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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: tannybrown on April 04, 2012, 10:16:14 AM

Title: Refi or not to refi?
Post by: tannybrown on April 04, 2012, 10:16:14 AM
MMM's post today made me wonder if we should refi or not.  I wanted to leverage the expertise of these forums, as you all know a lot about home ownership and this is our first home.  Here are the basics:

-$71k still owed on a 15 year fixed at 4.25% (home purchased in Sept 2010)
-Paying an extra $2800 towards principle every month
-Scheduled to have mortgage paid off by 1/1/2014

My gut says that we're on an aggressive enough payment schedule that a refi doesn't make sense.  But if it's a truly no cost refi (minus the appraisal), should we still try to make it happen?

If yes, then can anyone recommend a lender with whom we can get a true no-cost refi?
Title: Re: Refi or not to refi?
Post by: Able was I ERE on April 04, 2012, 11:54:16 AM
Given your timeline and low balance, you should look into home equity loans and lines of credit. Rates are often lower, and closing costs are lower or non-existent.

I'm in a similar position with ~2 years left on a mortgage, and I'm about to refinance
at 1.99% with a 5-year HEL at Pentagon Federal Credit Union, no closing costs (unless I pay it all off within 2 years, but I'd just stretch out the last few payments.)
http://www.fatwallet.com/forums/finance/1179515/

 
Title: Re: Refi or not to refi?
Post by: arebelspy on April 04, 2012, 12:22:44 PM
Seems like the Penfed 5 year mortgage at 1.99% (fixed rate) would be perfect for you.

https://www.penfed.org/home-equity-loan/

More discussion here: http://www.early-retirement.org/forums/f28/super-low-5-year-mortgage-rate-at-penfed-1-99-a-60710.html

Title: Re: Refi or not to refi?
Post by: tannybrown on April 05, 2012, 12:45:34 PM
That's some great information -- thanks Able and arebelspy. 

As my current mortgage balance is a bit of a moving target ($71k today but roughly $67.5k next month), should we try to get the new loan to equal our mortgage balance 30 or 60 days from now (to cover any processing time for the Penfed loan)?
Title: Re: Refi or not to refi?
Post by: velocistar237 on April 05, 2012, 01:53:32 PM
Try this calculator:
http://www.mtgprofessor.com/calculators/Calculator3a.html
though it seems to be broken for me...

Because you're on such an aggressive schedule, closing costs might make refinancing not worth it. You're not going to build up that much interest in such a short amount of time. Between 4.5% and 2%, if you're on a 5 year schedule, it will probably be worth it. If you're on a shorter schedule, then maybe not.

If you do go ahead with it, how about just pay the scheduled amount until the process is over. Use the extra payment amount to cover closing costs. Otherwise, you'll have to wrap closing costs into the loan, which would be equivalent. That's just my opinion; ask the mortgage agent what they want you to do.
Title: Re: Refi or not to refi?
Post by: tannybrown on April 05, 2012, 02:08:42 PM
The real advantage is that there are no closing costs as long as you take 2 years + to pay off the loan.  The delta is that we are scheduled to pay off our current mortgage in about 20 months, so we'd have to slow down our payment schedule with this new loan.

And, one wrinkle: we have only about $51k in equity (according to zillow), so that's the max amount we can borrow...and there'd be two different loans ($51k new, $20k old) & two required payments (approx $1200 on new, $911 old) for a period of time. 

I'll have to run a CBA to see what kind of savings we'd have, and whether it's worth hassle and the added risk of two payments (e.g. - harder to manage in a job loss situation).  I'll run the numbers tonight and report back -- but thanks again for that resource.  I think it's a fantastic option to consider.
Title: Re: Refi or not to refi?
Post by: velocistar237 on April 05, 2012, 03:10:51 PM
You got me thinking about the Pen Fed loan. I ran some numbers, and whether I refinance my whole mortgage or only part to 5 years, I lose out if my investments beat ~4.5%. If I were within 5 years of paying off the mortgage, it would obviously be a different matter. As it is, I'm already losing out by paying it off in 15 years instead of 30 if my investments beat 6.5%.

Well, at least I got to be excited for a few minutes.
Title: Re: Refi or not to refi?
Post by: Able was I ERE on April 05, 2012, 03:51:46 PM
And, one wrinkle: we have only about $51k in equity (according to zillow), so that's the max amount we can borrow...and there'd be two different loans ($51k new, $20k old) & two required payments (approx $1200 on new, $911 old) for a period of time. 

Why two loans?  Wouldn't you be paying off your current mortgage with the new one, thus keeping the current loan-to-value and equity the same? 
Title: Re: Refi or not to refi?
Post by: tannybrown on April 05, 2012, 04:37:09 PM
I called Penfed to ask details, and you can only borrow up to the amount of your equity.  So, if I assume zillow is correct and our home is worth $122k, and we only owe $71k, we can only borrow the equity: $51k, not quite enough to pay off the original mortgage.  So, at least for a bit (however long it took to pay off the remaining $20k mortgage), we'd have two loans.
Title: Re: Refi or not to refi?
Post by: AJ on April 05, 2012, 05:10:38 PM
I called Penfed to ask details, and you can only borrow up to the amount of your equity.  So, if I assume zillow is correct and our home is worth $122k, and we only owe $71k, we can only borrow the equity: $51k, not quite enough to pay off the original mortgage.  So, at least for a bit (however long it took to pay off the remaining $20k mortgage), we'd have two loans.

