Refinance break even

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Abk911
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Refinance break even

Post by Abk911 » Thu May 21, 2020 2:24 pm

Dear All, Request for your suggestions.

Background: I am on a 30 year fixed rate of 3.875. I have completed 30 months on it. So remaining 27.5 years.

The new refinance rate i am getting is for 30 years as below:

1) it resets the clock so now i pay for 30 instead of 27.5
2) rate is 3.5
3) per month is 5600 instead of current 6098
4) refinance cost barring $500 is included in per month.

Does it make sense to refi.

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anon_investor
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Re: Refinance break even

Post by anon_investor » Thu May 21, 2020 2:27 pm

What are the actual closing costs (excluding prepaids - interest, taxes, escrow, etc.)?

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Abk911
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Re: Refinance break even

Post by Abk911 » Thu May 21, 2020 2:34 pm

anon_investor wrote:
Thu May 21, 2020 2:27 pm
What are the actual closing costs (excluding prepaids - interest, taxes, escrow, etc.)?
5400 total closing cost (except 500 all is included in per monthly of 5600).
Property taxes I pay separately now and I intend to pay the same way going forward i.e not included in per monthly.

HomeStretch
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Re: Refinance break even

Post by HomeStretch » Thu May 21, 2020 2:40 pm

The $498/month lower payment is due to: (1) lower rate, (2) longer term (27.5 years to 30 years), and offset by (3) higher loan amount due to financing $4,900 of the $5,400 closing costs.

Not enough information to determine whether the refinancing has a reasonable payback period. Please provide the following information to evaluate whether the refinancing makes sense:

Original loan - 3.875%, 27.5 years remaining
1. what is the principal balance $ remaining?

Refinancing loan - 3.5%, 30 year term, $5,400 closing costs (no prepaids/escrows)
1. What is the loan amount?

Other -
1. How long do you plan to live in this house
2. Are you paying any PMI with original loan or refi loan?

ETA: it looks like your refi loan amount is ~$1,245,000. If so, about 1/2 of the lower monthly payment is due to the lower rate which is a ~ 20 month payback period. If you will be in the house longer than 2-3 years, the refi makes sense. Consider (1) paying the $5,400 closing costs in cash rather than increasing your loan amount, and (2) paying the refi loan over the 27.5 year term remaining on your original loan. Don’t go backwards.
Last edited by HomeStretch on Thu May 21, 2020 2:52 pm, edited 1 time in total.

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Re: Refinance break even

Post by Jack FFR1846 » Thu May 21, 2020 2:42 pm

Maybe.

How long will you be there? The closer to the entire 30, the more the answer is "yes". The less years, the less of those costs actually are saved. Can you find a rate for a 15 year, no cost refi? I've done several of these and most have the borrower paying the appraisal, which is refunded at closing. No points, no closing costs. I don't follow rates now, so don't know if it's enough to make it worth it for you.
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Re: Refinance break even

Post by Ben Mathew » Thu May 21, 2020 3:27 pm

CURRENT LOAN :
Monthly payment is $6098 for the next 330 months.

NEW LOAN:
$500 closing costs today, then $5,600 for the net 360 months.

The difference between the two streams (CURRENT - NEW):
-$500 today, $498 for 330 months, then -$5,600 in months 331 to 360.

The implied interest rate that sets the net present value of this stream to zero is 0.17%.

Compared to your current income stream, the refinance is basically an opportunity to borrow $498 per month for 27.5 years and then pay it back with $5,600 per month in the last 2.5 years. The nominal interest rate for this loan is 0.17%. That's pretty cheap, so it's not a bad deal. This is assuming that you keep the mortgage for the whole term--i.e. no moving, prepaying, or refinancing again down the road. Odds of moving or a better refinancing opportunity down the road would alter the calculation.

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Abk911
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Re: Refinance break even

Post by Abk911 » Thu May 21, 2020 3:31 pm

HomeStretch wrote:
Thu May 21, 2020 2:40 pm
The $498/month lower payment is due to: (1) lower rate, (2) longer term (27.5 years to 30 years), and offset by (3) higher loan amount due to financing $4,900 of the $5,400 closing costs.

