Author Topic: Is it stupid NOT to refinance when rates are so low?  (Read 7366 times)

mustachianteacher

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Is it stupid NOT to refinance when rates are so low?
« on: July 21, 2016, 01:57:39 PM »
I'm going to be brutally honest: I hate refinancing. It's a pain in the buns, and I'd rather not do it again. We've been in this home for 14 years, have refinanced 3 times, and will probably live in this home forever. Our mortgage is very affordable, but its interest rate is 4.875%, and my mom, a real estate agent, is shocked that I'm not running out to refi when we could probably save 2 percentage points. As much as I hate refinancing, I'll do it if it's truly in our best interest, but nothing is ever simple, so here's some background:

1. We both have state pensions that require us to put 10.25% in pretax every month. The pensions are great, but we'll be retiring early, so we're taking a hit in the payout. (We'd have to wait until 62 to get close to 80% of our pay; instead, we'll settle for 60% so we can get out earlier.)
2. In addition to that, we've always tried to match that with our own savings in 403b accounts. Those are doing well and are on track. That money will help pay for living expenses (I think we'll need about 70% of our living expenses to live the way we'd like in retirement), healthcare, a new roof for the house, etc.
3. We're also saving for our 11-year old's college expenses. We probably won't have enough saved by the time she's 18, but I think we'll be able to cash-flow some of her expenses if we pull back on 403b contributions a little. (Or maybe we won't need to -- hard to predict at this point with so many variables.)
4. Our short-term goal is to boost our cash savings. The last few years have depleted us a bit, so I'd like to pump some more money into our short-term cash reserves.

Right now, I'm comfortable with our budget. For years, we lived what my husband called "brutally frugal" because we had to -- we were paying off student loans, a car, some home repairs, then we had expensive dental work, etc. Neither of us wants to go back to that, so when I say we're comfortable, I mean that we're not living so close to zero that I have to check account balances before I go to the grocery store, and we're able to save decently. We're still frugal, though, and our FIRE plans are moving along on schedule. Our house should be paid off about 5 years after we FIRE if we change nothing, and that's fine -- I've always assumed a mortgage payment in retirement. After it's paid off, we'll have some extra cash every month, which would probably allow us to decrease how much we draw from our 403b accounts in retirement.

So, instead of refinancing, we could afford to throw $200 extra toward the mortgage every month, which would save us 4 years and about $35K. The advantage of this is flexibility -- we can stop those extra payments if necessary, or when we want to help our daughter with college expenses. But if I have $200 to spare, I tend to think I'd rather pad our short-term savings or our 403b accounts, or, or, or -- I can always think of something that seems like a better idea.

If we did refinance (and I'd only do it to a 15-year, not another 30), we'd be locked into paying an extra $450/month, which would be a bit tough to do without reducing our savings rate, but we'd be done well before FIRE (this is not necessary, though).

So, thoughts? Is it dumb not to refinance when rates are so low even though I feel like we're humming along nicely at this point?

thd7t

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #1 on: July 21, 2016, 02:06:48 PM »
Have you run the numbers, yet? You should be able to determine how much you would save and whether that's worth the effort. I would say that close to 5% is a pretty high rate for a mortgage, these days and would make investing vs. debt paydown a tough call.

Dezrah

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #2 on: July 21, 2016, 02:19:01 PM »
I agree with tdh7t to run the numbers. While you're at it, run a scenario where you just pay an extra $450 per month. Depending on terms, interest rates, closing costs, personal discipline, et cetera you might find paying extra is worth more to you than the savings.

ohsnap

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #3 on: July 21, 2016, 02:22:33 PM »
With a 2% drop, why would your payment increase so much?  Was your last refi pretty recent, so you still have a lot of years left on a 30-year mortgage?

If the 15 year raises your payment too high, why not refi over 20 years which would still cut your payment term but probably make your payment about what you are paying now?  One downside to that is that the interest rate is much closer to the current 30-yr rates than 15-yr rates.  (Looking at Zillow mortgage estimates, I found one lender in my area offering 2.875/15-yr, 3.375/20-yr, and 3.5/30-yr).

Or, you could refi over 30 years which would significantly reduce your interest paid and your payments, but make extra principal payments when you want to.

hay_otsuka

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #4 on: July 21, 2016, 02:22:52 PM »
Could always refi to a 20 and have lower rate with similar payment and likely lower term

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Axecleaver

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #5 on: July 21, 2016, 02:32:44 PM »
Short answer
Most folks refinance when they can bring the rate down by 1%. 2.375% would be considered a no-brainer.

