Author Topic: refinancing 3 month old mortgage?  (Read 641 times)

mitchm

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refinancing 3 month old mortgage?
« on: March 28, 2024, 06:00:18 PM »
Hi all, I am at the very beginning of a 950K mortgage with a 7.5 interest rate (938K left). Based on some quick internet research, it looks with rates having come down I could probably refinance to 6.5% or lower, lowering my monthly payment by $500+/month, and saving hundreds of thousands of dollars worth of interest over the life of the loan.

Seems like a no-brainer, but here is where things get a bit fuzzy for me. There are several options to either pay a larger closing fee for the lowest rate possible, or instead pay a slightly higher rate over the life of the loan with lower/no upfront fees, and thus pay less interest over the life of the new mortgage. 

Under ordinary circumstances, I would suck it up and pay the upfront fees for the lower rate, however it seems highly probable that this will not be the only time I refinance over the next 3-5 years. So, I am wondering about the wisdom of taking the slightly higher refi rate with no upfront costs and then when I refinance for a second time a few years from now, paying the higher upfront costs then to get the lowest possible rate.

Would anyone who has more knowledge/experience with refis be able to check my assumptions here? Am I missing anything or is my logic flawed in some way that I am not seeing? I've attached a screenshot of the refi numbers from aimloan.com in case that is helpful.



August26th

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Re: refinancing 3 month old mortgage?
« Reply #1 on: March 30, 2024, 01:32:11 PM »
If you think rates will come down further in the next year or two, I wouldn’t pay extra in discount points for now. What are the closing costs at the 6.5% rate?

I’d suggest calculating the break-even point, and then deciding if that is a good timeframe for you. For example, if closing costs are $5,000 but you’ll be saving $500 per month, the break-even point is just 10 months which is good. In that scenario, if you keep the loan for more than 10 months, the refi makes sense.

Mr. Green

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Re: refinancing 3 month old mortgage?
« Reply #2 on: March 30, 2024, 03:40:08 PM »
If you think rates will come down, never pay extra to lower the interest rate. If you refinance again, all you did was throw money away. If you don't think they're coming down, it's worth it to buy down the rate.

reeshau

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Re: refinancing 3 month old mortgage?
« Reply #3 on: March 30, 2024, 07:38:16 PM »
Be careful that there are no costs rolled into your balance with these "deals."  Make sure to check whether or not your principle amount stays the same.

i_have_so_much_to_learn

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Re: refinancing 3 month old mortgage?
« Reply #4 on: March 30, 2024, 10:26:22 PM »
you have to weigh how many years it'll take you to recoup your refinance costs. ask for a cost sheet disclosure. if its more than 1, don't do it.

GilesMM

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Re: refinancing 3 month old mortgage?
« Reply #5 on: March 31, 2024, 03:50:57 AM »
Rates are forecast (by the Fed) to fall this year and next year so I would wait and save the refinance costs.


Also, have you considered a 7 or 5 year ARM?

sonofsven

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Re: refinancing 3 month old mortgage?
« Reply #6 on: March 31, 2024, 09:23:54 AM »
I refinanced four times when rates were dropping in '20-'21, never paid points or fees and took a slightly higher rate instead.
Ended up with a 2.75. Could have had 1.95 with around $12k cost, but that would really just be for bragging rights since my balance is only about $200k.

The lower the rate, the less it makes sense to pay for a re-fi, but I don't believe in ever paying fees for a re-fi.
Your refinance appears to have a break even point of over four years. Sure, you could say you plan to live in the house forever and so it's 'worth it", but if rates drop at all or you're forced to sell for any number of unforeseen reasons then you're wasting money.

In my opinion, it's a gamble not worth taking.

Doing a re-fi is so easy now, it's just a paperwork issue. Once you've done one, the next get easier and easier.
In fact, when my computer crapped out I did one exclusively using my smartphone.
If course, it helps that I have way too much home equity.
There was a Bogleheads thread where everyone was sharing their numbers and strategies that I found helpful.
You might look for that and see how actuve it is.

Dicey

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Re: refinancing 3 month old mortgage?
« Reply #7 on: March 31, 2024, 10:42:06 AM »
I agree with SOS. If you keep your re-fi costs to zero or close to zero, there's no harm in becoming a serial refinancer.

We used Aim to re-fi two of our rentals a couple of years ago. They were easy to work with during the re-fi and have been ever since. You still want to chase rates diligently, which is what we did when we ended up with Aim. Just saying that the Aim experience has been surprisingly pleasant.

One note: DH hates impound accounts. Every damn lender, including Aim, charges a fee for the "privilege" of not having one, grrrr. This seems to be a recent-ish development. I suppose they consider non-impound mortgages higher risk, since they don't control your tax payments.

reeshau

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Re: refinancing 3 month old mortgage?
« Reply #8 on: March 31, 2024, 03:02:57 PM »
I suppose they consider non-impound mortgages higher risk, since they don't control your tax payments.

They are a source of non-interest-bearing deposits, with predictable withdrawal patterns.  A valuable kind of deposit to have, so now a realized cost to avoid.

My last mortgage, I insisted on no escrow account.  It also may make the loan non-conforming, so be harder to resell.

mitchm

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Re: refinancing 3 month old mortgage?
« Reply #9 on: April 02, 2024, 01:24:58 PM »
Rates are forecast (by the Fed) to fall this year and next year so I would wait and save the refinance costs.


Also, have you considered a 7 or 5 year ARM?
'

I have not...not really sure how they work and my instinct is to be wary...but others have mentioned I should look at this option as well.

Just to be clear, re: the refinance costs, if I don't buy down the rate on this current refi, I can refi with no fees now and then refi again down the road. So no downside that I can see.

GilesMM

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Re: refinancing 3 month old mortgage?
« Reply #10 on: April 02, 2024, 02:49:59 PM »
Rates are forecast (by the Fed) to fall this year and next year so I would wait and save the refinance costs.


Also, have you considered a 7 or 5 year ARM?
'

I have not...not really sure how they work and my instinct is to be wary...but others have mentioned I should look at this option as well.

Just to be clear, re: the refinance costs, if I don't buy down the rate on this current refi, I can refi with no fees now and then refi again down the road. So no downside that I can see.


There isn't really any such thing as a no-fee refi, strictly speaking. The bank gets their fat fees when you refinance, you just don't have to come up with the cash on the day because they either add them to your loan balance or work them into a slightly higher rate than they would give you otherwise.  Either way, you will be paying those fees monthly as long as you have the loan.

joe189man

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Re: refinancing 3 month old mortgage?
« Reply #11 on: April 02, 2024, 03:16:48 PM »
As others have said above see what the cost of the refi is, and run the numbers,

as an example, lets assume the refi costs around $2,500

and based upon what you said above you can save ~$500 a month in interest if you refi down to 6.5% from 7.5% on your $940k is mortgage

This has an easy payback period of $2500 divided by $500 per month of 5 months then you are in the clear and saving money.

In the past i have done deals where i find the break even between the refinance cost and the points given to me for the refinance. maybe in your case, the mortgage company will give you credits of ~$2000 to take a 6.75% rate leaving you with ~$500 in cash to pay for the refinance but you end up saving $400 a month vs $500 in mortgage payments.

i like this method as its little to no cost and still saves you big time on interest, and if you think rates are going to go down in the future you dont have to worry about the sunk costs of the first refinance.