Not enough information to determine whether the refinancing has a reasonable payback period. Please provide the following information to evaluate whether the refinancing makes sense:

Original loan - 3.875%, 27.5 years remaining
1. what is the principal balance $ remaining?

Refinancing loan - 3.5%, 30 year term, $5,400 closing costs (no prepaids/escrows)
1. What is the loan amount?

Other -
1. How long do you plan to live in this house
2. Are you paying any PMI with original loan or refi loan?

ETA: it looks like your refi loan amount is ~$1,245,000. If so, about 1/2 of the lower monthly payment is due to the lower rate which is a ~ 20 month payback period. If you will be in the house longer than 2-3 years, the refi makes sense. Consider (1) paying the $5,400 closing costs in cash rather than increasing your loan amount, and (2) paying the refi loan over the 27.5 year term remaining on your original loan. Don’t go backwards.
Intend to stay here forever unless I get some upside (don't see that happening) / but never say never / in any case min of 10 yrs

1) initial loan was 1.297 mil
2) new loan anount is 1.237 Mil

No pmi in earlier situation.
The only risk is that if it does hot appraise as values have been fluctuating a bit, I loose 500 dollars towards loan fees.

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Abk911
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Re: Refinance break even

Post by Abk911 » Thu May 21, 2020 3:34 pm

Jack FFR1846 wrote:
Thu May 21, 2020 2:42 pm
Maybe.

How long will you be there? The closer to the entire 30, the more the answer is "yes". The less years, the less of those costs actually are saved. Can you find a rate for a 15 year, no cost refi? I've done several of these and most have the borrower paying the appraisal, which is refunded at closing. No points, no closing costs. I don't follow rates now, so don't know if it's enough to make it worth it for you.
I can't afford any other term except 30. This house is in Bay Area so its a basic home and it's expensive cause well it's bay area. Moving to 15 years now will get us on road cause we just bought 2.5 yeas ago. 8 or so years I could think of a 15 years.

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Abk911
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Re: Refinance break even

Post by Abk911 » Thu May 21, 2020 3:48 pm

Ben Mathew wrote:
Thu May 21, 2020 3:27 pm
CURRENT LOAN :
Monthly payment is $6098 for the next 330 months.

NEW LOAN:
$500 closing costs today, then $5,600 for the net 360 months.

The difference between the two streams (CURRENT - NEW):
-$500 today, $498 for 330 months, then -$5,600 in months 331 to 360.

The implied interest rate that sets the net present value of this stream to zero is 0.17%.

Compared to your current income stream, the refinance is basically an opportunity to borrow $498 per month for 27.5 years and then pay it back with $5,600 per month in the last 2.5 years. The nominal interest rate for this loan is 0.17%. That's pretty cheap, so it's not a bad deal. This is assuming that you keep the mortgage for the whole term--i.e. no moving, prepaying, or refinancing again down the road.
Odds of moving or a better refinancing opportunity down the road would alter the calculation.
odds of a better refi further down/ if i dont buy any points right now, would be only a better scenario right? or does that have other possibility? sorry just trying to understand.

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BrandonBogle
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Re: Refinance break even

Post by BrandonBogle » Thu May 21, 2020 4:17 pm

It is not clear with the way the thread is written what the costs are as they are being obfuscated by monthly payments vs. the raw amounts. That said, it sounds like the $5,400 total closing costs includes escrow funding? This makes it seems like that is incorrect:
Abk911 wrote:
Thu May 21, 2020 2:34 pm
anon_investor wrote:
Thu May 21, 2020 2:27 pm
What are the actual closing costs (excluding prepaids - interest, taxes, escrow, etc.)?
5400 total closing cost (except 500 all is included in per monthly of 5600).
Property taxes I pay separately now and I intend to pay the same way going forward i.e not included in per monthly.
But then, we see "refinance cost barring $500 is included in per month" and that statement just doesn't jive with me at all. I suspect the answer is there is no escrow and the principal balance is being increased by $4,900 to finance most of the closing costs?