Long answer
Compare how long it would take you to recover the closing costs, based on the lower payments. For example, the difference in payments between a 4.875% loan and a 3.5% loan is about $80 a month per $100,000 borrowed. That's $960 a year. If it costs you $3,000 in closing costs, you're looking at 3 years and two months to break even for a 100k mortgage. If you plan to stay in your house longer than that, it makes sense to refinance.

Here's an amortization calculator to help you with this: http://www.bankrate.com/calculators/mortgages/amortization-calculator.aspx

Now that you know the crossover point, you can look at 15 or 20 year loans and decide what you'd rather have. Advantage of the shorter loans is that you get slightly better rates. Advantage of 30 year loan is flexibility. For example, you can make a 30 year loan into a 15 year loan by prepaying a little bit more every month, while keeping the flexibility to dial back your payments if you need to. Might be handy if you want to save for college.


mustachianteacher

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #6 on: July 21, 2016, 02:33:45 PM »
With a 2% drop, why would your payment increase so much?  Was your last refi pretty recent, so you still have a lot of years left on a 30-year mortgage?

If the 15 year raises your payment too high, why not refi over 20 years which would still cut your payment term but probably make your payment about what you are paying now?  One downside to that is that the interest rate is much closer to the current 30-yr rates than 15-yr rates.  (Looking at Zillow mortgage estimates, I found one lender in my area offering 2.875/15-yr, 3.375/20-yr, and 3.5/30-yr).

Or, you could refi over 30 years which would significantly reduce your interest paid and your payments, but make extra principal payments when you want to.

I think I haven't been using accurate rates when I run our numbers through calculators because I just tried 3% for a 15-year and it increased our payment by $250, which is doable. We'd save over $100K because the calculator added up the years we wouldn't have a mortgage.

We last refinanced in January 2009, so we have 23 years left.

I had totally forgotten that a 20-year was sometimes an option!

I must say, just typing this all out has been clarifying. Yes, I hate refinancing with a passion, but if a 15-year is manageable, it might just be worth it. I don't want to refi to another 30-year -- no way.

boarder42

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #7 on: July 21, 2016, 02:44:53 PM »
i dont understand what you hate about it. 

here's how my 6 REFI's have worked

1. call my broker find out what the rates are (he does the REFI for free)
2. hey rates lower than mine.
3. yeah lets REFI
4. k my appraiser will be there this saturday - cool
5. here sign a few papers that take 4 minutes scan and email mback
6. hey cool rates dropped lets relock
7. take an hour at lunch and sign some papers.
8. whoa i just save 75 bucks a month for 30 years yippee and i'm paying 17k net less in total interest.

where is all the heartache to HATE it with a passion

do you have a conflict we litterally free money?

when you walk past a 20 on the side walk are you like crap i'd like that free money but its gonna be a 10 second pause in my life to pick it up.

katsiki

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #8 on: July 21, 2016, 03:08:00 PM »
To pile on, I would refinance in your shoes.  As you said, I would do 15 or 20 years.  I bet you don't even notice the small increase.  The broker scenario above sounds like a dream come true, but even using a massive company like Quicken Loans is pretty easy these days.

mathjak107

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #9 on: July 21, 2016, 03:22:05 PM »
well if you are near the tail end of a mortgage and refinance you are starting from scratch again paying mostly interest . you may add more in interest by extending out the years then the old mortgage .

if you refi always go shorter or the same never longer .

boarder42

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #10 on: July 21, 2016, 03:54:38 PM »
well if you are near the tail end of a mortgage and refinance you are starting from scratch again paying mostly interest . you may add more in interest by extending out the years then the old mortgage .

if you refi always go shorter or the same never longer .

Your screen name has math in it and this is terrible math advice

mathjak107

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #11 on: July 21, 2016, 04:12:51 PM »
really , so tell us . how much interest would you be adding to the cost of your home  if you had 3 or 4 years left on a mortgage and refinanced in to another 20 or 30 year loan ?

answer ,  a whole lot more then you would be saving .
in effect you would be extending out the terms of your  existing loans  albeit at a lower rate for many many more years .
now go to your room and do the math .



