Author Topic: Should I even bother looking at a refi?  (Read 6195 times)

Timmmy

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Should I even bother looking at a refi?
« on: July 16, 2014, 08:14:29 AM »
I have a extremely high mortgage rate and I keep thinking I should refi but I'm not sure it's worth it due to a very small balance.  Here's the details.

Current balance is about 33K
Interest rate is 6.875% (Yikes!)
That brings the P&I payment to about $240
It was a zero down loan so I have PMI of $16

The house was a foreclosure when I bought it and the value is up some so I assume I could shed the PMI if I refi.

DW and I earn a combined income of just a hair over 100K.  We have great credit and no debt other than this and a mortgage on another property so I assume we'll have no problem qualifying.

But.....  I'm tempted to just pay it off entirely over the next year or so.  It's in a great area for a rental.  Current rents in this neighborhood for similar size house are 750-800 and climbing.  We are looking to move in the next 3-5 years to be closer to her work and we would likely keep this as a rental either way.  We can easily pump $2k+ at the balance each month.

I have had casual conversations with a few different people about a refi and it seems that nobody will do a refi with no out of pocket on a balance this small. 

Suggestions?  Am I missing something? 

dude

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Re: Should I even bother looking at a refi?
« Reply #1 on: July 16, 2014, 08:21:07 AM »
How much equity do you have in the house?  Would it be possible to get a HELOC for less than your current mortgage interest rate and use it to pay off the mortgage?

hybrid

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Re: Should I even bother looking at a refi?
« Reply #2 on: July 16, 2014, 08:22:58 AM »
Most refis come with substantial costs, and at this low number I doubt a refill will save you much in the grand scheme of things. Pay it down faster is my recommendation. Just think of it as a car loan. You'd pay off a car loan in a short amount of time, so treat this property the same way.

Oh, and my first house came with a 10.5% rate in 1989. Under 7 isn't pleasant, but it isn't highway robbery either. Under 7 will be the norm again one of these days.

dude

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Re: Should I even bother looking at a refi?
« Reply #3 on: July 16, 2014, 08:24:59 AM »
Here's info on using a HELOC to pay off mortgage balance:

http://www.citizensbank.com/home-equity/pay-off-mortgage-with-heloc.aspx

Also, Bankrate shows rates as low as 3.91% for a $100k HELOC for top-tier customers.

Timmmy

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Re: Should I even bother looking at a refi?
« Reply #4 on: July 16, 2014, 08:35:49 AM »
Not enough equity to pay off with a HELOC.  Probably worth 50-60K.

If there is one thing I don't like doing, it's dealing with bankers.  Hence the reason I've never had a serious convo about this with them.  I WOULD rather watch paint dry. 

So just suck it up and pay it off?  That's what I was thinking. 

frugaliknowit

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Re: Should I even bother looking at a refi?
« Reply #5 on: July 16, 2014, 08:36:52 AM »
Unless you are talking about "cash out" in order to rehab or invest the money elsewhere (better know what you are doing):

Closing costs as a percentage of the balance would be ridiculous.  Find a better way to spend your time and money (do you like feeding banks?).  Pay it off and earn close to 7% pre-tax and risk free!!

dude

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Re: Should I even bother looking at a refi?
« Reply #6 on: July 16, 2014, 08:58:21 AM »
Not enough equity to pay off with a HELOC.  Probably worth 50-60K.

If there is one thing I don't like doing, it's dealing with bankers.  Hence the reason I've never had a serious convo about this with them.  I WOULD rather watch paint dry. 

So just suck it up and pay it off?  That's what I was thinking.

$50-$60K?  If that's true, why the heck would anyone pay $750-$800 for rents in that area when they could own the place for less than $500?

Timmmy

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Re: Should I even bother looking at a refi?
« Reply #7 on: July 16, 2014, 09:07:36 AM »
Not enough equity to pay off with a HELOC.  Probably worth 50-60K.

If there is one thing I don't like doing, it's dealing with bankers.  Hence the reason I've never had a serious convo about this with them.  I WOULD rather watch paint dry. 