If this latter version is correct, then I am not a fan of those closing costs. I know jumbo loans are a bit difficult right now, but they are still available. However, we also don't know the Op's credit profile, so this could be appropriate for a less than stellar credit rating. Ultimately, it will be worthwhile to refi (AND pay on an amortization schedule of 27.5 years vs. 30), but it isn't coming cheap.

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Abk911
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Re: Refinance break even

Post by Abk911 » Thu May 21, 2020 5:25 pm

BrandonBogle wrote:
Thu May 21, 2020 4:17 pm
It is not clear with the way the thread is written what the costs are as they are being obfuscated by monthly payments vs. the raw amounts. That said, it sounds like the $5,400 total closing costs includes escrow funding? This makes it seems like that is incorrect:
Abk911 wrote:
Thu May 21, 2020 2:34 pm
anon_investor wrote:
Thu May 21, 2020 2:27 pm
What are the actual closing costs (excluding prepaids - interest, taxes, escrow, etc.)?
5400 total closing cost (except 500 all is included in per monthly of 5600).
Property taxes I pay separately now and I intend to pay the same way going forward i.e not included in per monthly.
But then, we see "refinance cost barring $500 is included in per month" and that statement just doesn't jive with me at all. I suspect the answer is there is no escrow and the principal balance is being increased by $4,900 to finance most of the closing costs?

If this latter version is correct, then I am not a fan of those closing costs. I know jumbo loans are a bit difficult right now, but they are still available. However, we also don't know the Op's credit profile, so this could be appropriate for a less than stellar credit rating. Ultimately, it will be worthwhile to refi (AND pay on an amortization schedule of 27.5 years vs. 30), but it isn't coming cheap.
Hi, credit profile is great. credit karma needle keeps moving from 770-790 ...
I did not understand the closing cost concern. I can check again but I was told that the 5400 is a closing cost. The rate of 5600 per month includes that closing cost. I am assuming the cost would remain the same. If i removed it from per month I will have to pay the same as cash. Hence i am confused with your question.

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Re: Refinance break even

Post by BrandonBogle » Thu May 21, 2020 5:35 pm

Abk911 wrote:
Thu May 21, 2020 5:25 pm
Hi, credit profile is great. credit karma needle keeps moving from 770-790 ...
I did not understand the closing cost concern. I can check again but I was told that the 5400 is a closing cost. The rate of 5600 per month includes that closing cost. I am assuming the cost would remain the same. If i removed it from per month I will have to pay the same as cash. Hence i am confused with your question.
It obfuscates the actual costs the way it is presented. Anon_investor asked the key question above:
anon_investor wrote:
Thu May 21, 2020 2:27 pm
What are the actual closing costs (excluding prepaids - interest, taxes, escrow, etc.)?
On your loan estimate, what is the breakdown for Sections A, B, and C? What line items are you being charged for? Are there any lender credits in Section J?

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Abk911
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Re: Refinance break even

Post by Abk911 » Thu May 21, 2020 5:45 pm

BrandonBogle wrote:
Thu May 21, 2020 5:35 pm
Abk911 wrote:
Thu May 21, 2020 5:25 pm
Hi, credit profile is great. credit karma needle keeps moving from 770-790 ...
I did not understand the closing cost concern. I can check again but I was told that the 5400 is a closing cost. The rate of 5600 per month includes that closing cost. I am assuming the cost would remain the same. If i removed it from per month I will have to pay the same as cash. Hence i am confused with your question.
It obfuscates the actual costs the way it is presented. Anon_investor asked the key question above:
anon_investor wrote:
Thu May 21, 2020 2:27 pm
What are the actual closing costs (excluding prepaids - interest, taxes, escrow, etc.)?
On your loan estimate, what is the breakdown for Sections A, B, and C? What line items are you being charged for? Are there any lender credits in Section J?
for them to give all this they are saying i need to begin paperwork. Which is non refundable 500. Should I go ahead.