« Last Edit: July 21, 2016, 04:14:29 PM by mathjak107 »

JLee

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #12 on: July 21, 2016, 04:34:08 PM »
really , so tell us . how much interest would you be adding to the cost of your home  if you had 3 or 4 years left on a mortgage and refinanced in to another 20 or 30 year loan ?

answer ,  a whole lot more then you would be saving .
in effect you would be extending out the terms of your  existing loans  albeit at a lower rate for many many more years .
now go to your room and do the math .

Arguably significantly less than the gains you would have from the stock market over the same time frame.

mathjak107

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #13 on: July 21, 2016, 04:39:57 PM »
you are making a different assumption .

you are assuming that the person refinancing is going to invest that money successfully . :

 the reality is most folks suck at investing as a group and the morningstar and ibbotson returns for small investors vs the funds they were in show this fact

you are assuming they even want to invest as well as have the discipline to invest that money and not use it for other purposes .

in short you made a blanket statement without knowing a thing about the person refinancing and  what the terms are with their old mortgage  and what the plans are for the money .

you see a big mistake made in retirement doing this all the time .

the problem is that unlike the accumulation stage where you just need an average  return to beat a mortgage , if you are in the decumulation stage and spending down , not only do you need that average return , but you need it in the  correct sequence of gains and losses too .

taking out all that extra money to pay that mortgage increases sequence risk and magnify's the spending in the down years .

that is another parameter to the equation  that has to be considered .

the worst assumption is that everyone will refinance and successfully have the skill , the discipline , the want  to invest .
« Last Edit: July 21, 2016, 04:48:37 PM by mathjak107 »

nereo

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #14 on: July 21, 2016, 04:40:48 PM »
really , so tell us . how much interest would you be adding to the cost of your home  if you had 3 or 4 years left on a mortgage and refinanced in to another 20 or 30 year loan ?

answer ,  a whole lot more then you would be saving .
in effect you would be extending out the terms of your  existing loans  albeit at a lower rate for many many more years .
now go to your room and do the math .
(I'm already involved in one mortgage paydown debate today, why not make it two??!!)

To elucidate on Boarder42's point, total interest is just one consideration to take into account when you are contemplating mortgage rates and whether to pay it down faster or slower.  To read many detailed posts amidst a lot of shouting, check out this 11 page thread on the topic.

Briefly, two of the biggest factors you are not factoring in are opportunity costs and inflation.  Every $ you aren't putting toward your mortgage can be put somewhere else.  If you're putting that toward investments (particularly tax-advantaged accounts) the likelihood that you will come out ahead is very high.  The second, inflation, revolves around the idea that if you refinanced today your payments will be fixed in actual dollars, and inflation will make your payments go down each year (in real-adjust terms).  The longer the period, the bigger the effect. 

mathjak107

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #15 on: July 21, 2016, 04:42:06 PM »
read my reply above and you will see why i am not  assuming anything and making blanket statements like the reply i got .

JLee

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #16 on: July 21, 2016, 04:48:58 PM »
you are making a different assumption .

you are assuming that the person refinancing is going to invest that money successfully . :

 the reality is most folks suck at investing as a group and the morningstar and ibbotson returns for small investors vs the funds they were in show this fact

you are assuming they even want to invest as well as have the discipline to invest that money and not use it for other purposes .

in short you made a blanket statement without knowing a thing about the person refinancing and  what the terms are with their old mortgage  and what the plans are for the money .

you see a big mistake made in retirement doing this all the time .

the problem is that unlike the accumulation stage where you just need an average  return to beat a mortgage , if you are in the decumulation stage and spending down , not only do you need that average return , but you need it in the  correct sequence of gains and losses to .

taking out all that extra money to pay that mortgage increases sequence risk and magnify's the spending in the down years .

that is another parameter to the equation  that has to be considered .

the worst assumption is that everyone will refinance and successfully have the skill , the discipline , the want  to invest .

....you do realize what forum you're on, right?

read my reply above and you will see why i am not  assuming anything and making blanket statements like the reply i got .
You're not making blanket statements...like this?
if you refi always go shorter or the same never longer .

nereo

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #17 on: July 21, 2016, 04:50:13 PM »
read my reply above and you will see why i am not  assuming anything and making blanket statements like the reply i got .
I've read all three of your posts.  You are fixated on the interest paid in absolute terms over hte life of the loan, and you bring up a decent point that many people wind up spending that money instead of investing it.  That's one of the reasons why I stressed in my post " If you're putting that toward investments (particularly tax-advantaged accounts) the likelihood that you will come out ahead is very high" (emphasis added).