That's not true, I guarantee. The rep doesn't know what they're talking about, or was confused about what you were asking. Let them know you want to pay off your first mortgage with the new equity loan. I have worked with PenFed extensively. Sometimes you get good reps, sometimes they don't have a clue. If you don't want to bother calling again, you can apply online. There is a space right on the application for other loans on the property, and asks if you are paying it off with this loan.
Title: Re: Refi or not to refi?
Post by: arebelspy on April 05, 2012, 06:31:47 PM
I called Penfed to ask details, and you can only borrow up to the amount of your equity.  So, if I assume zillow is correct and our home is worth $122k, and we only owe $71k, we can only borrow the equity: $51k, not quite enough to pay off the original mortgage.  So, at least for a bit (however long it took to pay off the remaining $20k mortgage), we'd have two loans.

That's not true, I guarantee. The rep doesn't know what they're talking about, or was confused about what you were asking. Let them know you want to pay off your first mortgage with the new equity loan. I have worked with PenFed extensively. Sometimes you get good reps, sometimes they don't have a clue. If you don't want to bother calling again, you can apply online. There is a space right on the application for other loans on the property, and asks if you are paying it off with this loan.

Not necessarily; I believe this is a HELOC.
Title: Re: Refi or not to refi?
Post by: Able was I ERE on April 05, 2012, 08:33:43 PM
I called Penfed to ask details, and you can only borrow up to the amount of your equity.  So, if I assume zillow is correct and our home is worth $122k, and we only owe $71k, we can only borrow the equity: $51k, not quite enough to pay off the original mortgage.  So, at least for a bit (however long it took to pay off the remaining $20k mortgage), we'd have two loans.

That's not true, I guarantee. The rep doesn't know what they're talking about, or was confused about what you were asking. Let them know you want to pay off your first mortgage with the new equity loan. I have worked with PenFed extensively. Sometimes you get good reps, sometimes they don't have a clue. If you don't want to bother calling again, you can apply online. There is a space right on the application for other loans on the property, and asks if you are paying it off with this loan.

Exactly.  Using a HEL to pay off all of a first mortgage is unusual, so the rep probably misunderstood.

I just went through the online application, and each loan entry has a "pay off?" check box.  The online form clearly indicates how much you can borrow, and the amount changes based on the "pay off" check boxes.

For you, with a $122k value, you can borrow up to 80%, or $97.6k.  Since your loan is below 60% ($73.2k), you won't have to pay for an appraisal unless their automated valuation system can't determine a value.
Title: Re: Refi or not to refi?
Post by: Able was I ERE on April 05, 2012, 08:57:52 PM
You got me thinking about the Pen Fed loan. I ran some numbers, and whether I refinance my whole mortgage or only part to 5 years, I lose out if my investments beat ~4.5%. If I were within 5 years of paying off the mortgage, it would obviously be a different matter. As it is, I'm already losing out by paying it off in 15 years instead of 30 if my investments beat 6.5%.

Well, at least I got to be excited for a few minutes.

Glad to cause some excitement in the velocistar household, if only for a few minutes. (-:

FYI--for anyone who doesn't want to"lock away" too much money in their mortgage payoff.  Here's an interesting alternative to consider.  (If the PenFed deal hadn't come along, I probably would have done this instead.)

Hanscom FCU offers a variable rate HELOC (2.75%/prime-1/2% currently) that allows fixed rate, fixed term withdrawals against the same "pool" of money.  You could take out a 5-year, 3.0% rate withdrawal, and as you pay back the fixed term amount, that same amount becomes available again for withdrawal from the HELOC.

https://www.hfcu.org/personal/loans/home_equity_lines_and_loans.html

Digital FCU ( http://dcu.org/ ) has a similar product, but currently has higher interest rates.
Title: Re: Refi or not to refi?
Post by: tannybrown on April 06, 2012, 09:13:29 AM
So I ran the numbers and it looks like the new loan will save us approx $1700 in interest (about $3000 in interest under current prepayment plan, about $1300 w/Penfed).  Nothing earth shattering but worth pursuing.  The only 'downer' is that we'll have to wait a bit longer to actually be fully debt free -- a small price to pay for that kind of savings.  Thanks again for the info!
Title: Re: Refi or not to refi?
Post by: AJ on April 06, 2012, 11:21:17 AM
Not necessarily; I believe this is a HELOC.

It's not, it's a fixed equity loan. https://www.penfed.org/Home-Equity-Loans-Overview/

Even if it was, you can still refi a mortgage into an ELOC, same process as for fixed HEL.
Title: Re: Refi or not to refi?
Post by: Able was I ERE on April 09, 2012, 08:14:23 PM
The only 'downer' is that we'll have to wait a bit longer to actually be fully debt free -- a small price to pay for that kind of savings. 

According to http://www.dhanson.net/nbls.htm (http://www.dhanson.net/nbls.htm), since this is a simple interest loan, you could: almost pay off the loan by making payments in advance (pushing the next payment due date into the future past the 2-year mark), and only pay interest on the negligible outstanding principal balance for the rest of the 2-years.