So just suck it up and pay it off?  That's what I was thinking.

$50-$60K?  If that's true, why the heck would anyone pay $750-$800 for rents in that area when they could own the place for less than $500?

Also property taxes are about $100 per month.

This area is funny like that.  Lots of people who are no-go's for a mortgage. 

usmarine1975

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Re: Should I even bother looking at a refi?
« Reply #8 on: July 16, 2014, 09:08:43 AM »
Just a thought, contact your current mortgage company and see if they would look at Refi without closing cost.  My initial thought is that they will not but it never hurts to ask.  I have on some of mine and for 2 of them it worked.  Granted my balances were not as low.

JCfire

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Re: Should I even bother looking at a refi?
« Reply #9 on: July 16, 2014, 09:15:09 AM »
Not enough equity to pay off with a HELOC.  Probably worth 50-60K.

If there is one thing I don't like doing, it's dealing with bankers.  Hence the reason I've never had a serious convo about this with them.  I WOULD rather watch paint dry. 

So just suck it up and pay it off?  That's what I was thinking.

Yes, just suck it up and pay it off.  Great savings goal and with your income you should be done with it pretty soon.

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Re: Should I even bother looking at a refi?
« Reply #10 on: July 16, 2014, 09:23:50 AM »
Even at a value of $50k, $33k is a 66 percent loan to value.  I'll bet you could get a HELOC for that at around 4 percent that's fixed for 3 to 5 years with no closing costs.  Just explain that you want to replace the mortgage with a HELOC.  The escrow will be set up to pay off the mortgage balance.  Then pay the HELOC off over the fixed term.

Frugally-raised

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Re: Should I even bother looking at a refi?
« Reply #11 on: July 16, 2014, 09:56:12 AM »
You may dislike dealing with banks, but it's worth a single phone call to the bank that holds the current mortgage. Assuming you've been a good customer (no late payments), they should be more willing to deal with you.

Explain that with mortgage rates so low, you'd like to refinance the loan—otherwise, you're considering simply paying it off entirely.

I had a similar situation, except the value of my house had dropped so much that I was underwater. (I was shocked by this, as my house is quite modest. But our area was hit hard by the sleazy mortgage merchants, and all the foreclosures have cut property values in half.) Most of the banks I called would not even consider talking to me. It was frustrating.

When I was able to talk to someone at my mortgage bank, a different conversation happened once I said that if I wasn't able to refinance, I would probably pay off the loan entirely. I don't know if it was the threat or the fact that I had ready money, but all of a sudden they were more creative.

In a month I had refinanced at the lowest rate around. I took a shorter mortgage than the original (I had 17 years left on the original mortgage) and closing costs were minimal. The biggest cost was the appraisal.

For those of us who don't fit the typical financial profile (self-employed, financially independent, etc.) it's important to have a good relationship with a bank. Made all the difference in this case. (Of course, I got lucky when I originally applied for the loan, as we were in the wild years of "no dox" loans. Crazy times, but it made my life a lot easier!)

brewer12345

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Re: Should I even bother looking at a refi?
« Reply #12 on: July 16, 2014, 09:57:56 AM »
Even at a value of $50k, $33k is a 66 percent loan to value.  I'll bet you could get a HELOC for that at around 4 percent that's fixed for 3 to 5 years with no closing costs.  Just explain that you want to replace the mortgage with a HELOC.  The escrow will be set up to pay off the mortgage balance.  Then pay the HELOC off over the fixed term.

66% LTV on a heloc or even a closed end home equity loan would be a no-brainer.  Virtually every bank and credit union will do that at no closing costs and your rate would likely be 4% or below.

FrugalZony

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Re: Should I even bother looking at a refi?
« Reply #13 on: July 16, 2014, 10:45:40 AM »
Well, if you can pay it off within a short time frame, I would take the guaranteed rate of return of 6.875 and just do it
Refi would probably cost you a bunch of money, that in relation to the balance would be totally out of proportion, plus you'd have to deal with bankers ;)

If for some reason, you prefer to keep the balance, if the interest were lower, I would try to negotiate a no fee refinance as someone suggested
It has worked for me once, but with a much higher balance. It does not hurt to ask, but then you'd have to deal with bankers ;)

Good luck!

