Author Topic: Should I refinance mortgage?  (Read 3273 times)

jamesbond007

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Should I refinance mortgage?
« on: June 24, 2016, 11:08:18 AM »
Hi fellow Mustachians,

I have been thinking about this little problem for a while. Should I refinance my mortgage?

Background. I bought my house for $440,000 with 20% down and 4% interest back in January 2016 (6 months ago). It got appraised for $440,000.

Now, the rates are down to about 3.625%. Should I refinance and lock in the lower rate? My mortgage broker emailed me this morning about the rate. $2500 closing costs. I also plan to make a payment towards principal (About $20K extra each year) and am on track this year to make this payment. So is the extra effort worth it to save $100 a month when it takes 25 months to break even on refinance? Also I am worried that the appraisal might come in low as a town home in my community was just put on sale for $400,000 (Not sure what they were thinking. Mine is slightly better in terms of improvements inside the house). So new appraisal worries me.

What you all think I should do?

Please help.

Fishindude

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Re: Should I refinance mortgage?
« Reply #1 on: June 24, 2016, 11:09:57 AM »
I wouldn't screw with it.

Drifterrider

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Re: Should I refinance mortgage?
« Reply #2 on: June 24, 2016, 11:15:21 AM »
How much per month less will your new payment be?  How many months will it take to have saved the refinancing cost?  How long do you intend to stay in the house?

I would think you could get a lower rate.  I just refied at 3.375  On a $210K loan I "save" $177 per month.  Your "savings" should be much more than that.

Do the math.

jamesbond007

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Re: Should I refinance mortgage?
« Reply #3 on: June 24, 2016, 11:23:50 AM »
How much per month less will your new payment be?  How many months will it take to have saved the refinancing cost?  How long do you intend to stay in the house?

I would think you could get a lower rate.  I just refied at 3.375  On a $210K loan I "save" $177 per month.  Your "savings" should be much more than that.

Do the math.

Yeah. If I don't pay anything down I'd be saving $100 month and refi costs are 2500. So it takes me 25 months to break even on the refi costs. Extra $100 in savings when I am not sure what the appraisal would be seems like a bad idea to me. But I am tempted by a lower rate. So I am not sure if I am thinking rationally here. I don't plan to sell this house anytime soon. I will "think" about it when my daughter starts going to middle school (she is 2 now) to get her a better middle school. Even then I might just rent this out and come back to this house later. The thing is I might be even paying off my mortgage by then. So yeah, no selling.

GrOW

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Re: Should I refinance mortgage?
« Reply #4 on: June 24, 2016, 11:30:21 AM »
Short answer using strictly your scenario - No. But consider the following:

Is your plan to pay $20k per year on principle reliable enough for a shift to a 15 year fixed? If so, you should find rates around 2.625% making it an easier decision.

Next, ask your lender for a 'no closing cost' rate. With a balance of about $350k, the rate should not move much at all, maybe +0.125. If more, the lender is making too much money. Sure this comes with its own breakeven analysis but it changes it from lose/win to win/win more type of analysis.

Drifterrider

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Re: Should I refinance mortgage?
« Reply #5 on: June 24, 2016, 11:37:39 AM »
How much per month less will your new payment be?  How many months will it take to have saved the refinancing cost?  How long do you intend to stay in the house?

I would think you could get a lower rate.  I just refied at 3.375  On a $210K loan I "save" $177 per month.  Your "savings" should be much more than that.

Do the math.

Yeah. If I don't pay anything down I'd be saving $100 month and refi costs are 2500. So it takes me 25 months to break even on the refi costs. Extra $100 in savings when I am not sure what the appraisal would be seems like a bad idea to me. But I am tempted by a lower rate. So I am not sure if I am thinking rationally here. I don't plan to sell this house anytime soon. I will "think" about it when my daughter starts going to middle school (she is 2 now) to get her a better middle school. Even then I might just rent this out and come back to this house later. The thing is I might be even paying off my mortgage by then. So yeah, no selling.

Doesn't "middle school" mean 6th grade?  Isn't that about ten years from now?  That is 120 months X $100 = $12,000 less $2,500 closing cost = $9,500 LESS you will pay.

tonysemail

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Re: Should I refinance mortgage?
« Reply #6 on: June 24, 2016, 01:39:08 PM »

frugaliknowit

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Re: Should I refinance mortgage?
« Reply #7 on: June 24, 2016, 02:03:02 PM »
Short answer using strictly your scenario - No. But consider the following:

Is your plan to pay $20k per year on principle reliable enough for a shift to a 15 year fixed? If so, you should find rates around 2.625% making it an easier decision.

Next, ask your lender for a 'no closing cost' rate. With a balance of about $350k, the rate should not move much at all, maybe +0.125. If more, the lender is making too much money. Sure this comes with its own breakeven analysis but it changes it from lose/win to win/win more type of analysis.

I second this.  For 30 yr, not worth messing with, plus you just paid a bunch of fees.

I am in a scenario where it just isn't worth it:  $60K balance/15 year at 4.0%, paying off aggressively.  Definitely don't wanna pay any closing costs, but:

1.  Hardly anyone wants to do a $60K mortgage refi, much less one with no closing costs.
2.  If they are, the best rate I found is 3.75% with a couple hundred dollar fee (why bother...?).  Others are 4.0% (same rate).

Laura03

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Re: Should I refinance mortgage?
« Reply #8 on: May 26, 2017, 12:37:13 AM »
When you’re refinancing a mortgage, you are paying off an existing mortgage with the help of a new mortgage. Yes, there are certain benefits of refinancing a mortgage like getting a better interest rate, increasing the tenure of the loan, reducing your payments, increasing the cash flow for other purposes, and so on. I would advise you to talk to your mortgage lender to analyze the situation, and then make a decision.