Do I refinance?

[luminajd]

Our original mortgage was for $51,000 in 2003, 30 year term, interest rate is 5.75. Loan is through Nationwide Advantage Mortgage.
I am aware my interest rate is very high so Im starting to look into refinancing. I called nationwide today and they said they can do:
3.875% for 15 year term
With closing costs rolled in, payment would be $26 cheaper/month
If not rolled in, payment would be $51 cheaper/month, closing costs would be about $3,500-4,500.
I have very little knowledge about refinancing. I have looked at some calculators and since this is likely our forever house, I would be a wise move, but is there a better deal out there?
We also have a HELOC through our local bank, it is $16000 with a balance of $14K. Nationwide said they can do the refinancing while leaving the HELOC alone.
Credit scores for my husband and I are around 800, I believe.
Thanks in advance!

[FIREdancer]

I'm in the process of refinancing to a 15 year loan and got a rate of 2.75%, and closing costs are supposed to be around $1800 for a $100K loan, so I would keep looking for a better deal if I were you.

Someone else suggested aimloan.com, and I checked with local banks and credit unions.  All had rates around 2.75% on 15 year.  And that was in the last week or so.  So I think you could definitely get a rate lower than 3.875%.

[Ricksun]

Questions:

1. You're 13 years in; are you 17 years from paying the mortgage off?  (i.e. did you pay additional principal?)  Make sure the 15 year loan doesn't actually extend the payments.

2. What's the interest rate on the HELOC?  It may be beneficial for you to roll that value into the refinance.

3. What is the APR?  The APR will account for the closing costs over the life of the loan.  with such a low balance of $51k, the closing costs will likely drive the APR to be much higher.  (If you are paying minimum over the 15 years, this is the true comparison to your 5.75% rate)

4.  Have you shopped for rates elsewhere?  I'm refinancing with my local credit union at a rate of 2.625% with no points.

5. Do you have a GFE  (Good Faith Estimate) detailing the closing costs?  This seems a bit high, but not unheard of; it may be that some of those closing costs are really pre-paids for escrow, etc...     

Depending on the answers to the above changing anything, it looks like you're getting a decent benefit from refinancing ($26 less each month and 2 years off the term)

Ricksun

[Hotstreak]

Sounds like a RIPOFF!  How much do you have left on your loan, 30k?  And your closing costs would be $3,500-4,500??!? Walk away!

There are two major underlying reasons this is not a good deal.  First of all, your closing costs.  They are going to be huge, since there are certain fixed costs, like appraisal, credit report, flood check, etc., that are the same whether you have a million dollar loan or a 30k loan.  Since you have a small loan, they are a huge portion of it, which means you have a large payback period and save less money.  Second is the fact that the loan is so small.  Many (most?) banks will charge you a higher rate for such a small loan.  There are costs associated with any loan that are not directly passed on to you, like servicing and underwriting, which are offset by loan amount based fees like 1% origination fees.  Since your loan is so small, the origination fee is too small to cover their costs, so they increase the interest rate to make some money.

Some other factors to consider:
-  Any bank can do that and leave your HELOC alone, but the bank holding the HELOC will have to agree (in writing) to the refinance (called a subordination agreement)
-  You may benefit from combining your HELOC with your term loan, if you would otherwise keep the balance on the HELOC (not pay if off soon).  This could result in lower interest, and may get your loan amount high enough to get you a better rate.
-  Can you just pay the thing off?  It seems like a smaller loan balance.. I would just get rid of it over the next few years.

[luminajd]

Questions:

1. You're 13 years in; are you 17 years from paying the mortgage off?  (i.e. did you pay additional principal?)  Make sure the 15 year loan doesn't actually extend the payments.

2. What's the interest rate on the HELOC?  It may be beneficial for you to roll that value into the refinance.

3. What is the APR?  The APR will account for the closing costs over the life of the loan.  with such a low balance of $51k, the closing costs will likely drive the APR to be much higher.  (If you are paying minimum over the 15 years, this is the true comparison to your 5.75% rate)

4.  Have you shopped for rates elsewhere?  I'm refinancing with my local credit union at a rate of 2.625% with no points.

5. Do you have a GFE  (Good Faith Estimate) detailing the closing costs?  This seems a bit high, but not unheard of; it may be that some of those closing costs are really pre-paids for escrow, etc...     