Also, I offer these two counterarguments;
i) AS stated in the blog, this is not a site for the "typical consumer sucka'.  We talk about optimal strategies here.  Certainly if you thing extra money will get absorbed into 'lifestyle-creep' a good strategy is just to attack debt. 
ii) in your posts you are not addressing the long-term effects of inflation.

mathjak107

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #18 on: July 21, 2016, 05:01:41 PM »
regardless , someone has to take in to consideration a lot more then just a rate .

it depends what their goals are . if one of my goals was to have a paid off house and i was a few years away and had the money to do so , refinancing and throwing that money back in to the risk pool would not be what i would want .  there is a point putting the carrot on the end of the stick may go against someones personal goals .

i have always been goal oriented . money that has not met its goal is heavily invested . but once i can meet that goal that money is pulled out and that goal accomplished . money that has not met its goal stays in the risk pool  until it does .

folks get in to trouble all the time because they keep the carrot on the stick . then that money that was ear marked for another use hits a down turn and the person panics because in effect it is borrowed leveraged money .  they want to protect it and so the carrot on the stick ends up hurting them down the road .

yeah some can pull it off successfully , self included , i have been successful as an investor  over the last 30 years  but most folks are better off setting goals , meeting those goals and moving on to their other goals .
« Last Edit: July 21, 2016, 05:18:15 PM by mathjak107 »

mustachianteacher

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #19 on: July 21, 2016, 05:17:10 PM »
i dont understand what you hate about it. 

here's how my 6 REFI's have worked

1. call my broker find out what the rates are (he does the REFI for free)
2. hey rates lower than mine.
3. yeah lets REFI
4. k my appraiser will be there this saturday - cool
5. here sign a few papers that take 4 minutes scan and email mback
6. hey cool rates dropped lets relock
7. take an hour at lunch and sign some papers.
8. whoa i just save 75 bucks a month for 30 years yippee and i'm paying 17k net less in total interest.

where is all the heartache to HATE it with a passion

do you have a conflict we litterally free money?

when you walk past a 20 on the side walk are you like crap i'd like that free money but its gonna be a 10 second pause in my life to pick it up.

Hahaha! Yes, I always pick up a $20. I think my hatred comes from going to every website, downloading statements, organizing, etc. But, I'm doing that right now, and it seems a lot easier than the last time we did it, so I think my memory was wrong. I remember so many calls, emails, frantic requests for this document or that paper, etc. but it seems things have gotten considerably more streamlined in the last 8 years.

mustachianteacher

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #20 on: July 21, 2016, 05:26:26 PM »
regardless , someone has to take in to consideration a lot more then just a rate .

it depends what their goals are . if one of my goals was to have a paid off house and i was a few years away and had the money to do so , refinancing and throwing that money back in to the risk pool would not be what i would want .  there is a point putting the carrot on the end of the stick may go against someones personal goals .

i have always been goal oriented . money that has not met its goal is heavily invested . but once i can meet that goal that money is pulled out and that goal accomplished . money that has not met its goal stays in the risk pool  until it does .


This resonates with me. Our goals are to retire early and comfortably, knock out the mortgage ASAP, and help our daughter with college expenses. Can't say I completely follow the prior discussion, but I decided to pull the trigger, and we're refinancing to a 15-year for 2.2 percentage points lower than what we have, and around $200 extra per month. I can live with that, and I'm VERY excited about the 15-year. We will be mortgage-free before we retire, which will reduce our expenses, which will make our money go farther and last longer.

The opportunity cost is not saving that $200ish for our child's college education, but I can live with that. We can continue our current savings rate, and next time we get a raise, I'll be sure to increase the contributions to the college account. I can't really justify paying 8 years more on the mortgage simply so she'll have an extra $20K for college. That makes no sense.

mr_orange

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #21 on: July 21, 2016, 05:27:40 PM »
Fortunately some really smart students from The Wharton School have built calculators on The Mortgage Professor's site that you can use to model your exact scenario inclusive of the many variables that are germane.  You can check this out here:

http://www.mtgprofessor.com/CalculatorArticles/Refinance-Calculator.html

Then you don't need an 11-page thread to argue about it.  You can decide using actual data.

nereo

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #22 on: July 21, 2016, 05:27:53 PM »
regardless , someone has to take in to consideration a lot more then just a rate .

it depends what their goals are
(something about carrots and sticks, and putting carrots on sticks... and then taking them off again.