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BrandonBogle
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Re: Refinance break even

Post by BrandonBogle » Thu May 21, 2020 6:14 pm

With HomeStretch’s math above, if you are staying in this house 3 years or more, you will come out ahead. What sucks is not having that breakdown of the $5,400. Hopefully that includes prepaid interest and lots of it. Otherwise, it is likely a small point or origination fee given the loan size. I would be inclined to proceed unless someone else would offer better terms and disclose up front. For a $500 app fee, it may be worthwhile. Hopefully much of it is interest (would have to be paid either way) and settlement and title services (which you can shop around for).

But sitting back, $5.4k on a $1.234 mil loan is less than a 1/2% in fees, so it’s isn’t bad. The real question will be if the Loan Estimate indeed matches up with what you’ve been told thus far.

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Ben Mathew
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Re: Refinance break even

Post by Ben Mathew » Thu May 21, 2020 6:46 pm

Abk911 wrote:
Thu May 21, 2020 3:48 pm
Ben Mathew wrote:
Thu May 21, 2020 3:27 pm
CURRENT LOAN :
Monthly payment is $6098 for the next 330 months.

NEW LOAN:
$500 closing costs today, then $5,600 for the net 360 months.

The difference between the two streams (CURRENT - NEW):
-$500 today, $498 for 330 months, then -$5,600 in months 331 to 360.

The implied interest rate that sets the net present value of this stream to zero is 0.17%.

Compared to your current income stream, the refinance is basically an opportunity to borrow $498 per month for 27.5 years and then pay it back with $5,600 per month in the last 2.5 years. The nominal interest rate for this loan is 0.17%. That's pretty cheap, so it's not a bad deal. This is assuming that you keep the mortgage for the whole term--i.e. no moving, prepaying, or refinancing again down the road.
Odds of moving or a better refinancing opportunity down the road would alter the calculation.
odds of a better refi further down/ if i dont buy any points right now, would be only a better scenario right? or does that have other possibility? sorry just trying to understand.
Yes, it's the possibility of a better scenario. Since your refinance involves closing costs, you're paying a fee upfront to get this deal (even though it's rolled into the loan). If an even more attractive refinance comes along, you will be out the closing costs you already paid for this one.

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Re: Refinance break even

Post by lakpr » Thu May 21, 2020 6:56 pm

In my neck of the woods, a jumbo mortgage for 1.25 million has a minimum refinance rate of 3.875%. That fact alone makes me think, @Abk911, that you should grab this offer. $500 application fee is not much to grab a reduction of 0.375% for 30 years.

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Re: Refinance break even

Post by ray.james » Thu May 21, 2020 7:04 pm

Are you against Arm's?

Provident credit union rates are ~3%. Some one posted <3% from first republic. Hedgefundie posted 2.x rates for 5/1 arm from BOFA. All of these are in Bay area. There are better deals out there. Even if you dislike ARM, 10/1 with 0.5% savings is a sweet spot.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: Refinance break even

Post by grabiner » Thu May 21, 2020 8:54 pm

A good way to estimate the break-even for a refinance is to compare only the interest difference; you might pay more or less principal based on a change in the loan term, but principal payments do not decrease your net worth. (This is not quite accurate because of the time value of money; paying $6000 now to save $1000 per year for the next six years is a slight loss.)

A loan balance of $1,236,712 at 3.875% has monthly payments of $6098, so I will assume that this is your balance.

If you reduce the rate to 3.5%, you save $386 in interest in the first month, and almost as much in future months. Thus you come out ahead after just over one year with $5400 in closing costs.
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Re: Refinance break even

Post by Misenplace » Thu May 21, 2020 8:58 pm

This thread is now in the Personal Finance (Not Investing) forum (mortgage refinance).