Depending on the answers to the above changing anything, it looks like you're getting a decent benefit from refinancing ($26 less each month and 2 years off the term)

Ricksun

1)17 years are left
2)HELOC interest rate is 3.25%
3) I didn't think to ask that
4) not yet, figured I would get input here first
5) not yet, again I'm at the beginning stages

[luminajd]

Sounds like a RIPOFF!  How much do you have left on your loan, 30k?  And your closing costs would be $3,500-4,500??!? Walk away!

There are two major underlying reasons this is not a good deal.  First of all, your closing costs.  They are going to be huge, since there are certain fixed costs, like appraisal, credit report, flood check, etc., that are the same whether you have a million dollar loan or a 30k loan.  Since you have a small loan, they are a huge portion of it, which means you have a large payback period and save less money.  Second is the fact that the loan is so small.  Many (most?) banks will charge you a higher rate for such a small loan.  There are costs associated with any loan that are not directly passed on to you, like servicing and underwriting, which are offset by loan amount based fees like 1% origination fees.  Since your loan is so small, the origination fee is too small to cover their costs, so they increase the interest rate to make some money.

Some other factors to consider:
-  Any bank can do that and leave your HELOC alone, but the bank holding the HELOC will have to agree (in writing) to the refinance (called a subordination agreement)
-  You may benefit from combining your HELOC with your term loan, if you would otherwise keep the balance on the HELOC (not pay if off soon).  This could result in lower interest, and may get your loan amount high enough to get you a better rate.
-  Can you just pay the thing off?  It seems like a smaller loan balance.. I would just get rid of it over the next few years.

We have a history of sucking at buckling and paying things off. I have been wanting to do that for forever, but we just don't seem to do it. So I was looking at this route to see if we could save some money on it somehow since I know our interest rate is high

[luminajd]

I'm in the process of refinancing to a 15 year loan and got a rate of 2.75%, and closing costs are supposed to be around $1800 for a $100K loan, so I would keep looking for a better deal if I were you.

Someone else suggested aimloan.com, and I checked with local banks and credit unions.  All had rates around 2.75% on 15 year.  And that was in the last week or so.  So I think you could definitely get a rate lower than 3.875%.

Never heard of them. I really like the rate their website quoted me (high 2%) but again it said $4K in closing.

[FIREdancer]

I'm in the process of refinancing to a 15 year loan and got a rate of 2.75%, and closing costs are supposed to be around $1800 for a $100K loan, so I would keep looking for a better deal if I were you.

Someone else suggested aimloan.com, and I checked with local banks and credit unions.  All had rates around 2.75% on 15 year.  And that was in the last week or so.  So I think you could definitely get a rate lower than 3.875%.

Never heard of them. I really like the rate their website quoted me (high 2%) but again it said $4K in closing.

Yeah, I ended up going with a local bank because they were willing to match the lowest rate and closing costs.  I recommend checking with three or four different places and trying to find the best deal.

[2buttons]

I just refi'd with my existing bank 1 year into the mortgage to reduce my rate by half a point and had no closing costs. Shop around.

[TheAnonOne]

15 year rates are UNDER 3 in many cases depending on your personal credit score.

That being said, you could just pay extra every month to shave yours down a bit. The interest rate matters less and less when you owe numbers under 100k. I had the same issue with my 65k mortgage in 2014. I ended up turning my 30y 4.0 mortgage into a 15 year 3.25 and increasing my payments by about $20 (I lost PMI which was the MAIN REASON)

If your not losing PMI, it probably is very close to not being worth it, given the closing costs...

[Hotstreak]

Questions:

1. You're 13 years in; are you 17 years from paying the mortgage off?  (i.e. did you pay additional principal?)  Make sure the 15 year loan doesn't actually extend the payments.

2. What's the interest rate on the HELOC?  It may be beneficial for you to roll that value into the refinance.

3. What is the APR?  The APR will account for the closing costs over the life of the loan.  with such a low balance of $51k, the closing costs will likely drive the APR to be much higher.  (If you are paying minimum over the 15 years, this is the true comparison to your 5.75% rate)

4.  Have you shopped for rates elsewhere?  I'm refinancing with my local credit union at a rate of 2.625% with no points.

5. Do you have a GFE  (Good Faith Estimate) detailing the closing costs?  This seems a bit high, but not unheard of; it may be that some of those closing costs are really pre-paids for escrow, etc...     