I'm honestly unable to follow your carrots-on-sticks analogy from above.
Earlier you opened with an absolute statement saying if you refi always go shorter or the same never longer and then defended it by saying that increasing the term increases the interest. 

I agree with you that an individual's goals and personality (particularly when it comes to whether or not they are disciplined investors) should be taken into consideration.  However, if we do that we must also many circumstances when your earlier blanket statement is in fact not good advice.

Off-topic:  I'm not sure why, but the formatting in your text is coming through in very odd ways and makes it harder to read.

nereo

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #23 on: July 21, 2016, 05:29:42 PM »
Fortunately some really smart students from The Wharton School have built calculators on The Mortgage Professor's site that you can use to model your exact scenario inclusive of the many variables that are germane.  You can check this out here:

http://www.mtgprofessor.com/CalculatorArticles/Refinance-Calculator.html
Thanks for the link - i've bookmarked it for future use.

Then you don't need an 11-page thread to argue about it.  You can decide using actual data.
...but then what would we do with our free time?

mr_orange

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #24 on: July 21, 2016, 05:33:57 PM »
Quote
...but then what would we do with our free time?

I'm a big fan of investing it with my family and in growing my businesses to make more money.  Most on this site favor shaving cents out of their budget.  But I digress....

Hopefully the calculator will help folks.  There is a ton of great mortgage information on The Mortgage Professor's site.  This includes debunking all of the good fairy nonsense about magical ways to prepay mortgages with exotic arbitrage strategies or other gimmicks that have nothing to do with legitimate prepayment.  It is kind of like debunking the magical equipment that helps you lose weight in ways other than diet and exercise. 

boarder42

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #25 on: July 21, 2016, 08:28:36 PM »
read my reply above and you will see why i am not  assuming anything and making blanket statements like the reply i got .

Welcome Mr 21 posts at the time of this reply. You realize the assumption in at ER forum is that you're investing the difference. I'm sure multiple people have told you this already and you've stood fast to a terrible Mathematically decision.

You made the blanket statement that you should ALWAYS go to a lower term. When Mathematically since we're in an ER forum you come out exponentially ahead and less risky extending a mortgage to the longest term at the lowest rate most of the time. We have a nice little thing called inflation. It makes the math work out very nicely.

One thing I saw the other day posted here is you should probably look at total posts before taking someone's advice. You should probably look and understand what the people who have been here awhile are saying. 

Long low fixed rate mortgages are safer than owning a home out right.

To which people always ask " if your home we're paid off would you take out a mortgage on it". Yes at today's ridiculous rate (I'm on a 30 year at 3.25% ). I'll remortgage a house to get that cheap leverage. Likely up to 5% and possibly 6.

Study a bit more and do a couple more math jacks tonight. Come back in the morning with a clear open mind

BlueHouse

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #26 on: July 22, 2016, 02:53:04 PM »
regardless , someone has to take in to consideration a lot more then just a rate .

it depends what their goals are
(something about carrots and sticks, and putting carrots on sticks... and then taking them off again.

I'm honestly unable to follow your carrots-on-sticks analogy from above.
Earlier you opened with an absolute statement saying if you refi always go shorter or the same never longer and then defended it by saying that increasing the term increases the interest. 

I agree with you that an individual's goals and personality (particularly when it comes to whether or not they are disciplined investors) should be taken into consideration.  However, if we do that we must also many circumstances when your earlier blanket statement is in fact not good advice.

Off-topic:  I'm not sure why, but the formatting in your text is coming through in very odd ways and makes it harder to read.
When I read mathjak's comment, I assumed she was pointing out that when most people re-fi, they end up extending their loans, which is probably what has already happened to the OP, as they've been living in their house for 14 years, but they still owe 23 years of payments.  This is how so many people finance their "no-cost re-fis".  They only look at the lower monthly payment and may not realize that the costs have been included as more payments spread out over more years. That's what I took from the "always go shorter never longer" comment, and I think that's a good point if the goal is to pay off the mortgage. 