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Re: Refinance break even

Post by HomeStretch » Thu May 21, 2020 10:24 pm

grabiner wrote:
Thu May 21, 2020 8:54 pm
...
A loan balance of $1,236,712 at 3.875% has monthly payments of $6098, so I will assume that this is your balance.

If you reduce the rate to 3.5%, you save $386 in interest in the first month, and almost as much in future months. Thus you come out ahead after just over one year with $5400 in closing costs.
Which mortgage calculator do you use? I’m coming up with different numbers than yours and wanted to double-check the accuracy of the calculator I used in my reply above. Thanks.

The online mortgage calculator at mortgagecalculator.org shows a 30-year loan of $1,237,000 has a P&I payment of $5,817 at 3.875% versus $5,555 at 3.5%. Savings of $262/month. With closing costs of $5,400 it’s a 21 month payback (longer, but still a good payback period).

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Re: Refinance break even

Post by BrandonBogle » Thu May 21, 2020 10:56 pm

HomeStretch wrote:
Thu May 21, 2020 10:24 pm
grabiner wrote:
Thu May 21, 2020 8:54 pm
...
A loan balance of $1,236,712 at 3.875% has monthly payments of $6098, so I will assume that this is your balance.

If you reduce the rate to 3.5%, you save $386 in interest in the first month, and almost as much in future months. Thus you come out ahead after just over one year with $5400 in closing costs.
Which mortgage calculator do you use? I’m coming up with different numbers than yours and wanted to double-check the accuracy of the calculator I used in my reply above. Thanks.

The online mortgage calculator at mortgagecalculator.org shows a 30-year loan of $1,237,000 has a P&I payment of $5,817 at 3.875% versus $5,555 at 3.5%. Savings of $262/month. With closing costs of $5,400 it’s a 21 month payback (longer, but still a good payback period).
Abk911 wrote:
Thu May 21, 2020 3:31 pm
Intend to stay here forever unless I get some upside (don't see that happening) / but never say never / in any case min of 10 yrs

1) initial loan was 1.297 mil
2) new loan anount is 1.237 Mil

No pmi in earlier situation.
The only risk is that if it does hot appraise as values have been fluctuating a bit, I loose 500 dollars towards loan fees.
The $6,098 is for the Op's current loan for the original loan amount. My Excel calc comes in at 6,098.97 as a monthly payment for 1,297,000. The new loan would be for less principal. Personally, I dislike using a simple comparison like that b/c you are extending the term. I like to use the spreadsheet to have the new loan end on the old terms, and then compare the numbers. The Op said that is 27.5 years. That would entail paying $5,841.16 on the new loan.

So, $6,098.97 - $5,841.16 = $257.81 savings per month, making $5,400 / 257.81 = 21 months to break even when normalized for the same ultimate payoff date.

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Re: Refinance break even

Post by softwaregeek » Thu May 21, 2020 11:08 pm

ray.james wrote:
Thu May 21, 2020 7:04 pm
Are you against Arm's?

Provident credit union rates are ~3%. Some one posted <3% from first republic. Hedgefundie posted 2.x rates for 5/1 arm from BOFA. All of these are in Bay area. There are better deals out there. Even if you dislike ARM, 10/1 with 0.5% savings is a sweet spot.
I just refinanced a jumbo for sub 3 and closed last month. Did a massive thread.

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Re: Refinance break even

Post by ray.james » Fri May 22, 2020 12:47 am

softwaregeek wrote:
Thu May 21, 2020 11:08 pm
ray.james wrote:
Thu May 21, 2020 7:04 pm
Are you against Arm's?

Provident credit union rates are ~3%. Some one posted <3% from first republic. Hedgefundie posted 2.x rates for 5/1 arm from BOFA. All of these are in Bay area. There are better deals out there. Even if you dislike ARM, 10/1 with 0.5% savings is a sweet spot.
I just refinanced a jumbo for sub 3 and closed last month. Did a massive thread.
yes, thank you for relationship discount thread. I had no idea that one can benefits so nicely from credit cards to mortgage. I have room to grow before I can utilize those :happy

Based on OP's past threads, I thought he was looking for stand alone interest rates.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939

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Re: Refinance break even

Post by grabiner » Fri May 22, 2020 8:30 am

BrandonBogle wrote:
Thu May 21, 2020 10:56 pm
HomeStretch wrote:
Thu May 21, 2020 10:24 pm
grabiner wrote:
Thu May 21, 2020 8:54 pm
...
A loan balance of $1,236,712 at 3.875% has monthly payments of $6098, so I will assume that this is your balance.