Depending on the answers to the above changing anything, it looks like you're getting a decent benefit from refinancing ($26 less each month and 2 years off the term)

Ricksun

1)17 years are left
2)HELOC interest rate is 3.25%
3) I didn't think to ask that
4) not yet, figured I would get input here first
5) not yet, again I'm at the beginning stages

They are required to disclose APR to you, so it should be on any documentation you have.  It's actually required that they disclose APR prior to disclosing the interest rate, so if you called and they told you "what the rates are", they should have provided the APR based on estimated closing costs (although some brokers might ignore this rule).

[Dicey]

Sorry, the bank is not the problem here, you are. WHY have you waited so long to re-fi? I'm really thinking a facepunch might be in order.

First order of business, call your lender today and ask if they have a streamline re-fi program, which is the easiest and generally cheapest way to go. If they don't offer something that blows your hair back, start shopping hard. We use a local bank and get email alerts when their rates change. Easy-peasy.

[luminajd]

Sorry, the bank is not the problem here, you are. WHY have you waited so long to re-fi? I'm really thinking a facepunch might be in order.

First order of business, call your lender today and ask if they have a streamline re-fi program, which is the easiest and generally cheapest way to go. If they don't offer something that blows your hair back, start shopping hard. We use a local bank and get email alerts when their rates change. Easy-peasy.

I accept the facepunch and have some weak excuses.
1) I wasn't sure it was our forever house until recently (I have been daydreaming of getting a bigger/nicer house until I realized how dumb that would be) and everything I read said refinancing might not be the way to go if you were going to sell in a few years
2) I thought having my HELOC would prevent me from refinancing
3) I'm an idiot. Lesson learned.

[gardeningandgreen]

Questions:

1. You're 13 years in; are you 17 years from paying the mortgage off?  (i.e. did you pay additional principal?)  Make sure the 15 year loan doesn't actually extend the payments.

2. What's the interest rate on the HELOC?  It may be beneficial for you to roll that value into the refinance.

3. What is the APR?  The APR will account for the closing costs over the life of the loan.  with such a low balance of $51k, the closing costs will likely drive the APR to be much higher.  (If you are paying minimum over the 15 years, this is the true comparison to your 5.75% rate)

4.  Have you shopped for rates elsewhere?  I'm refinancing with my local credit union at a rate of 2.625% with no points.

5. Do you have a GFE  (Good Faith Estimate) detailing the closing costs?  This seems a bit high, but not unheard of; it may be that some of those closing costs are really pre-paids for escrow, etc...     

Depending on the answers to the above changing anything, it looks like you're getting a decent benefit from refinancing ($26 less each month and 2 years off the term)

Ricksun

1)17 years are left
2)HELOC interest rate is 3.25%
3) I didn't think to ask that
4) not yet, figured I would get input here first
5) not yet, again I'm at the beginning stages

Why not just use the HELOC to pay off the original mortgage? You would have no closing costs and a much lower interest rate. There is no reason that you shouldn't be able to do that.

[wienerdog]

Where are you located?

[luminajd]

Iowa
Gardeningandgreen is that true? That would be awesome yeah?

[wienerdog]

You might check US Bank.  I think they have Iowa City offices.  Just do some shopping around.  You should find better rates than what you are quoted.

[gardeningandgreen]

Iowa
Gardeningandgreen is that true? That would be awesome yeah?

If you have the availability in your HELOC there should not be any reason that you cant do that. The easiest way would be to advance the funds from your HELOC into your checking account then go into the bank and ask to pay off your mortgage from your checking account. What will then happen is that your current mortgage will be paid off then the HELOC will become the first position lien. With my HELOC at least you have the option of locking in a certain amount for a specified time at a specified rate as well so you would accomplish paying off the 1st position and having a lower locked in rate. Also you will have no closing costs. There may be a small fee for doing the lock. I know on mine it is free for the first lock then $50 for each one after.

[clarkfan1979]

If you are 13 years into the loan, I would stick it out and pay off the loan. If you refinance you will go back to the very beginning of the ammorization in which you are paying very little toward principle.

[COEE]

Have you run the numbers?  Do the numbers make sense to put you ahead financially?

Really it's probably a toss up.  Your home loan is small enough that the comparatively high closing costs will negate any savings in interest rate.  The only thing that would maybe tip the scale if if you're paying PMI on an FHA loan or something.  That's probably a couple hundred bucks a month that is just being flushed down the toilet if you are... and you have about a 60% loan to value so this should go away if you refinance.

But I have not run the numbers - so these are just guestimates. 

Your loan is small enough that maybe you can accelerate payments and just get it paid off.  But I don't know your income level and tolerance to something like that - it's all relative.