You guys are being pretty harsh in a way that seems uncalled for, and as an FYI to boarder42:  the length of time on a forum or the number of posts should NEVER be a determinant of the validity of a statement. 

jamesbond007

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #27 on: July 22, 2016, 03:34:18 PM »
I just refied my mortgage of 6 months. I got in at 4% originally and now I got the refi at 3.5%. Not a huge deal. But the refi was absolutely $0. Like really $0. And I negotiated and am getting $250 back as a check after the loan closes. So I am saving abour $100 each month for free. Now, I really am not cash strapped to save those $100 but I can pay that towards principal each month or add that to my monthly transfer to Vanguard. Can't complain when it's a $0 refi.

Also, paperwork? I barely did any. Send some scanned docs over via email. Signed a few online docs. The notary came in to my house. Singed everything from the comfort of my couch in about 30 minutes and close.

chesebert

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #28 on: July 22, 2016, 03:45:32 PM »
I just refied my mortgage of 6 months. I got in at 4% originally and now I got the refi at 3.5%. Not a huge deal. But the refi was absolutely $0. Like really $0. And I negotiated and am getting $250 back as a check after the loan closes. So I am saving abour $100 each month for free. Now, I really am not cash strapped to save those $100 but I can pay that towards principal each month or add that to my monthly transfer to Vanguard. Can't complain when it's a $0 refi.

Also, paperwork? I barely did any. Send some scanned docs over via email. Signed a few online docs. The notary came in to my house. Singed everything from the comfort of my couch in about 30 minutes and close.
That sounds wrong. You read all your dox, right? All else being equal, I have found a no-cost mortgage always results in higher interest (no free lunch.....) compared to borrower paying the cost. You are also sure that this is not one of those no-cash loans where your closing costs are built right into your loan, right?

I am always super skeptical if a broker starts talking about no-cash this, free that, cash back ...blah blah blah..I run...
« Last Edit: July 22, 2016, 03:55:13 PM by chesebert »

Dezrah

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #29 on: July 22, 2016, 04:09:48 PM »
I just refied my mortgage of 6 months. I got in at 4% originally and now I got the refi at 3.5%. Not a huge deal. But the refi was absolutely $0. Like really $0. And I negotiated and am getting $250 back as a check after the loan closes. So I am saving abour $100 each month for free. Now, I really am not cash strapped to save those $100 but I can pay that towards principal each month or add that to my monthly transfer to Vanguard. Can't complain when it's a $0 refi.

Also, paperwork? I barely did any. Send some scanned docs over via email. Signed a few online docs. The notary came in to my house. Singed everything from the comfort of my couch in about 30 minutes and close.

Iím glad it worked out for you.

Does anyone here have any insight in the finance industry that might know why on earth a bank would recharacterize a product such that they make less money?  Are banks that desperate to keep customers on their books?  Are they trying to generate ďnew mortgagesĒ to maintain some barmy metric to present to their shareholders?  Do they refinance so they can improve the credit score average across their loans?  Are they convinced that treating you well now statistically means youíre likely to come back and get other loans from them?

I just watched The Big Short, so now Iím super suspicious when a move like this makes no sense.  Either it does make sense in a way that I donít understand or the banks are idiots and heading for trouble.  Maybe itís both.

chesebert

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #30 on: July 22, 2016, 04:36:11 PM »
I just refied my mortgage of 6 months. I got in at 4% originally and now I got the refi at 3.5%. Not a huge deal. But the refi was absolutely $0. Like really $0. And I negotiated and am getting $250 back as a check after the loan closes. So I am saving abour $100 each month for free. Now, I really am not cash strapped to save those $100 but I can pay that towards principal each month or add that to my monthly transfer to Vanguard. Can't complain when it's a $0 refi.

Also, paperwork? I barely did any. Send some scanned docs over via email. Signed a few online docs. The notary came in to my house. Singed everything from the comfort of my couch in about 30 minutes and close.

Iím glad it worked out for you.

Does anyone here have any insight in the finance industry that might know why on earth a bank would recharacterize a product such that they make less money?  Are banks that desperate to keep customers on their books?  Are they trying to generate ďnew mortgagesĒ to maintain some barmy metric to present to their shareholders?  Do they refinance so they can improve the credit score average across their loans?  Are they convinced that treating you well now statistically means youíre likely to come back and get other loans from them?