Btw sounds like you got a killer deal on a future rental!

waltworks

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Re: Should I even bother looking at a refi?
« Reply #14 on: July 16, 2014, 11:16:22 AM »
At your income level, it's not worth the hassle of refinancing. Just pay it off and be done with it.

-W

Cinder

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Re: Should I even bother looking at a refi?
« Reply #15 on: July 16, 2014, 01:58:07 PM »

$50-$60K?  If that's true, why the heck would anyone pay $750-$800 for rents in that area when they could own the place for less than $500?

Also property taxes are about $100 per month.

This area is funny like that.  Lots of people who are no-go's for a mortgage.

I have a coworker who was talking about something similar.  He is in an area where houses go for 50~80k, but no one can get a mortgage (terrible credit, etc).  There are renters in abundance but not many people who either have the cash to buy or can get qualified.  If he had the extra laying around he'd pick a house that's currently on the market and become a landlord (I haven't quite gotten him and his family onto the MMM bandwagon yet)

FrugalZony

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Re: Should I even bother looking at a refi?
« Reply #16 on: July 17, 2014, 01:17:26 PM »

$50-$60K?  If that's true, why the heck would anyone pay $750-$800 for rents in that area when they could own the place for less than $500?

Also property taxes are about $100 per month.

This area is funny like that.  Lots of people who are no-go's for a mortgage.

I have a coworker who was talking about something similar.  He is in an area where houses go for 50~80k, but no one can get a mortgage (terrible credit, etc).  There are renters in abundance but not many people who either have the cash to buy or can get qualified.  If he had the extra laying around he'd pick a house that's currently on the market and become a landlord (I haven't quite gotten him and his family onto the MMM bandwagon yet)

Wow, where are those places? If they don't have the money but know of these deals, let us MMM folks know, LOL!!
I am sure there's lots of people interested in this ;)

Cinder

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Re: Should I even bother looking at a refi?
« Reply #17 on: July 21, 2014, 07:42:35 AM »
Middle of nowhere PA, also known as Pennsyltucky.   Depressed local economy, lots of people on public assistance, about an hour in any direction away from anything.

JoyBlogette

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Re: Should I even bother looking at a refi?
« Reply #18 on: July 21, 2014, 08:13:07 AM »
At your income level, it's not worth the hassle of refinancing. Just pay it off and be done with it.
+1

frugalnacho

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Re: Should I even bother looking at a refi?
« Reply #19 on: July 21, 2014, 10:45:41 AM »
Not enough equity to pay off with a HELOC.  Probably worth 50-60K.

If there is one thing I don't like doing, it's dealing with bankers.  Hence the reason I've never had a serious convo about this with them.  I WOULD rather watch paint dry. 

So just suck it up and pay it off?  That's what I was thinking.

$50-$60K?  If that's true, why the heck would anyone pay $750-$800 for rents in that area when they could own the place for less than $500?

I live in the same area as the op.   I saw (and still do) a lot of debate on the internet about buying vs renting, and for this area it's an absolute no brainer imo.  When I bought my house (2009) it was 1300 sq ft, 3 bed/2 bath, basement, and a garage and my mortgage payment was under $700 including taxes and insurance.  For the same price I could get a tiny one bedroom apartment.  Never made sense to me why someone would rent in this area unless you knew you were gonna be here for less than a couple years.  I guess if you hate maintaining a lawn and having privacy you might also want to rent.

frugalnacho

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Re: Should I even bother looking at a refi?
« Reply #20 on: July 21, 2014, 10:48:55 AM »
Oh and to the op: Just pay it off.  No one is even going to want to refinance you because it's such a small loan, and if they do you aren't going to get the best rates anyway.   I just recently checked into it with a 46k mortgage balance.  With only 33k in mortgage and 100k+ in income I assume you will be paying it off way ahead of schedule anyway meaning the savings from a reduction in APR will be minimal anyway.