Mortgage Re-fi question

[Chief Dick]

We have a 26 years left on a 30 year note. Interest rate is 6.125%.

 

Mortgage is through Wells Fargo, and their re-fi rate is 5% for 30 years. We will more than likely be in this house at least 20 more years. New payment would be about $100-$125 less than now.

 

Does it make sense to re-fi? I assume it does, but I am not an expert in this area. My only concern is I'm adding 4 more years BACK into my mortgage, and I give up about $4000 in equity to make this happen. The realistic plan would be to continue paying what we are paying now even with the lower required payment so we can pay it off a little quicker.

 

What say you?

[muck]

We have a 26 years left on a 30 year note. Interest rate is 6.125%.

 

Mortgage is through Wells Fargo, and their re-fi rate is 5% for 30 years. We will more than likely be in this house at least 20 more years. New payment would be about $100-$125 less than now.

 

Does it make sense to re-fi? I assume it does, but I am not an expert in this area. My only concern is I'm adding 4 more years BACK into my mortgage, and I give up about $4000 in equity to make this happen. The realistic plan would be to continue paying what we are paying now even with the lower required payment so we can pay it off a little quicker.

 

What say you?

 

Cost = $4000

Savings = $100 / mo

 

...payback = 40 months...

 

So, if you're staying in the house more than 40 months, you'll come out ahead...and, if you keep paying in what you've been paying in, you'll have it paid off in less than 26yrs.

[Big Country]

what muck said.

[Ursa Majoris]

what muck said.

+1

[Choppy]

I'd check with them again. I too am with Wells Fargo and just re-fi'd a few weeks ago. Took my interest rate from 7.25% to 5.125% and had no closing costs or equity loss. I plan to do as Muck suggested and continue making my original payment amount and pay it off in aprox. 18 years.

[rocknrobn26]

What Muck said, plus the old rule of thumb was at least 1% drop in the rate to make it viable.

[MrTed46]

We have a 26 years left on a 30 year note. Interest rate is 6.125%.

 

Mortgage is through Wells Fargo, and their re-fi rate is 5% for 30 years. We will more than likely be in this house at least 20 more years. New payment would be about $100-$125 less than now.

 

Does it make sense to re-fi? I assume it does, but I am not an expert in this area. My only concern is I'm adding 4 more years BACK into my mortgage, and I give up about $4000 in equity to make this happen. The realistic plan would be to continue paying what we are paying now even with the lower required payment so we can pay it off a little quicker.

 

What say you?

 

Yes, it is worth it to do the re-fi. I don't understand what you mean when you say you will lose 4k in equity? Also, what are your costs for re-financing?

 

another thing to consider, shop around. I don't know in your area, but here in NYC, I am locking into a rate at 4.875%. Maybe you can shop around for a lower rate (not by much but why not?).

[Sox]

I owed 24 years 1 month at 6.00% on my home loan,and 13 years at 9.5% on my home equity loan.

 

I just closed this morning on a refinance.15 years at 4.5%.Combined em' both.My payment goes up $70 total and everything is now paid off in 15 years.It will save me $119,000 over the old loans.

[KnightsOfKnee]

You should also check on a 15 year. While the payment will go up, you may be surprised at how relatively (compared to trimming half your loan life) little it would go up.

 

Fyi, rates on 10 year are down to 4.25-4.75% depending on your location.

 

30 year loans are a ripoff. Eat Ramen for a few years and be rewarded with 6 figures when it's all over.

 

 

ETA: when i re-fi'd my 30 year, with 28 left, down to 15 my payment increased by about 30%.

My wife and i just smile when we realize we only have 10 more years of Wells Fargo checks. Sounds a lot better than 23 years.

Edited April 24, 2009 by KnightsOfKnee

[Big Country]

You should also check on a 15 year. While the payment will go up, you may be surprised at how relatively (compared to trimming half your loan life) little it would go up.

 

Fyi, rates on 10 year are down to 4.25-4.75% depending on your location.

 

30 year loans are a ripoff. Eat Ramen for a few years and be rewarded with 6 figures when it's all over.

 

 

ETA: when i re-fi'd my 30 year, with 28 left, down to 15 my payment increased by about 30%.

My wife and i just smile when we realize we only have 10 more years of Wells Fargo checks. Sounds a lot better than 23 years.

 

Don't have time to run full comparisons at the moment, but what about getting the 30-year loan but paying off a higher amount each month, such as the equivalent amount of what the payment on a 15-year loan would be. My thoughts are, especially in these uncertain times with jobs etc., this would allow you to still pay down the debt quicker, but, in the event of a lost job or lean financial times, you do have a lower obligation that may be more manageable for a period of time if need be.

[Riffraff]

Never refinanced before. How quick of a turn around is the closing?

[KnightsOfKnee]

Don't have time to run full comparisons at the moment, but what about getting the 30-year loan but paying off a higher amount each month, such as the equivalent amount of what the payment on a 15-year loan would be. My thoughts are, especially in these uncertain times with jobs etc., this would allow you to still pay down the debt quicker, but, in the event of a lost job or lean financial times, you do have a lower obligation that may be more manageable for a period of time if need be.

 

Absolutely agree, this works as well. I just don't have that kind of self-discipline.

I believe very few people do.

[irish]

I owed 24 years 1 month at 6.00% on my home loan,and 13 years at 9.5% on my home equity loan.

 

I just closed this morning on a refinance.15 years at 4.5%.Combined em' both.My payment goes up $70 total and everything is now paid off in 15 years.It will save me $119,000 over the old loans.

