Debating a 4.25 to 3.375 refi

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jdbst56
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Joined: Thu Jul 28, 2011 10:06 pm

Debating a 4.25 to 3.375 refi

Post by jdbst56 » Thu Aug 15, 2019 10:06 pm

Like many on the forum I’ve been watching the mortgage rates fall and been debating a refi. I owe ~195k on a home valued at 355k. I’m 17 months into the current loan which is 4.25% 30 year fixed.

I have a lender offering 3.375% 30 year fixed for $2600 closing costs (after $750) credit plus another $4100 in taxes/escrow/prepaids. So roughly $6600 to close the deal. Does this seem like a reasonable offer?

This is a new home that we just built so we plan on staying here for quite a long time. I played around on the mtgprofessor calculator and it showed the break-even around 2 years. Does that sound about right? If so it would probably be worthwhile to proceed.

Thanks in advance.

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willthrill81
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Re: Debating a 4.25 to 3.375 refi

Post by willthrill81 » Thu Aug 15, 2019 10:42 pm

Does your existing mortgage already escrow for taxes and insurance? If so, then the $4,100 is basically a wash because it's money that you'll have to pay anyway; don't forget that you'll very likely get a refund from your old escrow account.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

Big Dog
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Re: Debating a 4.25 to 3.375 refi

Post by Big Dog » Thu Aug 15, 2019 10:48 pm

I'm a fan of so-called no-cost refis. (Yes, the rate will be higher since it includes closing costs.) But, this way you can refi again if rates drop further.

btw: get out of escrow for insurance and taxes, unless they will pay you interest.

02nz
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Re: Debating a 4.25 to 3.375 refi

Post by 02nz » Thu Aug 15, 2019 11:11 pm

Big Dog wrote:
Thu Aug 15, 2019 10:48 pm
I'm a fan of so-called no-cost refis. (Yes, the rate will be higher since it includes closing costs.) But, this way you can refi again if rates drop further.

btw: get out of escrow for insurance and taxes, unless they will pay you interest.
+1, though just to be clear: a no-fi refi is one where you get a credit from the lender to cover the closing costs in exchange for a slightly higher rate. Think of it as negative points. Not to be confused with loans where the closing costs are added to the amount being refinanced.

The great thing about a no-cost refi is that you don't have to calculate a break-even point and try to predict where interest rates are headed, are you going to stay long enough in the home to make it pay off, etc. As long as you get a lower rate you come out ahead. (You do need to watch out that, by "resetting the clock," you can end up paying more interest overall even with a lower rate, but this can be avoided by putting the extra cash flow from the lower monthly payment toward principal.)

Interest rates drop a month or a year from now? Just do another no-cost refi!

chevca
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Re: Debating a 4.25 to 3.375 refi

Post by chevca » Thu Aug 15, 2019 11:12 pm

Almost a point off your mortgage rate. What's to debate? Go for it.

Wings5
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Re: Debating a 4.25 to 3.375 refi

Post by Wings5 » Thu Aug 15, 2019 11:14 pm

Are there any generally accepted Boglehead rules for refinancing?

One I've read recently is that if your break even point is within 12 or 24 months, go for it.

ARoseByAnyOtherName
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Re: Debating a 4.25 to 3.375 refi

Post by ARoseByAnyOtherName » Thu Aug 15, 2019 11:14 pm

02nz wrote:
Thu Aug 15, 2019 11:11 pm
Interest rates drop a month or a year from now? Just do another no-cost refi!
I just got a 30 year fixed mortgage on a new home purchase and the contract says I can’t pay it off for 6 months. Is the same typically true for refi’s?

