Author Topic: Should I refinance primary residence @4.625%?  (Read 1521 times)

BiggerFishToFI

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Should I refinance primary residence @4.625%?
« on: February 18, 2019, 01:17:27 PM »
Bought a house (primary residence) last October 2018 with a mortgage of $302,400 at 4.625%, 30yr. P&I is ~$1550/month. Current balance is ~292k. Currently splitting extra $ between a taxable account and the mortgage.

Goal is to have it fully paid off at FIRE in 7-10 years.

Since then interest rates have fallen a bit, and I am considering refinancing to a 15 year note at 3.75% with no points/fees. A new 30 year note is around 4.25%. Looks like a refinance would still cost ~2-3k for a new appraisal and title search / other fees but haven't nailed down that number. Would increase the P&I to $2100 / month.

Does it make sense for me to refinance to the 15 year ASAP? Looks like the breakeven point would be about a year.
« Last Edit: February 18, 2019, 01:28:55 PM by BiggerFishToFI »

Duke03

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Re: Should I refinance primary residence @4.625%?
« Reply #1 on: February 18, 2019, 02:25:33 PM »
If you are interested I have a hard money lender that will do a refi for around $700 in total closing cost.  They won't even require you to use a title company since they in house everything.  They will go up to 11 year term on this promotion.  They are very easy to deal with and will not sell the loan. I've used them twice and paid off two house with them and referred over 8 people that love the deal. Rates the last time I looked are in the 3.5 range.  Might be a tad bit lower.

Duke03

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Re: Should I refinance primary residence @4.625%?
« Reply #2 on: February 18, 2019, 02:28:45 PM »
Just checked 11yrs is 3.7 8yrs is 3.5% and 5 yrs is 3.4%.  Makes my 2.5% I got 4 years ago look really good!!!!

Another Reader

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Re: Should I refinance primary residence @4.625%?
« Reply #3 on: February 18, 2019, 03:19:45 PM »
Just checked 11yrs is 3.7 8yrs is 3.5% and 5 yrs is 3.4%.  Makes my 2.5% I got 4 years ago look really good!!!!

How is a hard money lender lower than a conventional mortgage with a bank?

Jon Bon

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Re: Should I refinance primary residence @4.625%?
« Reply #4 on: February 18, 2019, 04:40:09 PM »
Just checked 11yrs is 3.7 8yrs is 3.5% and 5 yrs is 3.4%.  Makes my 2.5% I got 4 years ago look really good!!!!

How is a hard money lender lower than a conventional mortgage with a bank?

Fair questions @Duke03  that is about what the federal government pays on a 10 year note!


Duke03

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Re: Should I refinance primary residence @4.625%?
« Reply #5 on: February 18, 2019, 06:37:23 PM »
Just checked 11yrs is 3.7 8yrs is 3.5% and 5 yrs is 3.4%.  Makes my 2.5% I got 4 years ago look really good!!!!

How is a hard money lender lower than a conventional mortgage with a bank?

When it's hard money they don't have to follow the feds rules or regulations... If you ever do a deal with a hard money lender it will blow you away at the simplicity of it all.  You literally sign like 4 pieces of paper its basically a car loan type of arrangement.  The lender keeps the loan on their own books and will not sell it so they don't have to make it a conforming loan.  Because of less paper work, less hoops to jump thru, and less eyes all looking to take money out of your pocket it will be much much cheaper. 

Dicey

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Re: Should I refinance primary residence @4.625%?
« Reply #6 on: February 19, 2019, 12:20:42 AM »
Huh. I thought hard money lenders were kind of like payday loans...expensive as hell. What gives? What's in it for them? What's the source of their funding?

Another Reader

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Re: Should I refinance primary residence @4.625%?
« Reply #7 on: February 19, 2019, 06:07:29 AM »
Just checked 11yrs is 3.7 8yrs is 3.5% and 5 yrs is 3.4%.  Makes my 2.5% I got 4 years ago look really good!!!!

How is a hard money lender lower than a conventional mortgage with a bank?

When it's hard money they don't have to follow the feds rules or regulations... If you ever do a deal with a hard money lender it will blow you away at the simplicity of it all.  You literally sign like 4 pieces of paper its basically a car loan type of arrangement.  The lender keeps the loan on their own books and will not sell it so they don't have to make it a conforming loan.  Because of less paper work, less hoops to jump thru, and less eyes all looking to take money out of your pocket it will be much much cheaper.