If you reduce the rate to 3.5%, you save $386 in interest in the first month, and almost as much in future months. Thus you come out ahead after just over one year with $5400 in closing costs.
Which mortgage calculator do you use? I’m coming up with different numbers than yours and wanted to double-check the accuracy of the calculator I used in my reply above. Thanks.

The online mortgage calculator at mortgagecalculator.org shows a 30-year loan of $1,237,000 has a P&I payment of $5,817 at 3.875% versus $5,555 at 3.5%. Savings of $262/month. With closing costs of $5,400 it’s a 21 month payback (longer, but still a good payback period).
I used the current balance and the 27.5-year term, with the calculated from mtgprofessor.com. My numbers are correct for a 330-month loan.
The $6,098 is for the Op's current loan for the original loan amount. My Excel calc comes in at 6,098.97 as a monthly payment for 1,297,000. The new loan would be for less principal. Personally, I dislike using a simple comparison like that b/c you are extending the term. I like to use the spreadsheet to have the new loan end on the old terms, and then compare the numbers. The Op said that is 27.5 years. That would entail paying $5,841.16 on the new loan.

So, $6,098.97 - $5,841.16 = $257.81 savings per month, making $5,400 / 257.81 = 21 months to break even when normalized for the same ultimate payoff date.
But this calculation is not correct. If you make extra principal payments on the refinanced loan, and have paid the same total amount after 21 months, then refinancing puts you well ahead because your principal balance is lower; you will get more money back if you sell the house.

It would be reasonable to compare the total interest cost on the refinanced loan paid off on a shorter term, rather than the original term; that doesn't make much difference.
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Re: Refinance break even

Post by BrandonBogle » Fri May 22, 2020 8:49 am

grabiner wrote:
Fri May 22, 2020 8:30 am
But this calculation is not correct. If you make extra principal payments on the refinanced loan, and have paid the same total amount after 21 months, then refinancing puts you well ahead because your principal balance is lower; you will get more money back if you sell the house.

It would be reasonable to compare the total interest cost on the refinanced loan paid off on a shorter term, rather than the original term; that doesn't make much difference.
And this is what happens when I try to take a shortcut vs. using my preferred method. Whenever I personally make these decision, I make the amortization tables for both and compare when the interest differential overcomes the cost and call that the break even point. This accounts for whatever variables may be there vs. the payment. See the Refi Mega Thread where I mention this a couple weeks ago.

Sorry about the confusion folks!

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Abk911
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Re: Refinance break even

Post by Abk911 » Fri May 22, 2020 10:27 am

Thanks for the feedback so far. I gathered more information and trying to understand if it makes sense to proceed.

Below is the picture for better clarity:

Current monthly for 27.5 years 6098

New Loan 1.241
Total closing fees customer 4096
Principal and interest 5573
Everything else shows 0 in statement and total monthly shows 5573
Total prepaids (interest) 1780
Total refi 1.2428

New mortgage amount 2.241
Estinte cash 1783

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BrandonBogle
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Re: Refinance break even

Post by BrandonBogle » Fri May 22, 2020 10:51 am

With the $1,780 removed from the $5,400, you would get $3,620. So it sounds like the “except $500” you would pay is on top of the $5,400, so $5,900 in the original guesstimate.

That said, $4,096 in closing fees, especially at a $1.237 mil mortgage is very reasonable. Did they lock the rate for you so it can’t go up before closing?

FYI, to be explicit, take the refi!

