refinance roll in closing costs or pay cash??

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riptide
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refinance roll in closing costs or pay cash??

Post by riptide » Tue Mar 24, 2020 11:53 am

I've gone back in forth whether to roll in the closing costs vs. roll them in with the refinance loan.
The only good thing i have going on at this time is getting a refinance with a super low rate. (I hope.)
My current loan is a 30 year at $238,000 at 3.87 with a payment monthly of $1166.00.
The refinance would be a 30 year at 2.87. It would drop my monthly payment to $987.00 with $6000.00 dollars of cash to close with. The closing costs seem high.
I can roll them in and and finance $244,000, then pay around $1022.00 a month for 30 years. Or, I can pay half the closing costs $3000.00, and my finance of $241,000 would have a monthly payment of $1000.00 a month.

I have the goal of keeping my monthly payment down lower to $1000.00 or less, because I pay child support and do not escrow my payments. I pay annually in January property tax and insurance. It has been tough to pay child support and my mortgage (2 year old upper middle class neighborhood) each month, so I wanted to reduce monthly payments. I must add, I have little cash laying around and would likely have to take the closing costs from my brokerage account which has crashed like everybody else...

More importantly, all I wish everybody safety and healing during this crisis in the U.S. and world. I pray daily for the stopping of this virus and healing for the people that have been affected by it.
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bloom2708
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Re: refinance roll in closing costs or pay cash??

Post by bloom2708 » Tue Mar 24, 2020 12:03 pm

$6,000 seems high for closing on that size loan.

Do you have to do this re-finance? How much have you shopped?

Rolling the $6k in takes a chunk of your payment savings away.

I have no idea if rates will go lower or higher, but if I had to guess they will inch lower.

It would not be fun to have to consider re-financing again in 2-3 months after paying $6k to refinance.
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KT785
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Re: refinance roll in closing costs or pay cash??

Post by KT785 » Tue Mar 24, 2020 12:05 pm

Given your post, assuming the cash to close due not include funding of an escrow account and that those costs are really just fees and points?

I would look for a no-cost refi (lender credits you enough to offset the fees (negative points)) . . . I just closed a couple weeks ago with LenderFi on a 30 year no cost refi at 3.25% (if I'd waited a couple days more to lock, could have gotten 3.125%). Others got similar no-cost refi rates around that same time.

I think LenderFi has paused taking new applications and rates have gone up in response to the surge in demand for refinancing. But I'd check out other options . . . 2.87% for a 30 year is unlikely for a no--cost refi, but you'd have to run the numbers to see if paying that much in points and fees is worth it (think about how long you'll be in that house).

I wouldn't roll it in or pay it out of pocket . . . just seems too high to me.

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Re: refinance roll in closing costs or pay cash??

Post by grabiner » Tue Mar 24, 2020 12:14 pm

Rolling in the closing costs increases your monthly payment, but it also gives you more money to use to make that payment, so it doesn't really cause a cash flow issue.

So, do you want to borrow more money at 2.875% interest? It sounds like you value liquidity, and 2.875% is a low price to pay for that liquidity. (And if you are single, which is likely given that you are paying child support, the extra mortgage interest is probably tax-deductible, which reduced the cost even further.)
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riptide
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Re: refinance roll in closing costs or pay cash??

Post by riptide » Tue Mar 24, 2020 12:18 pm

thank you for the responses, they are helpful. I don't know if I can get out of it as I have been processing the loan through the credit union. As of now, I have told them I would pay half the closing costs, to keep my monthly payment at $1000.00 a month.
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Re: refinance roll in closing costs or pay cash??

Post by bloom2708 » Tue Mar 24, 2020 12:19 pm

riptide wrote:
Tue Mar 24, 2020 12:18 pm
thank you for the responses, they are helpful. I don't know if I can get out of it as I have been processing the loan through the credit union. As of now, I have told them I would pay half the closing costs, to keep my monthly payment at $1000.00 a month.
What is the breakdown of the $6k? Is that origination fees or does that include points to buy down the rate?
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riptide
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Re: refinance roll in closing costs or pay cash??

Post by riptide » Tue Mar 24, 2020 1:20 pm

bloom2708 wrote:
Tue Mar 24, 2020 12:19 pm
riptide wrote:
Tue Mar 24, 2020 12:18 pm
thank you for the responses, they are helpful. I don't know if I can get out of it as I have been processing the loan through the credit union. As of now, I have told them I would pay half the closing costs, to keep my monthly payment at $1000.00 a month.
What is the breakdown of the $6k? Is that origination fees or does that include points to buy down the rate?
The origination fee is 1% around 2400.00, there is a fee of $600.00 for the rate of 2.87.
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Re: refinance roll in closing costs or pay cash??

Post by mega317 » Tue Mar 24, 2020 4:01 pm

So is that 3k of closing costs and 3k prepaids?

Without knowing the rest of your picture I'd say it's no big deal to roll into the loan. If you regret it you can just put that amount to an extra principle payment and you'll be in the same place.
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riptide
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Re: refinance roll in closing costs or pay cash??

Post by riptide » Wed Mar 25, 2020 7:34 am

mega317 wrote:
Tue Mar 24, 2020 4:01 pm
So is that 3k of closing costs and 3k prepaids?

Without knowing the rest of your picture I'd say it's no big deal to roll into the loan. If you regret it you can just put that amount to an extra principle payment and you'll be in the same place.
$3,000 is half the closing costs. Actually $2,974 is what i will pay. The total closing costs are $ 5590.00 So, I was going to pay half to keep my monthly rate at $1000.00. The prepaids are only $240.00. The big part of the closing costs is the origination fee of 1% ($2,400.00). The first original post has all my figures.
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Re: refinance roll in closing costs or pay cash??

Post by kd2008 » Wed Mar 25, 2020 9:19 am

We are in exact same situation as you. $203K mortgage at 3.75% for 30 years currently. Refinancing it to $208K mortgage at 2.875% for 30 years with closing costs rolled in at our credit union. (Final amount may be lower as the payoff is based on when I applied..and there would be two mortgage payments made since then)

That rate is so cheap that I am not going to worry about a few thousand dollars over the life of the loan. Yesterday's market swing was about 10% up. That itself covered nearly all the interest we would pay over the life of the loan. Mental accounting, I know ..but it puts the numbers in perspective.

Please do not over think this.

We are just rolling in the closing costs. Prepaids we are paying out of pocket but we will be reimbursed all of it when the old escrow is refunded. So we are essentially not paying anything out of pocket.

Yes, the loan balance is higher but the monthly payment is lower from day one and the fraction of the interest out that monthly payment is much lower due to the lower interest rate ...about $140 per month less in interest payment for the first payment and $82 less in payment. So savings of $222 for first month. So about 5000/222 = 22 months for a payback. Round it up to 24 months as the savings diminish with the amortization schedule.

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Re: refinance roll in closing costs or pay cash??

Post by gr7070 » Wed Mar 25, 2020 10:20 am

I don't borrow money for 30 years on anything but a house (and I'd prefer to borrow for less)!

Therefore I'm paying cash for closing costs.

I have no desire to compound that interest for THIRTY years.

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Re: refinance roll in closing costs or pay cash??

Post by Luke Duke » Wed Mar 25, 2020 10:29 am

If my choices were to sell stock now or borrow and pay 2.87%, I would borrow. That said, those costs seem high.

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