Does it make sense for me to refianance?

[frugalnacho]

I bought a home 2009.  Paid $67,000 and got a interest rate of 5.5%.  I have been paying down extra principal every month.  Currently the loan is about $47,000 with 25 years left on the mortgage.  By my calculations if I continue paying the same amount I am now I will continue gaining ground and have it paid in full October 2021 (about 7.5 more years).  I will end up paying approx $59,000 in principal and interest over that time frame (I am only counting from today to the end of the loan). 

I just called some mortgage/lending companies to see what I could get if I refinance.  I get a very car salesman vibe from everyone in the industry that I talk to.  They are more interested in throwing around monthly payment calculations, and total life time costs of the loan (which are flat out wrong btw*) than they are in actually telling me what the damn values i'm interested are (APR and closing costs).

The best  APR I was given was 4.375% for a 10 year mortgage, which seems very high to me.  That also comes with $2,382 in closing costs that will be rolled into the loan.  And I will have to pay $420 out of pocket for an appraisal.  I calculate out that I will end up paying about $59,000 and have approximately the same pay off date using these figures.  The total interest paid will be a bit less because of the APR, but the principal will be higher because I am adding $2,383 right off the bat.  I will be paying a little extra (on top of required payment) in this scenario in order to make the same monthly payment I am currently.

I have a few questions for the mustaches here.

1. Does 4.375% sound too high of an APR for me to qualify for?  I was expecting lower.  I have over 800 credit score with no black marks.  The only other debt I have is about $8,000 on a car loan, and the only reason I have that is because I chose to invest my $8,000 car fund and take advantage of my credit unions 1.7% APR on the car loan.  I figured (and still do) that I will come out ahead in the long run by doing that.

2. Does my math check out that I won't save any money by refinancing with those terms?



*This one just took my current monthly payment (including taxes and insurance) and multiplied it out by the number of months remaining on my mortgage to get a "total spent" value (which is inaccurate because the loan will be paid off way ahead of schedule).  Then they did the math on a new 10 year mortgage and multiplied out the payment by the 10 year term to calculate a "total spent" to show me how much I could save by doing this option, while totally ignoring that one calculation factors in 15 additional years of taxes and insurance into the equation than the other.  I don't even need to crunch the numbers in some of these cases to know their numbers are wildly inaccurate.

EDIT: for clarification purposes

[frugalnacho]

Also one of the quotes I was given had the audacity to roll my car loan (currently @ 1.7% APR) into the new mortgage to show me how much total savings I could get.  The car loan is already at 1.7% and is already scheduled to be paid off in less than 10 years.

Do they think I am retarded?

[brewer12345]

I would get a home equity loan with penfed.org.  10 year term, a better rate and zero closing costs.

[GoldenStache]

I very rarely recommend ARMs but you are the perfect case.  I saw a 5/5Arm at 2.75 for the first five, 3.75 the next five, then something crazy (over 9%) for the remaining 20 years. 

If this is still around in a few years I will do it for my next house.  For the first 10 years pay the min and saving the rest and then either pay it off in full or do another refi arm.  ARMs are great if you actually understand what you are getting into and can afford to pay it down or have enough equity to refi when the time comes.

[Another Reader]

+1 on the PenFed home equity loan or line.  If you can pay it off in 5 years, you can get a 2.49 percent rate on the equity loan as of today.  Out of the box solution that's much cheaper.  PenFed is easy to join, even if you are not military or a Pentagon employee.

[MDM]

2.  Your math looks about right.  Would need exact details to know for sure, but it seems ok.

1.  Yes, seems high.  Try credit unions (e.g. the PenFed suggestion, or local if you have one), Quicken Loans, wherever GoldenStache found 2.75%, etc.

[frugalnacho]

Checked quicken loans.  They all seem to quote really low numbers, but then when I say I want to move forward with that rate they always give me a much higher rate like 4.375%.  I can't imagine a much more ideal situation than mine so i'm not sure what is stopping me from getting the lowest rates.

