Q on Mortgage Refinance

[dixit]

I am novice in anything financial and will appreciate any suggestions, ideas from experts - Desi/RRK, RabTag and others.

Is mortgage re-finance a good idea for me? We have about 300k with 28 years left on our mortgage and are on 4.875% interest rate. It looks like 15 years rate these days are less than 4%. If we were to pay down $50k and refinance $250K for 15 years at 4% it will increase our monthly payment only by a couple of 100s. Is it worth it? Are there any negatives/down sides to this?

Thanks!!

- D

[Desi]

Refinance makes sense, especially if you are going to be in the house for a few years and with zero closing cost deals available, refinance is a no brainer if you get a better rate. If closing costs are involved, one has to calculate the payback time.

Also, if you decide to take 15 years mortgage, you should also explore 7/1 ARM if you are certain that you will be selling the house prior to 7 years, else not.

As to paying the 50K towards mortgage, unless you do not know how to make better use of that money, I am not a fan of paying down the mortgage.

[FB2020]

I am novice in anything financial and will appreciate any suggestions, ideas from experts - Desi/RRK, RabTag and others.

Is mortgage re-finance a good idea for me? We have about 300k with 28 years left on our mortgage and are on 4.875% interest rate. It looks like 15 years rate these days are less than 4%. If we were to pay down $50k and refinance $250K for 15 years at 4% it will increase our monthly payment only by a couple of 100s. Is it worth it? Are there any negatives/down sides to this?

Thanks!!

- D

I am in the middle of re-financing too. Got a 4.125% 15-yr fixed with ~$500 closing costs. He was giving me 15-yr for 3.75%, but with $3000 costs but I didnt want to pay up that much.
Rates are good these days if you plan to keep the house for a while.

As Desi said, I also am not a big fan of paying down that much money - when you're getting it merely at 4% ! That's me.

[HomeSweetHome]

I am novice in anything financial and will appreciate any suggestions, ideas from experts - Desi/RRK, RabTag and others.

Is mortgage re-finance a good idea for me? We have about 300k with 28 years left on our mortgage and are on 4.875% interest rate. It looks like 15 years rate these days are less than 4%. If we were to pay down $50k and refinance $250K for 15 years at 4% it will increase our monthly payment only by a couple of 100s. Is it worth it? Are there any negatives/down sides to this?

Thanks!!

- D

Do some math with current and expecting rate. If you have enough cash after down payement then it won't be a bad idea else I do not recommend huge down payments! Also, make sure your value of the house at this market. You may have to pay PMI or pay more as downpayment to avoid additional burden. 4.875% is not bad rate but when you get a good deal why not go for better options? Make a wise decision and have a peace of mind!

[amliNagar]

Mortgage refinancing is a great way to pay the current home loan or current mortgage loan that you have taken. The collateral for the mortgage refinance is the same property. There are several ways in which mortgage refinancing can be helpful.

Thanks in advance,
Amli

[loandepot]

Refinancing becomes most beneficial if current market interest rate is at least 1% lower than your mortgage interest rate. So, it is advisable to compare your mortgage interest rate with market interest rate before going for refinancing.

[Dreaming]

... If we were to pay down $50k and refinance $250K for 15 years at 4% it will increase our monthly payment only by a couple of 100s. Is it worth it? Are there any negatives/down sides to this?

...

If and only if you are going to stay in your home for 3-5 more years then go for it! You may have heard this saying "There is no such thing as free lunch" ... well, I will extend that and say "there is no such thing as zero $ closing costs". It just means that they will lump all the fees and put it in your loan amount

If you have good credit score and are willing to put $30k to $50k down, you can surely negotiate to get a good 15 year rate. One word of caution before you put your $50k down. You may or may not get that full amount back, a lot depends on the real estate story in your area.

Others may disagree, but my line of thinking is that, get rid off debt as much as possible. So I will recommend to put some money down, may not be $50k, but definitely something. In the hopes of making 10+ % on another investment which you may get or not, it is better to knock off the loan.

Don't try to talk with big banks on refi, they are less flexible on the rate. I'd start with a mortgage broker, it will be great if you can find a recommendation for one ... then move on to a credit union or a local bank. Chances are you will shave off some points on the loan rate. If you are costco member, goto your local costco store and check for refi.

If you are going to stay in your home for 15+ years, don't worry whether your new interest rate will be atleast 1% below current one. Even it is less than 1%, go for it too. You will save thousands of dollars in interest rate, just by changing the loan duration.

If you plan to move out in next few years, then opt for a 7/1 or 10/1 ARM.

[Desi]

If and only if you are going to stay in your home for 3-5 more years then go for it! You may have heard this saying "There is no such thing as free lunch" ... well, I will extend that and say "there is no such thing as zero $ closing costs". It just means that they will lump all the fees and put it in your loan amount

Not always true. In many cases they will not lump the charges and add to loan amount (but rather the interest rate is bumped). YOU dictate what the loan amount you want - period. You are in control. It is up to the lender to tell you then that there will be closing costs.

A common practice in mortgage industry is where the interest rate is changed to give you credit for closing costs. For example, let us say a 7/1 ARM loan, the current quotes in marketplace are as follows:

2.625% and closing costs of say about a $1000 on a 300K loan.
2.75% and no closing costs at all on 300k loan.

One then has to look at two above and combine that with the factor of how long one is expecting to live in that house and then make the right selection.

If you have good credit score and are willing to put $30k to $50k down, you can surely negotiate to get a good 15 year rate. One word of caution before you put your $50k down. You may or may not get that full amount back, a lot depends on the real estate story in your area.

Assuming that he is not intending to foreclose or short sale the house in the future, the loss incurred if the price of house goes down is immaterial of the amount of down payment.

Lastly, Dixit's post to which you responded is over two years old. However the advice in the thread does apply to anyone considering refi even now.

[dixit]

Thanks!!

I did go for a 0 cost refinancing. As Desi mentioned, I am sure, this "0 cost" was already figured into my interest rate. I have now a 3.125% 5-1 ARM. Based on the advice I received here, I did not put down any extra, I already have about 25%+ equity in my condo and prices in my area are on a rise. I do continue to pay down $100-$150 extra principal per month....for no good reason!!

Actually, I think its time for me to go for another round of refinancing!!

[Desi]

Thanks!!

I did go for a 0 cost refinancing. As Desi mentioned, I am sure, this "0 cost" was already figured into my interest rate. I have now a 3.125% 5-1 ARM. Based on the advice I received here, I did not put down any extra, I already have about 25%+ equity in my condo and prices in my area are on a rise. I do continue to pay down $100-$150 extra principal per month....for no good reason!!

Actually, I think its time for me to go for another round of refinancing!!

Check bankrate.com - nowadays 2.75% on 7/1 ARM with zero costs or a 15 year fixed, zero costs at 2.75% are available.