I need advice about refinancing my mortgage

[cacovergrl]

I will give you all the information I have. I am terrible at math and I cannot figure out whether it's worth $40K to refinance my mortgage. I currently have an ARM which is adjusting Apr 1. Rate is increasing from 3.5% to 4.625%. The payment is going from $2126.25 to 2420.34. Taxes & ins $810.75. 1st is $458K - 2nd $44K. Payment for the 2nd is $453 mo

I am considering refinancing to VA 100% LTV combining two loans for $502K. I want to roll all of the cost into the loan. VA Funding fee is $17K and other costs $19,200. Total financed is $542K. With a 30 year VA P& I $2628.00.  Should I do this???? I'm really confused. I plan to stay in the house for 10 years. I also have the option for a 25 year VA, P &I $2898.

I don't know if I should add $40K to my mortgage and i don't know how to calculate a break even point.
Thank you to anyone who can help. Please be kind :-)

[sokoloff]

I’ve never paid anywhere near 8 points of a mortgage (initial or refinance)!

More typical is 1-3, often 1% and a few thousand for random fees (appraisal, title search/insurance, etc). Unless something is unusual about your situation (or you’re reporting fees without accounting for being able to “skip a month” due to the way odd-days interest is handled), I think you’re getting reamed on the quote.

[Basenji]

What's the percentage on the VA loans? Who will be your lender? Are you a member of a military credit union or USAA? I ask because we have a VA loan and did have to pay a fairly large fee to have it, but we refinanced and our lender changed from a shitty bank to NFCU and the rate went way down.

[ShoulderThingThatGoesUp]

What are the terms on your second mortgage? Rate and remaining term?

What assets and available income do you have available to get yourself to an 80% LTV situation?

[cacovergrl]

I am using Navy Federal Credit Union for the refi. Because the loan is large the funding fee is $17K. Both mortgages have no points being paid. They do have a MD transfer tax in the closing costs of $10K, which I am questioning as well. My second mortgage is at 7% and there is 18 years remaining. All of my money is in TSP and I do not have cash available to bring to the table.  That is the worst part. I need to build savings I can access immediately.


I played with some calculators online and looked at each loan at the 10 year point. I believe a 25 year VA loan is the best option overall because it gives me a stable payment and at 10 years the loan balance is going to be lower than my current one will be and my payment will be in the same ball park as what I am paying with the current mortgage. But I would like to confirm with someone who know mortgages. LOL
Thank you

[sokoloff]

Shop it on lendingtree or another mortgage loan aggregator at least.

If you have no equity, especially if you have poor credit (I have no idea if you do or not), the bank is in a riskier position, so it makes sense that it would be more expensive, but there's a lot of money around chasing mortgages, so you it seems you should be able to do better than what you quoted. If you can't, it might be better to let the existing mortgage adjust and pay on that. You're talking about 7-8 months worth of payments that are just going to fees and then you start digging out from there to get back to the breakeven point and you're only saving about $250/mo of cashflow.

I get that future adjustments might also be coming, but if you can't afford this adjustment, you may need to face the fact that you simply can't afford this house.

[SnackDog]

You have not provided enough information.

There are plenty of online finance calculators you can use. I recommend bankrate.com.

It almost never makes sense to pay points because you must own the house a long time to recoup them and most people end up moving, even though they didn't plan to when they financed the mortgage.  Look for the lowest cost and rate refi you can find.

[ShoulderThingThatGoesUp]

I think your 18 years at 7% loan is both worse and more solvable than your ARM. Paying that down as quickly as you can seems like the best move, because it will free up equity to refinance your ARM into something more comfortable.

What is your income? Do you need half a million worth of house?

[cacovergrl]

Hi. We've been in our home 12 years and we are not planning to move anytime soon. Our house is affordable, we have good credit (good enough to refi) and we have a 12 year old. Also our combined income is $370K. I will consider the recommendation to pay of the 2nd mortgage. That is the best advice thus far. I am still hoping to find an answer to my original question, which is can anyone calculate the break even point on the refi loan.