[hybrid]

Does 4.375% sound too high of an APR for me to qualify for?  I was expecting lower.  I have over 800 credit score with no black marks.  The only other debt I have is about $8,000 on a car loan, and the only reason I have that is because I chose to invest my $8,000 car fund and take advantage of my credit unions 1.7% APR on the car loan.  I figured (and still do) that I will come out ahead in the long run by doing that.

At some point in the not too distant future we'll all be pining for the days when rates in the 4s were considered high.

I refinanced to 3.25% fixed over 15 years a few years back and could hardly believe it (and I was coming doiwn from 4.375).

In Richmond this outfit is very popular, I know a lot of folks including real estate attorneys who have used them. Their rates tend to be a smidge higher than the competition, but the no closing costs are legit (I've used them three times along with numerous friends).

https://www.capcenter.com//default.aspx?si=11

[Another Reader]

You should ask anyone you talk to why the rate is higher.  The small size of the loan is likely the problem.  There are fixed costs and most of the folks actually supplying the money don't want to look at anything under $100k.  This is why the home equity loan or line of credit is the way to go here.  No Fannie or Freddie to deal with.  Call PenFed and see what they say.  But apply on line after you join if it's possible in your complicated situation, as you will save money.

[Thegoblinchief]

You should ask anyone you talk to why the rate is higher.  The small size of the loan is likely the problem.  There are fixed costs and most of the folks actually supplying the money don't want to look at anything under $100k.  This is why the home equity loan or line of credit is the way to go here.  No Fannie or Freddie to deal with.  Call PenFed and see what they say.  But apply on line after you join if it's possible in your complicated situation, as you will save money.

Exactly. Quite possibly it's the small size of the loan that's the issue. By the time I'm back above water on my house, I'll have such a small loan that I'll probably run into this myself.

[frugalnacho]

The loan is small, but they want me to pay out the ass for closing fees.  Isn't that where they are really making their money? They want me to add nearly $2,400 to my loan for all the closing costs.  That is over 5% of the balance of what I currently owe!

Seems predatory and parasitic to me.  Like I said I am on pace to pay this thing off in 7.5 years anyway, and that may accelerate as my earning increases, my 'stache grows, and frugality muscles improve.  Maybe i'll be able to pay off a few large chunks in the next few years and get it paid off even sooner.

[taekvideo]

Yeah it's the small loan size.
Mine was a 48k loan at 4% for a 7/1 ARM... would have been 3% for a larger loan.
I wouldn't recommend refinancing due to the closing costs... unless you can get one that'd really be worth it, especially since you'll be paying it off quickly anyways.

[Another Reader]

That's why you get the home equity loan.  The proceeds are used to pay off the existing loan and the closing costs are minimal.  If you can pay the loan off in 60 months, you may qualify for the 2.49 percent interest rate.  Don't bother with trying to get a traditional first mortgage.  It's going to be expensive, no matter who you use.

[frugalnacho]

That's why you get the home equity loan.  The proceeds are used to pay off the existing loan and the closing costs are minimal.  If you can pay the loan off in 60 months, you may qualify for the 2.49 percent interest rate.  Don't bother with trying to get a traditional first mortgage.  It's going to be expensive, no matter who you use.

I don't think i'll be able to pay it off in 60 months.  I might be able to if my financial situation changes, but I don't want to take a gamble that I will be able to, nor do I want to be in a situation where I have to pay it off that fast.  I checked into the home equity and they are quoting me higher APR than I have on my current mortgage, so even with zero closing costs it doesn't make any sense.

[Another Reader]

Did you call PenFed and explain the purpose was to pay off the underlying first loan?

[frugalnacho]

No  I haven't called penfed yet.

[skunkfunk]

Don't do it at those terms. For zero savings, it's not worth the increased risk.

Some of the other suggestions are good, though.

[frugalnacho]

Don't do it at those terms. For zero savings, it's not worth the increased risk.

Some of the other suggestions are good, though.

Yea I know, I just wanted someone to double check my math to make sure I wasn't making a mistake.  And also get some feedback from mustachians to see if I have other options to pursue that actually will save me money.  I am getting discouraged with the whole process though.