I just watched The Big Short, so now Iím super suspicious when a move like this makes no sense.  Either it does make sense in a way that I donít understand or the banks are idiots and heading for trouble.  Maybe itís both.
What can I say, MBS is back in full force and GS is taking profits.

"The bank's revenue from its fixed income, currency and commodities trading unit was $1.93 billion, 20 percent higher than in the second quarter a year ago and also up compared to the first quarter of this year."

Institutional investors are begging for fixed securities with better return than gov bonds. I believe brokers and securities underwriters take a cut from the resale/MBS.

This might be one of other reasons why there is a rush to refi. Regular conforming or FHA loans have a lot of requirements that refis are not subject to.

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #31 on: July 22, 2016, 04:42:30 PM »
In most cases, banks do not keep the mortgages they originate.  The loans are sold to Fannie/Freddie ad the money is recycled.  A bank may retain the servicing on the loan (collect and disburse payments) but they don't own the loan.  They make money on the fees they charge you directly or on the interest rate they charge where their fees are buried.  If you look mortgage rates at a site like Aimloan.com, you are offered a series of choices.  More fees get you a lower rate.  You can do a "no cost" loan with a higher rate.

Refi's are generally sold to Fannie/Freddie.  Most are conforming or meet the requirements for the higher cost conforming.  True jumbos are often kept on the lenders books.  Wells Fargo holds some in their portfolio.  Other non-conforming loans usually stay in the portfolio.

mustachianteacher

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #32 on: July 23, 2016, 12:03:49 PM »

Earlier you opened with an absolute statement saying if you refi always go shorter or the same never longer and then defended it by
When I read mathjak's comment, I assumed she was pointing out that when most people re-fi, they end up extending their loans, which is probably what has already happened to the OP, as they've been living in their house for 14 years, but they still owe 23 years of payments.  This is how so many people finance their "no-cost re-fis".  They only look at the lower monthly payment and may not realize that the costs have been included as more payments spread out over more years. That's what I took from the "always go shorter never longer" comment, and I think that's a good point if the goal is to pay off the mortgage. 


You assumed correctly. When we first bought the house, we were at 7% (2002) and had PMI. We refied to get rid of PMI and lower the rate, and a few years later, we refied to lower the rate again.

With this 15-year now, though, we'll end up being done after 29 years after buying the house, so I think it has worked out quite well.

I worry about people like my MIL who bought her house in the early 70's and still has years to go, and my neighbors who paid for almost 50 years before they were done.
« Last Edit: July 23, 2016, 12:09:47 PM by msjd123 »

mustachianteacher

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #33 on: July 23, 2016, 12:10:23 PM »
Not sure why my new response is part of the quote box above -- sorry! Tried to fix it, but it didn't work.

mathjak107

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #34 on: July 23, 2016, 12:54:47 PM »
feel free to use my quote box anytime ha ha ha

Dicey

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #35 on: July 23, 2016, 01:27:36 PM »
You guys are being pretty harsh in a way that seems uncalled for, and as an FYI to boarder42:  the length of time on a forum or the number of posts should NEVER be a determinant of the validity of a statement.
Are you kidding? I'm ready to pinch mathjak107's little head off just for the lousy punctuation. It's lazy, and it makes his/her comments too hard to read, much less comprehend. There is virtually no one here with a decent number of posts that doesn't show respect for the rest of us by making the effort to write clearly. <End of rant.>

mathjak107

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #36 on: July 23, 2016, 01:30:27 PM »
i type lefty with one finger because i have diabetic neuropathy in my fingers and toes .  the other finger tips are much to sensitive to use to type so the typing is what it is .

Dicey

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #37 on: July 23, 2016, 03:05:13 PM »
Pro tip from a fellow one-fingered typist: Caps happen automatically when you place the period correctly. Adding a space after the last word of the sentence and thus preventing caps at the beginning of the next sentence just makes your writing harder for yourself and your reader. Proofreading costs you nothing but a moment of time.

Typed with my right index finger, though I'm a lifelong lefty.

mathjak107

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #38 on: July 23, 2016, 04:14:29 PM »
placing caps properly may be a function of the device . my  i-pad does it . my desktop does not .

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #39 on: July 23, 2016, 04:16:38 PM »
placing caps properly may be a function of the device . my  i-pad does it . my desktop does not .
Why do you put spaces before each of your periods? 

mathjak107

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #40 on: July 23, 2016, 04:21:33 PM »
i have no idea . i type very very fast with one finger so it may happen without even realizing it. i think the space bar gets hit on autopilot. in fact it just did exactly that and i had to re-edit.