I have been an investor for well over 20 years and this is the first time I have encountered this claim.  I'm pretty familiar with hard money lenders, although I don't need to use them.  Hard money lenders are not in the business to make 3 or 4 percent on a long term mortgage.  They want to get in and out of flips and other bridge type financing at well above market rates for traditional conforming loans.  I'm skeptical and I encourage anyone else considering pursuing this to be skeptical as well.

shingy

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Re: Should I refinance primary residence @4.625%?
« Reply #8 on: February 19, 2019, 07:42:40 AM »
Just checked 11yrs is 3.7 8yrs is 3.5% and 5 yrs is 3.4%.  Makes my 2.5% I got 4 years ago look really good!!!!

How is a hard money lender lower than a conventional mortgage with a bank?

When it's hard money they don't have to follow the feds rules or regulations... If you ever do a deal with a hard money lender it will blow you away at the simplicity of it all.  You literally sign like 4 pieces of paper its basically a car loan type of arrangement.  The lender keeps the loan on their own books and will not sell it so they don't have to make it a conforming loan.  Because of less paper work, less hoops to jump thru, and less eyes all looking to take money out of your pocket it will be much much cheaper.

I have been an investor for well over 20 years and this is the first time I have encountered this claim.  I'm pretty familiar with hard money lenders, although I don't need to use them.  Hard money lenders are not in the business to make 3 or 4 percent on a long term mortgage.  They want to get in and out of flips and other bridge type financing at well above market rates for traditional conforming loans.  I'm skeptical and I encourage anyone else considering pursuing this to be skeptical as well.

I'd concur with this as well. I used to originate loans for a hard money lender and the focus was exactly what Another Reader described. We charged 1% origination (2% if there was a construction draw) and 15% interest and the max term was 1 year and 60% LTV of the after repaired value.

Jon Bon

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Re: Should I refinance primary residence @4.625%?
« Reply #9 on: February 19, 2019, 11:26:17 AM »
So is this a scam, money laundering or both?

Jon Bon

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Re: Should I refinance primary residence @4.625%?
« Reply #10 on: February 19, 2019, 11:43:44 AM »
Bought a house (primary residence) last October 2018 with a mortgage of $302,400 at 4.625%, 30yr. P&I is ~$1550/month. Current balance is ~292k. Currently splitting extra $ between a taxable account and the mortgage.

Goal is to have it fully paid off at FIRE in 7-10 years.

Since then interest rates have fallen a bit, and I am considering refinancing to a 15 year note at 3.75% with no points/fees. A new 30 year note is around 4.25%. Looks like a refinance would still cost ~2-3k for a new appraisal and title search / other fees but haven't nailed down that number. Would increase the P&I to $2100 / month.

Does it make sense for me to refinance to the 15 year ASAP? Looks like the breakeven point would be about a year.

But back to the point.

I feel like the 15 versus 30 year mortgage question is generally made overly complicated and I think there are 2 points you need to remember.

1. The 'savings' in a 30 versus a 15 year fixed is pretty much irrelevant. With the time value of money for the most part the value of the loan to the bank is the exact same. So all that interest that you have saved yourself by paying off early is discounted to the value of you paying the mortgage off today with today dollars. I am not going to get into the math unless you request it but I am sure you can find a you-tube video explaining this further if you need it.

2. I generally don't like 15 year mortgages because they take away a ton of flexibility. In the "pure finance' way of thinking about #1 the loans are the same. But in the real world when you lose your job and man having to make smaller payments on a 30 year mortgage is much easier then the larger payments on a 15 year.

If you insist on paying it off early. I always like the idea to get a 30 year and just pay extra on it and you have pretty much made yourself a 15 year mortgage just like that.

Wow I just reread your post, you have not even been in the house six months, and your already trying to pay it off? I would at least get to a year or two in the house before you do this.

How old are you, and what is your life situation here? If you are single but could see marriage and kids in the future I would not focus on pay-down, if your pretty well set in your house needs it makes a bit more sense to go for it. IMO putting extra money into your mortgage then required in the payment is essentially burying money into the basement of the house. Sure it might feel nice to have it down there, but its hella hard to get out.

SwordGuy

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Re: Should I refinance primary residence @4.625%?
« Reply #11 on: February 19, 2019, 02:56:34 PM »
I will agree that the paperwork on a cash purchase or a non-bank mortgage is really simple.    So, that much of the claim about the hard money lender is true.

How do I know that?

We've bought 4 houses with a bank mortgage, 6 houses for cash and sold one with a mortgage with us acting as the bank.

I would expect to pay much higher rates from a hard money lender.

It really depends on the motivation of the seller as to what the terms are.   They might know someone who likes to help good people get started in business but wants to get their money back and make a bit of money to cover inflation costs.    You would probably gasp if you learned what terms I'm willing to loan money to the couple who has been helping us renovate houses this last year.   