 

That's fantastic! I just re-fied recently and locked in at 4.625% but it's on a 30 year. Thankfully I have no other debt.

[Ursa Majoris]

I don't understand what you mean when you say you will lose 4k in equity? Also, what are your costs for re-financing?

I think the $4k loss of equity IS the cost of closing.

[MrTed46]

I think the $4k loss of equity IS the cost of closing.

 

Ah, I see. Then it is def. worth it.

[Chief Dick]

I think the $4k loss of equity IS the cost of closing.

 

Exactly.

 

And I probably don't want to go 15 years on this note. I would rather, at this point, lower my monthly payment. We would pay the extra 9 months out of the year (when business is moving), and be able to save a little the other 3 months. (when business slows down over the winter)

[Jackass]

Exactly.

 

And I probably don't want to go 15 years on this note. I would rather, at this point, lower my monthly payment. We would pay the extra 9 months out of the year (when business is moving), and be able to save a little the other 3 months. (when business slows down over the winter)

 

That sounds high for closing costs. It may be different for me b/c i live in a big city but i found a mortgage broker could either lower closing costs or get a better rate - you may just want to make a couple calls to check out some other options.

[matt770]

Is there still a requirement to pay mortgage insurance until you have 20% equity?

[irish]

Is there still a requirement to pay mortgage insurance until you have 20% equity?

 

I don't know a whole bunch about mortgages but supposedly you need PMI (personal mortgage insurance) if you mortgage and cash out totals more than 80% of the value of your home.

Edited April 25, 2009 by irish

[Chief Dick]

That sounds high for closing costs. It may be different for me b/c i live in a big city but i found a mortgage broker could either lower closing costs or get a better rate - you may just want to make a couple calls to check out some other options.

 

I thought so too, as my wife was the one who made the initial call. I'll have to clarify that before we pull the trigger.

[Chief Dick]

Is there still a requirement to pay mortgage insurance until you have 20% equity?

 

Unfortunately, yes. As we bought the house 4 years ago with nothing down, we would still have to pay this.

[detlef]

30 year loans are a ripoff. Eat Ramen for a few years and be rewarded with 6 figures when it's all over.

In general, that is simply not true. In nearly any economic period, you can do better with your money than 5%, so you should borrow as much money at that rate as you can and put off paying it back for as long as humanly possible. Then, take whatever money you were planning on paying against that 5% loan and invest it in vehicles that earn better. If it looks like real estate is out performing the market, you push it against your loan and buy equity. Typically the market is doing better, so you push it there. If you're strapped for cash for a short stretch, you don't have to worry about making a huge payment.

 

I understand the mentality, especially when you look at that fat amount of money you save in interest. However, provided you don't just blow that money, you're bound to do better in a 30 year because the only disadvantage is the fact that your interest rate is marginally higher.

 

Regardless, I used to work for one of the wealthiest people in this country and was buying my first house during that time. He told me to not even think about a 15 year. Take the 30 and wish you could get a 50 instead. Especially when the rates are as low as they are.

Edited April 25, 2009 by detlef

[Ursa Majoris]

In general, that is simply not true. In nearly any economic period, you can do better with your money than 5%, so you should borrow as much money at that rate as you can and put off paying it back for as long as humanly possible. Then, take whatever money you were planning on paying against that 5% loan and invest it in vehicles that earn better. If it looks like real estate is out performing the market, you push it against your loan and buy equity. Typically the market is doing better, so you push it there. If you're strapped for cash for a short stretch, you don't have to worry about making a huge payment.

 

I understand the mentality, especially when you look at that fat amount of money you save in interest. However, provided you don't just blow that money, you're bound to do better in a 30 year because the only disadvantage is the fact that your interest rate is marginally higher.

 

Regardless, I used to work for one of the wealthiest people in this country and was buying my first house during that time. He told me to not even think about a 15 year. Take the 30 and wish you could get a 50 instead. Especially when the rates are as low as they are.

We've had this discussion before and you have some logic on your side. However, no mortgage at all in just 15 years frees up every penny you were paying and that can then be invested. On top of that, knowing your primary asset is now yours, lock, stock and barrel is a HUGH plus.

[Jackass]

In general, that is simply not true. In nearly any economic period, you can do better with your money than 5%

 

While your argument does have merit, this statement is simply not true.

[detlef]

We've had this discussion before and you have some logic on your side. However, no mortgage at all in just 15 years frees up every penny you were paying and that can then be invested. On top of that, knowing your primary asset is now yours, lock, stock and barrel is a HUGH plus.

Who's saying you can't have your house paid off just as quickly if not faster if that is really what you want?

 

If you can lock in at around 5%, you'll be hard pressed to find many, if any 15 year stretches of time where you can't make better than that in other investments. So, each of us take out 200K mortgages, mine is 30 years at 4.75%, yours is, say 15 years at 4.5%.

 

Your monthly payments are $1530

Mine are $1043

 

If I invest every penny I don't put into my mortgage into, say the S+P, which historically should do at least 8% per year if you take a large enough sample, like 15 years, that money will grow to $170K which should be more than enough for me to pay off my mortgage then and there if I chose to. However, why would I want to do that? I've just proven to myself that, given a long enough time frame, my money will outperform 4.75%, so I'll still want to let it ride.

 

I understand the house is likely appreciating as well but that doesn't matter because the cost of me buying it is still locked in at the value of the house when the mortgage was initiated. So, both of us can take advantage of that increased value equally.

 

What you're describing is the same as someone who's got at least 15 years until retirement choosing to invest in low yielding, fixed income investments which, I believe, most advisers would say is needlessly conservative.

Edited April 25, 2009 by detlef