02nz
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Re: Debating a 4.25 to 3.375 refi

Post by 02nz » Thu Aug 15, 2019 11:23 pm

ARoseByAnyOtherName wrote:
Thu Aug 15, 2019 11:14 pm
02nz wrote:
Thu Aug 15, 2019 11:11 pm
Interest rates drop a month or a year from now? Just do another no-cost refi!
I just got a 30 year fixed mortgage on a new home purchase and the contract says I can’t pay it off for 6 months. Is the same typically true for refi’s?
Terms vary by lender, but I haven't come across that in the refis I've done. Sometimes the same bank won't refi within a certain amount of time but of course you can just go with another.

mschurner
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Re: Debating a 4.25 to 3.375 refi

Post by mschurner » Fri Aug 16, 2019 12:16 am

jdbst56 wrote:
Thu Aug 15, 2019 10:06 pm
Like many on the forum I’ve been watching the mortgage rates fall and been debating a refi. I owe ~195k on a home valued at 355k. I’m 17 months into the current loan which is 4.25% 30 year fixed.

I have a lender offering 3.375% 30 year fixed for $2600 closing costs (after $750) credit plus another $4100 in taxes/escrow/prepaids. So roughly $6600 to close the deal. Does this seem like a reasonable offer?

This is a new home that we just built so we plan on staying here for quite a long time. I played around on the mtgprofessor calculator and it showed the break-even around 2 years. Does that sound about right? If so it would probably be worthwhile to proceed.

Thanks in advance.
3.375 is good rate. Though, I have seen 2.75 to 3% with 15 year refinancing in other recent posts. Again it might depends upon property location and other factors. Having said that, you should go for this rate from 4.25% as long as monthly payment is not an issue for you. You might need to pay few hundred dollars every month etc as the lone term is shorter now.
Other option is to go for 30 year refi if you have concern about cash flow with 15 year refi.
As other mentioned, dont bring the escrow into calculation. Obviously it better to avoid escrow if at all possible unless escrow offers you good interest rate which usually depends upon the state law. Otherwise you can put that money to work for you. Escrow payment is one of the easiest ways to meet minimum spending for the credit card bonuses if your county takes the credit card payment. Hope it helps.

wootwoot
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Re: Debating a 4.25 to 3.375 refi

Post by wootwoot » Fri Aug 16, 2019 12:25 am

Rates on better.com are going up by the day. If you can lock in something that low go for it!

awval999
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Re: Debating a 4.25 to 3.375 refi

Post by awval999 » Fri Aug 16, 2019 5:30 am

I just recently did a no-cost refi (30 to 15). Went from 4.5% to 3.45%. I was a month early tho, I bet the rates are even lower now. I agree with the person above. Life changes. I didn't want to throw $5k-$6k down on a loan to save 25 basis points.

classicindexer
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Re: Debating a 4.25 to 3.375 refi

Post by classicindexer » Fri Aug 16, 2019 5:49 am

DW and I currently have a 4.625% 25 year loan for $194K which has 20 years left. I am locked in for a refi with my local credit union for a 15 year fixed loan at 2.875% rate w/$170 for 0.099% points for $172K loan on $285K value. They said their system says appraisal should be waived so closing costs with w/o appraisal fee + their lender credit should be $1,263 which I'll pay out of pocket. We may move in the next 2-5 years but we'll break even in the first year.

I would also waive escrow if you're comfortable saving every month for the taxes and home insurance. DW and I did this. I just learned that some lenders give you a 0.25% better interest rate for having an escrow. Luckily on my refi my credit union is giving me the same interest rate regardless of escrow so I am waiving escrow again.

DW and I already save every month for our auto/life insurance and other bills that we opt to pay annually to get discounts. This is about $11.5K a year w/a buffer and this money goes into the Vanguard prime money market mutual fund VMMXX (high yield savings account would also be good). My homeowner's insurance gives me about a 7% discount ($66) for paying in full. If a mortgage escrow paid our home insurance we don't get the pay in full discount.

awval999
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Re: Debating a 4.25 to 3.375 refi

Post by awval999 » Fri Aug 16, 2019 6:02 am

^Jealous of that interest rate and your low cost 15 year re-fi.