Thank you

[ShoulderThingThatGoesUp]

I think nobody is answering that because the overall numbers don’t add up, so it feels like the wrong question.

Your house ought to be affordable with that high an income, but how do you owe nearly 100% of the value after 12 years? Solving that problem will give you many more options than the 100% LTV refinances you are looking at now.

[sokoloff]

Exactly. Post all the numbers and the exact question you want answered and you’ll get an answer.

People are having a hard time making assumptions about your situation to fill in the missing data with guesses because the overall picture doesn’t make sense.

[tomorrowsomewherenew]

For those of you that aren't familiar with VA loans, if you don't have a disability rating, you have to pay a funding fee. Since this is at least the second time the poster has gotten a VA loan, the funding fee is 3.3%. That's not nothing, especially on a loan of this size. How is it after 12 years you have 0% equity? If you have some equity, that will bring down the funding fee.

I wouldn't go through with this loan, but that doesn't mean I wouldn't refinance. I haven't run the numbers, but with a click glance, I'm not sure there is going to be a break even point for this refinance. You can google "mortgage refinance break even calculator" and you'll get plenty of options.

So far, I agree with the other posters who have recommended paying off your second mortgage.

[sokoloff]

To help get better answers, include specifically, principal balance on loan 1, principal balance on loan 2, interest rate on loan 1, interest rate on loan 2, initial and remaining term on loan 1, initial and remaining on loan 2, interest rate on contemplated new loans 3,4,5, closing costs for loans 3,4,5, annual taxes and insurance, household income, available cash you could bring to table, any other constraints that you have.

From what you’ve posted above, and a bunch of guesses I could make, you should keep loan 1 and accelerate payoff of loan 2. With over $350K/yr in income, $3K/mo in mortgage PITI should be almost unnoticeable (and therefore no reason to pay $40K to buy $250/mo cashflow).

I’m more than happy to go as deep as you want in analyzing this and help you make the best decision for your household.

[SwordGuy]

With over $350K/yr in income, $3K/mo in mortgage PITI should be almost unnoticeable (and therefore no reason to pay $40K to buy $250/mo cashflow).

If that statement is not true, i.e., you really NEED an extra $250/month in cashflow because things are that tight; then something is HORRIBLY wrong with your finances.  If so, you need to do a full case study ASAP.

[cacovergrl]

Hi. Thank you to everyone for your comments. Nothing is wrong with my credit or my finances. I wanted to refinance to VA to get out of the ARM loan because it was adjusting. The adjustment is only $200, so it's no big deal. I've been underwater in my house for several years because of the housing market, just like a gazillion other people.

The market is now correcting, so the value has gone up to about $500-$525K. Hopefully it will continue to correct to $625K. It's still a ways off though. Unfortunately this was out of our control. Thank you to shoulderthingthatgoesup and tomorrowsomewherenew. I think you have helped me make a decision to accept the ARM adjustment and pay extra to quickly pay off the second. You are correct that the funding fee and other fees, are to much for the refi to be of any benefit. Thanks everyone/   

[dogboyslim]

I'm having trouble with the numbers.  If your second loan is at 44k, 7% and a payment of 453, it should be paid off in 12 years, not 18.  The adjustment brings you up to a 4.625% rate, which while not great, is still near historical lows.  Your payment of $2873 (ignoring escrow) seems like you should be fine.

I know I'm not using the same figures you are since I have your 2nd mortgage paid off in 12, but based upon the original vs. new situation, here is what I have:

Current: 4.625% and 7%.  New: 4.13%.  To start out, you'd are 40k in the hole.  Assuming you invest the $245 per month at 6%, it will take you 19 years to break even.  I'm not sure I have all the numbers correct, but I agree with your decision to not refinance.