived on a house so recently purchased. Ask about that when you’re shopping around.

Topic Author
erdo
Posts: 36
Joined: Sat Feb 14, 2015 8:31 pm

Re: Should I refinance?

Post by erdo » Sun Nov 17, 2019 1:18 pm

RickBoglehead wrote:
Sun Nov 17, 2019 8:46 am
erdo wrote:
Sun Nov 17, 2019 8:42 am
Hello all,

I recently bought a new home earlier this year, but had locked in the interest rate three months in advance. I have a 15/1 ARM at 4%. My mortgage for was for $550,000, I am paying enough monthly to pay off in 15 years. My current balance is $538,000. I didn’t shop around too much when I first bought the home because the builder offered $12,000 to get a mortgage through on of their preferred banks. Interest rates have fallen since, and I am wondering if it is worth it for me to refinance to a 15 year fixed. I do plan on staying in this home long term but having to pay closing costs again makes me wonder if it is worth it to refinance. Wanted to see if anyone had any recommendations.
I recommend you checkout current rates at sites like Bankrate.com, and use one of the many "should I refinance" calculators on the web to determine breakeven. I suspect the answer is to refi to a fixed loan.

Curious wording - paying enough to pay off a 15 year loan in 15 years?
It’s a 15/1 ARM so it’s a 30 year loan but fixed rate for the first 15.

My mortgage does not have a prepayment penalty.

Also thanks all for the information, I’m going to shop around and see what I find.

Topic Author
erdo
Posts: 36
Joined: Sat Feb 14, 2015 8:31 pm

Re: Should I refinance?

Post by erdo » Tue Dec 31, 2019 4:10 pm

So I am reviving this thread, just to make sure I am on the right track. Just to recap, I currently have a 15/1 ARM at 4% interest. I have $532,000 left on the mortgage which I just received in April, so have paid less than a year. I shopped around and am being offered 2.99% interest on a 15 year fixed CONFORMING loan through Costco's mortgage program, meaning my total fees are only about $800. To get a conforming, I would have to make a lump sum payment of about $22k so that my balance is $510,000. It seems like a good idea, but I want to make sure I am not missing anything and that there is nothing more I should ask before I go ahead with refinancing.

HomeStretch
Posts: 4024
Joined: Thu Dec 27, 2018 3:06 pm

Re: Should I refinance?

Post by HomeStretch » Tue Dec 31, 2019 4:43 pm

If that’s your best choice, that is a no-brainer to refi as the payoff period is only 3-4 months.

$532k @ 4% (current rate) for 15 years is a monthly P&I payment of $3,935.

$532k @ 2.99% (refi rate) for 15 years is a monthly P&I payment of $3,671.

That’s a savings of $264/mo. With $800 of closing costs, that’s a 3 month payback before considering the loan repayment.

Topic Author
erdo
Posts: 36
Joined: Sat Feb 14, 2015 8:31 pm

Re: Should I refinance?

Post by erdo » Tue Dec 31, 2019 4:49 pm

Just talked to the lender, total closing costs due to title fees will be around $4,600, but still pay off period would be within two years

Admiral
Posts: 2847
Joined: Mon Oct 27, 2014 12:35 pm

Re: Should I refinance?

Post by Admiral » Tue Dec 31, 2019 6:40 pm

Yes, do it, also just to be rid of the ARM makes it especially appealing. 15 YR always preferable to 30 if one can afford it.

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