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Abk911
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Re: Refinance break even

Post by Abk911 » Fri May 22, 2020 11:32 am

The other question is that,
If the home value falls short in appraisal, let’s say by 25k / 30k or so. Is it prudent to still pay that difference in cash and continue with refi or lose the 1.7k as fees for processing and appraisal.

I am asking this for a unplanned scenario if it happens. Cause home values are quite a range where I am at.

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Re: Refinance break even

Post by HomeStretch » Fri May 22, 2020 12:26 pm

The refi makes sense in my opinion even if you have to come up with cash due to a low appraisal. With the lower closing cost you posted, your payback period is short.

I’ll mention again - consider paying cash for all closing costs (rather than including in loan) and paying the new loan over 27.5 years (the remaining term of your original loan). Use the monthly payment savings from the refi to replenish your cash.

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Re: Refinance break even

Post by HomeStretch » Fri May 22, 2020 12:41 pm

grabiner wrote:
Fri May 22, 2020 8:30 am
HomeStretch wrote:
Thu May 21, 2020 10:24 pm
grabiner wrote:
Thu May 21, 2020 8:54 pm
...
A loan balance of $1,236,712 at 3.875% has monthly payments of $6098, so I will assume that this is your balance.

If you reduce the rate to 3.5%, you save $386 in interest in the first month, and almost as much in future months. Thus you come out ahead after just over one year with $5400 in closing costs.
Which mortgage calculator do you use? I’m coming up with different numbers than yours and wanted to double-check the accuracy of the calculator I used in my reply above. Thanks.

The online mortgage calculator at mortgagecalculator.org shows a 30-year loan of $1,237,000 has a P&I payment of $5,817 at 3.875% versus $5,555 at 3.5%. Savings of $262/month. With closing costs of $5,400 it’s a 21 month payback (longer, but still a good payback period).
I used the current balance and the 27.5-year term, with the calculated from mtgprofessor.com. My numbers are correct for a 330-month loan.
Thanks for sharing the calculator (which I will start using). The one I have been using doesn’t allow me to enter the years remaining on the original loan so I have been using the less precise 30-year new term for a rough calc.

aerosurfer
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Re: Refinance break even

Post by aerosurfer » Fri May 22, 2020 12:53 pm

Have you run numbers if you do escrow taxes and insurance? When I did my refi last February (non-jumbo) noticed it was a descent change in the origination fees that ill wait the required period, I believe 24 months before I cancel it.

Topic Author
Abk911
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Re: Refinance break even

Post by Abk911 » Thu May 28, 2020 2:10 pm

HomeStretch wrote:
Fri May 22, 2020 12:26 pm
The refi makes sense, in my opinion, even if you have to come up with cash due to a low appraisal. With the lower closing cost you posted, your payback period is short.

I’ll mention again - consider paying cash for all closing costs (rather than including in loan) and paying the new loan over 27.5 years (the remaining term of your original loan). Use the monthly payment savings from the refi to replenish your cash.
Hi, any reason you say pay cash for all the closing cost?
Is it not better to include in loan and does that not provide more flexibility to refi again let's say interest rates are further lowered 8 months down the line. Cause if I put cash is that not money down the drain if a refi is done even 1 year out.

HomeStretch
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Re: Refinance break even

Post by HomeStretch » Thu May 28, 2020 2:15 pm

Abk911 wrote:
Thu May 28, 2020 2:10 pm
HomeStretch wrote:
Fri May 22, 2020 12:26 pm
The refi makes sense, in my opinion, even if you have to come up with cash due to a low appraisal. With the lower closing cost you posted, your payback period is short.

I’ll mention again - consider paying cash for all closing costs (rather than including in loan) and paying the new loan over 27.5 years (the remaining term of your original loan). Use the monthly payment savings from the refi to replenish your cash.
Hi, any reason you say pay cash for all the closing cost?
Is it not better to include in loan and does that not provide more flexibility to refi again let's say interest rates are further lowered 8 months down the line. Cause if I put cash is that not money down the drain if a refi is done even 1 year out.
Pay cash so you don’t borrow more than the principal balance outstanding on your current loan.