Telecaster

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Re: Should I refinance primary residence @4.625%?
« Reply #12 on: February 19, 2019, 03:14:26 PM »
I feel like the 15 versus 30 year mortgage question is generally made overly complicated and I think there are 2 points you need to remember.

1. The 'savings' in a 30 versus a 15 year fixed is pretty much irrelevant. With the time value of money for the most part the value of the loan to the bank is the exact same. So all that interest that you have saved yourself by paying off early is discounted to the value of you paying the mortgage off today with today dollars. I am not going to get into the math unless you request it but I am sure you can find a you-tube video explaining this further if you need it.

2. I generally don't like 15 year mortgages because they take away a ton of flexibility. In the "pure finance' way of thinking about #1 the loans are the same. But in the real world when you lose your job and man having to make smaller payments on a 30 year mortgage is much easier then the larger payments on a 15 year.

If you insist on paying it off early. I always like the idea to get a 30 year and just pay extra on it and you have pretty much made yourself a 15 year mortgage just like that.

^ All of this is good advice.   1) in particular is something that most people don't think about or maybe don't even know about, but time value of money is critical when making these kinds of decisions. 

BiggerFishToFI

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Re: Should I refinance primary residence @4.625%?
« Reply #13 on: February 19, 2019, 04:58:38 PM »
Thanks for all the responses. I thought the hard money option sounded a little suspicious. A little more info about my situation:

  • 32, Married, 2nd house we've owned and expect to be in this one a long time.
  • Combined income ~240k
  • No debt other than the house
  • Max out pre-tax accounts + HSA (64k/yr)
  • ~260k in investments, 50k in house equity
  • Not really interested in purchasing more real estate in the immediate future (barring market crash)
  • Have ~5.5k disposable funds to apply toward mortgage or taxable, currently splitting

Dicey

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Re: Should I refinance primary residence @4.625%?
« Reply #14 on: February 19, 2019, 11:17:41 PM »
I feel like the 15 versus 30 year mortgage question is generally made overly complicated and I think there are 2 points you need to remember.

1. The 'savings' in a 30 versus a 15 year fixed is pretty much irrelevant. With the time value of money for the most part the value of the loan to the bank is the exact same. So all that interest that you have saved yourself by paying off early is discounted to the value of you paying the mortgage off today with today dollars. I am not going to get into the math unless you request it but I am sure you can find a you-tube video explaining this further if you need it.

2. I generally don't like 15 year mortgages because they take away a ton of flexibility. In the "pure finance' way of thinking about #1 the loans are the same. But in the real world when you lose your job and man having to make smaller payments on a 30 year mortgage is much easier then the larger payments on a 15 year.

If you insist on paying it off early. I always like the idea to get a 30 year and just pay extra on it and you have pretty much made yourself a 15 year mortgage just like that.

^ All of this is good advice.   1) in particular is something that most people don't think about or maybe don't even know about, but time value of money is critical when making these kinds of decisions.
YupYupYup.

Jon Bon

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Re: Should I refinance primary residence @4.625%?
« Reply #15 on: February 20, 2019, 09:57:11 AM »
Thanks for all the responses. I thought the hard money option sounded a little suspicious. A little more info about my situation:

  • 32, Married, 2nd house we've owned and expect to be in this one a long time.
  • Combined income ~240k
  • No debt other than the house
  • Max out pre-tax accounts + HSA (64k/yr)
  • ~260k in investments, 50k in house equity
  • Not really interested in purchasing more real estate in the immediate future (barring market crash)
  • Have ~5.5k disposable funds to apply toward mortgage or taxable, currently splitting

Sounds like you have plenty of disposable income. So if you really want to do a 15 year because it helps you sleep at night, sure you can afford it easily.   The 15 year becomes and issue when it eats up a large percentage of your monthly cash you dont look to have that problem.

I still think you should invest the difference in other vehicles, but this is approaching personal choice level. You are already maxing out pretax funds your really in great shape either way you decide to go. My only thought is your NW is a bit low for your income. Is the big income new? or is there a whole bunch of consumer spending going on? Again you can afford all this, so its a bit of a moot point. I just wanted to mention it.

MustacheAndaHalf

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Re: Should I refinance primary residence @4.625%?
« Reply #16 on: February 20, 2019, 02:57:05 PM »
@BiggerFishToFI - How much longer do you expect to pay PMI?  Since PMI is profitable, lenders tend to make you jump through some hoops to get rid of it (pay for an assessment, wait for 20% equity to become 25%, etc).  But my suggestion is wait to have 20% equity, and then refinance without PMI.

Also, there's a chance you'll refinance several times, so be mindful of the up front costs.  It may seem like a good deal over 5 years... then rates drop 2 years from now and you're refinancing without much to show for those prior costs.  That may or may not happen - but it's worth keeping in mind.