SwordGuy

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #41 on: July 23, 2016, 11:21:44 PM »
I bought our latest house on a 30 year 4% fixed loan.   We just refinanced.

We had an option of 3.25% on a 30 year fixed or 2.75% on a 15 year. 

Either one was a good bet.  Total costs come to about one month's mortgage payment but there will be a one month gap while the new loan's payments get set up, and it's with the current lender so they will just roll over the existing escrow.

Compared to the original loan, this was easy-peasy.  They still had most of our info on file from the last loan, so all we had to do was schedule an appraisal, make copies of 4 paystubs and 4 bank statements.

What a great way to save money.

I understand the long term inflation effects on a really low interest rate loan.  Incidentally, it's easy to use cFireSim.com to test this.  Just include the taxes and insurance on your house in your annual living expenses.  Put your principal and interest (assuming a fixed loan!) in as "Extra Spending" with the start and end years for the mortgage.   Set it to NOT inflation adjusted.

We decided to go with the 15 year loan.   If we younger we would make a different choice.
 
We chose 15 year because neither of us is likely to be alive in 30 years and it will be easier on our son not to have to make mortgage payments.  Or at least to be able to sell it and keep most of what he sells it for.

Having this mortgage wasn't really in our post-Fire plans.  It's an extra $14,562 a year to annual expenses.  We were planning on living on $60,000 with no mortgage.   

We may choose to put the funds from the sale of our old house against it and pay it off in 5 1/2 years.   My wife is planning to work at her current career at least 2 more years.  We may put some of her pay on the house as well, though I think we'll do it indirectly by buying rentals and fixing them up.   I'll do more of the fixing because I'll have more time free to do it and I've gotten more experience over the last 2 years.  Plus I enjoy it!  That will make our stash dollars go farther, probably as much as one rental house farther. :)

Either that or we'll get brave and put all of that money into rental properties or the market.  That would probably be wiser but I guess only time will tell which we'll do.

Doing all that refurbish work on the rentals also makes it easier for me to pick up a few thousand here and there doing handyman jobs if I'm so inclined.   Maybe I can set it up as a job training class for kids who don't want to go to college...    Hmmm.   Might be able to get a grant for that to cover the insurance and materials and to pay the kids with.  That has possibilities...   

Give each teen a room to paint and do a competition for best job and for fastest acceptable job.   The kids would learn how to prepare an cost estimate and write a job bid, prep remove nails and screws, prep the walls for painting, how to measure the walls and calculate how much paint is needed, what kind of paint to buy (and why), how to paint and clean up the job site, and how to invoice.   Same could be done with removing an old fence and putting up a new one, or repairing/building a deck, or glazing windows, or putting on siding or a roof, etc.

Plus, mix in some MMM philosophy and how to succeed in business skills, and we might just have a winner of an idea.
After they've been trained in a skill and actually done the job, I could have contractors in that field inspect their work and give them internships for summer jobs.

I really like this Tom Sawyer idea.   

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Re: Is it stupid NOT to refinance when rates are so low?
« Reply #42 on: July 25, 2016, 11:26:04 AM »
I just refied my mortgage of 6 months. I got in at 4% originally and now I got the refi at 3.5%. Not a huge deal. But the refi was absolutely $0. Like really $0. And I negotiated and am getting $250 back as a check after the loan closes. So I am saving abour $100 each month for free. Now, I really am not cash strapped to save those $100 but I can pay that towards principal each month or add that to my monthly transfer to Vanguard. Can't complain when it's a $0 refi.

Also, paperwork? I barely did any. Send some scanned docs over via email. Signed a few online docs. The notary came in to my house. Singed everything from the comfort of my couch in about 30 minutes and close.
That sounds wrong. You read all your dox, right? All else being equal, I have found a no-cost mortgage always results in higher interest (no free lunch.....) compared to borrower paying the cost. You are also sure that this is not one of those no-cash loans where your closing costs are built right into your loan, right?

I am always super skeptical if a broker starts talking about no-cash this, free that, cash back ...blah blah blah..I run...

I was skeptical about it too. But really literally the lender paid all of the costs. I checked and rechecked. I think the refi market is hot right now so there is huge competition to get customers. When lenders fight, customer wins. I think this is what happening here.