SheReadsHere719
Posts: 139
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Re: Refinance break even

Post by SheReadsHere719 » Thu May 28, 2020 3:20 pm

This is the best calculator I’ve found so far: https://financialmentor.com/calculator/ ... calculator. Using your #s:

Remaining balance: $1,241,000
Current monthly payment: $6,098
Current Interest Rate: 3.875%
Refi rate: 3.5%, 30-year
Closing costs: $4,096

This would reduce your monthly payment by $525.36 and save you $14,574 over the life of the loan. Crossover point = 11 months

If you financed the closing costs, it would reduce your monthly payment by $506.96 and save you $12,050.53 over the life of the loan. Crossover point = 12 months

Then using this Dinkytown calculator (https://www.dinkytown.net/java/mortgage ... lator.html), if you continued to make monthly payments of $6,098 instead, you could pay off the loan in 26 years instead of 30 and save $117,475 over the life of the loan. So using your same current payment, it shaves off 1.5 years of payments (26 years instead of 27.5).

I’d say worth it for the flexibility of the lower monthly payment as long as you stay in the home for a year. Especially worth it if you plan to continue making payments at your current rate and accelerate the payoff. Hope those calculators are useful.

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BrandonBogle
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Re: Refinance break even

Post by BrandonBogle » Thu May 28, 2020 3:48 pm

Abk911 wrote:
Thu May 28, 2020 2:10 pm
HomeStretch wrote:
Fri May 22, 2020 12:26 pm
The refi makes sense, in my opinion, even if you have to come up with cash due to a low appraisal. With the lower closing cost you posted, your payback period is short.

I’ll mention again - consider paying cash for all closing costs (rather than including in loan) and paying the new loan over 27.5 years (the remaining term of your original loan). Use the monthly payment savings from the refi to replenish your cash.
Hi, any reason you say pay cash for all the closing cost?
Is it not better to include in loan and does that not provide more flexibility to refi again let's say interest rates are further lowered 8 months down the line. Cause if I put cash is that not money down the drain if a refi is done even 1 year out.
Emphasis mine. Regardless of if you finance the closing costs or not, any closing costs paid is money down the drain even 1 year out. The difference is liquidity in that you use liquid assets to pay closing costs that are now gone (in a refi scenario), or you used illiquid assets (by financing closing costs) that are now gone. You are still out the money either way.

Given SheReadsHere’s post, I would say it doesn’t make that much of a difference either way if you finance the closing costs or not. Do what works best for you. But on the numbers alone, paying closing costs out of pocket (if cash flow allows for it) is the financially prudent move.

Topic Author
Abk911
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Re: Refinance break even

Post by Abk911 » Thu May 28, 2020 4:03 pm

One other question when I bought the home in 2018 January the 30 year fixed, 3.875%, was with lender credit $6,484 (loan amount $1,296,800 * 0.5%) to cover closing costs.

If I now refi with a different lender do I have to pay back this lender credit that was given to me?

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BrandonBogle
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Re: Refinance break even

Post by BrandonBogle » Thu May 28, 2020 4:24 pm

Abk911 wrote:
Thu May 28, 2020 4:03 pm
One other question when I bought the home in 2018 January the 30 year fixed, 3.875%, was with lender credit $6,484 (loan amount $1,296,800 * 0.5%) to cover closing costs.

If I now refi with a different lender do I have to pay back this lender credit that was given to me?
No, you do not. It’s the beauty of taking a slightly higher rate to get lender credits to cover closing costs. You are free to turn around the next month and refi again, without any loss, if rates have improved further.

WhatsIRR
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Re: Refinance break even

Post by WhatsIRR » Thu May 28, 2020 5:59 pm

I used the methods here to compare various refinance options and to try and find the best NPV improvement. Was simplistic but gave me a way to compare existing, 30 yr, 15 yr, and various rates and closing cost.

https://www.bloombergprep.com/blog-post ... ng-options

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