Topic Author
jdbst56
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Re: Debating a 4.25 to 3.375 refi

Post by jdbst56 » Fri Aug 16, 2019 7:57 am

Thanks for the feedback everybody. It seems like the consensus is that this is a worthwhile offer. I did consider going down to 15 yr but I'd rather keep it 30 yr and pay extra on it every month. It will cost more in the long run but I like the cash flow flexibility. My only thought was do I hold out a while longer to see if rates drop further but my gut tells me to not take the chance.

JBTX
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Re: Debating a 4.25 to 3.375 refi

Post by JBTX » Fri Aug 16, 2019 8:01 am

Wings5 wrote:
Thu Aug 15, 2019 11:14 pm
Are there any generally accepted Boglehead rules for refinancing?

One I've read recently is that if your break even point is within 12 or 24 months, go for it.
For me I'll go out to 36 months. If your mortgage is modest and you live in high fee state you'll rarely break even 12 to 24.

SandysDad
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Re: Debating a 4.25 to 3.375 refi

Post by SandysDad » Fri Aug 16, 2019 8:10 am

General advice is never to time rates. I have family in the business, one key trend is they rise quickly in response to changes in 10 year t note, but fall slowly in response to it. Given the volatility this week, I would at least wait a short bit to see if you can do better..... or find a lender that will lock you in without payment and hold off on paying for appraisal until you see rates do not slide further.

Thegame14
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Re: Debating a 4.25 to 3.375 refi

Post by Thegame14 » Fri Aug 16, 2019 8:27 am

I would do it, we have a 30 year fixed at 4.25, with 22 years to go, ID love to get a 20 year loan at 3% or 3.25% and pay less interest especially now since I cant deduct it.

KingRiggs
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Re: Debating a 4.25 to 3.375 refi

Post by KingRiggs » Fri Aug 16, 2019 8:33 am

I have twice taken out a thirty-year mortgage and told myself that I would pay it down early...Problem is, I never did!

Finally refinanced to a 15-year mortgage and the difference is fantastic. I can actually see the account balance dropping each month! Equity in house building SO MUCH faster.

If you can handle the cash flow, I highly suggest a 15-year note instead. REALLY looking forward to being mortgage-free...

Glockenspiel
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Re: Debating a 4.25 to 3.375 refi

Post by Glockenspiel » Fri Aug 16, 2019 8:41 am

Do it now and don't look back. If you have to, do the no-cost refi. Easy and you'll save tons of money as long as you plan to keep living there for more than 1-2 years.

JBTX
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Re: Debating a 4.25 to 3.375 refi

Post by JBTX » Fri Aug 16, 2019 8:43 am

jdbst56 wrote:
Thu Aug 15, 2019 10:06 pm
Like many on the forum I’ve been watching the mortgage rates fall and been debating a refi. I owe ~195k on a home valued at 355k. I’m 17 months into the current loan which is 4.25% 30 year fixed.

I have a lender offering 3.375% 30 year fixed for $2600 closing costs (after $750) credit plus another $4100 in taxes/escrow/prepaids. So roughly $6600 to close the deal. Does this seem like a reasonable offer?

This is a new home that we just built so we plan on staying here for quite a long time. I played around on the mtgprofessor calculator and it showed the break-even around 2 years. Does that sound about right? If so it would probably be worthwhile to proceed.

Thanks in advance.
No brainer. Do it.

Glockenspiel
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Re: Debating a 4.25 to 3.375 refi

Post by Glockenspiel » Fri Aug 16, 2019 8:43 am

jdbst56 wrote:
Fri Aug 16, 2019 7:57 am
Thanks for the feedback everybody. It seems like the consensus is that this is a worthwhile offer. I did consider going down to 15 yr but I'd rather keep it 30 yr and pay extra on it every month. It will cost more in the long run but I like the cash flow flexibility. My only thought was do I hold out a while longer to see if rates drop further but my gut tells me to not take the chance.
We adjusted our mortgage twice within the first 2 years of living there. One was a small no-cost 0.50% adjustment. Then a year later we re-financed to a 15-year 2.5% mortgage. I kind of regret doing it because of cash flow flexibility, but we've gained a tremendous amount of equity by doing it.

finfire
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Re: Debating a 4.25 to 3.375 refi

Post by finfire » Fri Aug 16, 2019 8:46 am

Have you shopped around? That's the best way to figure if it's a good deal.

