Author Topic: Which way to go on a refinance?  (Read 4115 times)

hoosierstache

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Which way to go on a refinance?
« on: September 25, 2015, 07:56:18 AM »
Hi all,

I'm looking for some help on my refinance situation.  I have 24k in student loans at 7% that we don't know what to do with (whether to have the bank pay them off and borrow more on the mortgage or use cash to pay off the loan immediately).  We have enough cash to pay off the student loan and keep 10k, but borrowing the full 80% loan amount would allow us to keep all of our cash and invest.  Here is what our payment breakdowns would be if we borrowed 115k (includes student loans, pre tax & insurance):
15yr @ 4.125% - 859.40
20yr @4.5% - 728.80
30yr @ 5% - 618

If we were to borrow 94,500 (pay off loans w/ cash):
15yr - 704.90
20yr - 597.90
30yr - 507.30

Total combined monthly net income: $3800
If you need any more information let me know.  All opinions are welcome. Thank you!

Easye418

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Re: Which way to go on a refinance?
« Reply #1 on: September 25, 2015, 08:03:52 AM »
Hi all,

I'm looking for some help on my refinance situation.  I have 24k in student loans at 7% that we don't know what to do with (whether to have the bank pay them off and borrow more on the mortgage or use cash to pay off the loan immediately).  We have enough cash to pay off the student loan and keep 10k, but borrowing the full 80% loan amount would allow us to keep all of our cash and invest.  Here is what our payment breakdowns would be if we borrowed 115k (includes student loans, pre tax & insurance):
15yr @ 4.125% - 859.40
20yr @4.5% - 728.80
30yr @ 5% - 618

If we were to borrow 94,500 (pay off loans w/ cash):
15yr - 704.90
20yr - 597.90
30yr - 507.30

Total combined monthly net income: $3800
If you need any more information let me know.  All opinions are welcome. Thank you!

Why don't you take a 15,20,30 year VARIABLE loan?  You could get a 20 year for 2.6%, thats nearly a 5% hedge.

jda1984

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Re: Which way to go on a refinance?
« Reply #2 on: September 25, 2015, 08:25:35 AM »
I'd roll the student loans into the house payment if you're not taking a hit via PMI or something.  I'd save the cash or invest it and use springy debt as an emergency fund.

hoosierstache

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Re: Which way to go on a refinance?
« Reply #3 on: September 25, 2015, 09:03:01 AM »
We are actually refinancing to get rid of PMI.  Borrowing the 115k on a 15yr would be very similar to what my current house payment + student loan payment is, except now more money would be going to mortgage principal, which would be nice.  It just wouldn't allow us to save/invest nearly as much on a monthly basis.  I personally feel as though the cash needs to be put to use in a Roth IRA for each of us followed by opening a Vanguard account...but I'm very new to this way of thinking and need some guidance!  Always have been a saver, but as far as what to pay off first, how to invest and where, etc. has been challenging.

frugaliknowit

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Re: Which way to go on a refinance?
« Reply #4 on: September 25, 2015, 09:22:59 AM »
What is the interest rate on your current mortgage?

DaveR

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Re: Which way to go on a refinance?
« Reply #5 on: September 25, 2015, 09:31:58 AM »
SL: $24k @ 7%
Pay it off in cash right now: guaranteed 7% return.
Invest that $24k... return unknown, but are you 100% confident that you can get 7% in the markets?

If you're really worried about it, the refi will be under 80% LTV so you can get a HELOC at some point in the future.

hoosierstache

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Re: Which way to go on a refinance?
« Reply #6 on: September 25, 2015, 10:16:52 AM »
Current mortgage rate is 4.625%

The problem is that we're 26 and 24 and have our cash and around $5k in 403(b)s as our only saving/investment.  So I feel like that it is more important to get a couple of Roth IRAs and some mutual funds going? Or is the guaranteed 7% return on cash best?

DaveR

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Re: Which way to go on a refinance?
« Reply #7 on: September 25, 2015, 01:34:41 PM »
Pay off the student loans. You'll still have 10k cash (a solid emergency fund) and the potential to tap your home equity if really, really, really needed. The refi and student loan payoff will reduce your monthly payments--more cash flow for investing instead of interest payments.

Lady Fordragon

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Re: Which way to go on a refinance?
« Reply #8 on: September 25, 2015, 02:27:51 PM »
Definitely pay off student loans.

TomTX

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Re: Which way to go on a refinance?
« Reply #9 on: September 26, 2015, 09:02:13 AM »
Pay off the student loans.

Look for some better loan options. Those seem high. I can get 30 year @ 3.85%, paying no points at my credit union.

Admittedly I have stellar credit (down to 825/850 since I am doing some credit card churn. MrsTX is at 850/850.)

hoosierstache

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Re: Which way to go on a refinance?
« Reply #10 on: September 27, 2015, 12:40:36 PM »
Thanks all for the replies!  We'll be doing some shopping around on the rates this week.  I am now leaning toward paying off the SL right away due to the guaranteed 7% return and lower monthly payments on the house. 

TomTX

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Re: Which way to go on a refinance?
« Reply #11 on: September 28, 2015, 07:16:12 PM »
Correction: My CU is now 30 years @ 3.75%, no points.

hoosierstache

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Re: Which way to go on a refinance?
« Reply #12 on: October 06, 2015, 11:12:50 AM »
Did some shopping around and got it down to 2 banks:

Bank 1: 3.25% @ 15 yrs, fees "around" $1200
Bank 2: 3.125% @ 15 yrs, fees are $499

Which would you go with?  Seems like a no-brainer, right? 

Bank 1 is my local credit union, where I have my checking/savings, whereas I have no connection to bank 2 other than my uncle has his mortgage through them.  Is bank loyalty a factor in decision making? Or is going with bank 2  no-brainer like it seems?

Sibley

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Re: Which way to go on a refinance?
« Reply #13 on: October 06, 2015, 12:20:07 PM »
Go with the better deal. If your bank wants you, they'll match it.

DaveR

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Re: Which way to go on a refinance?
« Reply #14 on: October 06, 2015, 12:54:49 PM »
Go with the better deal. If your bank wants you, they'll match it.

I agree--don't be afraid to negotiate. See if you can get those fees to "around" $0. I'm not sure of the rates are their published rates or actual rates you got when speaking with them. I bank a couple of different places. A Big Bank offers me $500 off closing costs and a 0.125% rate discount for being a "preferred" customer. And I think they have a 0.1% rate discount if I set up mortgage auto-pay out of checking. Point is, their published rate isn't what I would actually pay for a refi.

hoosierstache

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Re: Which way to go on a refinance?
« Reply #15 on: October 06, 2015, 04:58:41 PM »
Both of those rates are ones I was quoted when speaking with a representative and were put on an application.  I am going to escrow, so bank 2 wants an additional $899 up front for escrow, whereas i'm sure bank 1 is around that for escrow as well.  makes bank 1 seem like the front runner.  Might start the process with them tomorrow. When I called bank 1 they said they couldn't do any better than their original rates & fees.