I just refid. From 4.375 to 3.375, similar amount as you. From 30 year to 15 year.

Your closing costs look good. However, I found the costs went down when I made the lenders bid against each other.

Also, my costs went down when I chose the same title company as the original mortgage.

The lenders estimates were way off in the beginning, so your offer will not be same as the final costs.

Good luck!!

Stormbringer
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Re: Debating a 4.25 to 3.375 refi

Post by Stormbringer » Fri Aug 16, 2019 8:58 am

Personally, I would wait until we are deeper into the Federal Reserve's easing cycle. In 12 months you might find yourself debating a 3.375 to 2.75 refi.
"Compound interest is the most powerful force in the universe." - Albert Einstein

Topic Author
jdbst56
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Re: Debating a 4.25 to 3.375 refi

Post by jdbst56 » Fri Aug 16, 2019 9:05 am

finfire wrote:
Fri Aug 16, 2019 8:46 am
Have you shopped around? That's the best way to figure if it's a good deal.

I just refid. From 4.375 to 3.375, similar amount as you. From 30 year to 15 year.

Your closing costs look good. However, I found the costs went down when I made the lenders bid against each other.

Also, my costs went down when I chose the same title company as the original mortgage.

The lenders estimates were way off in the beginning, so your offer will not be same as the final costs.

Good luck!!
I've done quotes on zillow, aimloan, costco, and mtgprofessor and this offer was the best I've gotten so far. I suppose I could try to pit this offer against other to save a few hundred dollars. The company I'm dealing with right now I almost used for the original mortgage in 2018 but ended up using the builder's broker to ensure I would close on time. They have good reviews and the figures on the estimate sheet look legit.

When you say estimates were way off? What do you mean? To me the only estimates that might be off would be taxes/insurance/gov fees. Things like appraisals and title fees should be fairly accurate.

Robert_007
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Re: Debating a 4.25 to 3.375 refi

Post by Robert_007 » Fri Aug 16, 2019 9:07 am

I agree with finfire. I just did a refi and was able to only pay 700 for closing costs bc I created a bidding war from the 7 Costco contracted lenders.

classicindexer
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Re: Debating a 4.25 to 3.375 refi

Post by classicindexer » Fri Aug 16, 2019 9:08 am

Have you also checked rates with local community banks or credit unions? In Michigan a few credit unions right now have pretty aggressive rates and lender credits.

Topic Author
jdbst56
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Re: Debating a 4.25 to 3.375 refi

Post by jdbst56 » Fri Aug 16, 2019 9:12 am

classicindexer wrote:
Fri Aug 16, 2019 9:08 am
Have you also checked rates with local community banks or credit unions? In Michigan a few credit unions right now have pretty aggressive rates and lender credits.
I've taken a look at rates they have posted online, and they're not even close to being competitive.

classicindexer
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Re: Debating a 4.25 to 3.375 refi

Post by classicindexer » Fri Aug 16, 2019 9:16 am

jdbst56 wrote:
Fri Aug 16, 2019 9:12 am
classicindexer wrote:
Fri Aug 16, 2019 9:08 am
Have you also checked rates with local community banks or credit unions? In Michigan a few credit unions right now have pretty aggressive rates and lender credits.
I've taken a look at rates they have posted online, and they're not even close to being competitive.
Ahh ok. They were for me but I was only looking at a 15 year.

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willthrill81
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Re: Debating a 4.25 to 3.375 refi

Post by willthrill81 » Fri Aug 16, 2019 4:04 pm

jdbst56 wrote:
Fri Aug 16, 2019 7:57 am
I did consider going down to 15 yr but I'd rather keep it 30 yr and pay extra on it every month. It will cost more in the long run but I like the cash flow flexibility.
That flexibility may have a steep price tag. There are other, potentially less costly, ways to achieve security, the simplest being an emergency fund.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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