The latest on the mortgage saga

[detlef]

OK, so we paid off my wife's car entirely. My car has a better interest rate (lower than our mortgage, though not enough lower, considering the tax deduction on the mortgage interest to make us not want to take care of that next).

 

At any rate, here's what's on the table:

 

Our home loan has a pretty decent rate, but we could better, not much mind you, unless we got tricky. And that's where the no-cost mortgage comes in. There are two banks around here who have been doing them for some time. Conceptually, they seem like taking the "don't pay down points" theory to the next level. Essentially, you accept a higher interest rate for a loan that costs nothing to originate. The only thing you pay for is the appraisal but you even get the cost of that refunded at closing. I am assured that the fees are not simply rolled into the loan (which would be easy enough to confirm). That the "cost" is born in the higher rates. From what I've seen, it's about .4 pts higher apples to apples. I've seen 15 year loans on-line as low as 3.625 (mind you, that doesn't mean I could actually find that loan) and dude quoted me 4.08 for that loan today. The 5 year fixed ARM I'm going to mention below is 3.75.

 

The advantage that is sold to the consumer is that almost nobody ever stays in their mortgage long enough to save in interest what you pay in upfront costs on traditional loans, even if they stay in their house that long. That the threshold tends to be around 7 years when the savings catch up. We've been in our house 9 years and are already re-fied 2x, so we're certainly a candidate.

 

What the loan officer suggests, again, based on this fact, is that I take advantage of the particularly low rates that come with an ARM (like a 5 year fixed ARM). Because the loan is free, I could refi if there's a slight reduction in rates or even reset the 5 year lock if rates are no worse in a year or two by doing a refi then. If things start climbing and that looks like it's going to be a trend, I can (again for free) get into another loan, possibly a fixed rate. The advantage, of course, with the ARM is that it's set at a 30 year loan but has really low interest for the next five years. We can aggressively pay it down when we have the scratch to do so but aren't locked into a high monthly like we'd have in a 15 year fixed or something. Yet we'd have a super low interest rate, at least for now, and could do some serious damage to our mortgage note over that time.

 

Provided our house appraises for what it did in 2009, we should have enough equity to roll my car into the mortgage, making the interest we're paying on that number also tax deductible as well as a lower rate than we're paying now. Net/Net, our total mortgage payments, including the fact that our mortgage would now be 12K higher because of rolling my car into it would actually be less than it is now and that doesn't even take into account the fact that we wouldn't be making a car payment on top of that. So there's that...

 

Someone care to point out something I'm missing here?

 

I'll add my own argument against the ARM, at least. I don't think the payments on the 15 year loan should be so daunting that we'll not be able to make them at any point (knocking on wood). So, there's a part of me that wonders how much lower things can get and whether I'll want to have to scramble for a fixed if and when things start going back up. On the other hand, that assumes that we'll even be in our house for more than another 5 years as well as the rates not staying this low for much longer.

Edited June 28, 2011 by detlef

[Ramhock]

Your house will not appraise for near what it did in 2009. You can go to zillow.com & see what has sold recently in your area, if yours is comparable to others.

 

I have done the loan officer job, nothing is free. Stay away from an ARM unless you are 100% sure that you will be out of that house in the allotted time. FYI, looks like the rates went up about 10 basis points today.

 

From someone that gives a shat.

Edited June 28, 2011 by Ramhock

[detlef]

Your house will not appraise for near what it did in 2009. You can go to zillow.com & see what has sold recently in your area, if your is comparable to others.

 

I have done the loan officer job, nothing is free. Stay away from an ARM unless you are 100% sure that you will be out of that house in the allotted time. FYI, looks like the rates went up about 10 basis points today.

 

From someone that gives a shat.

How does he hide the costs? I know they can roll them in. But I know what I owe on my house right now. I've rolled closing costs into loans before and understood that was why we were financing more than we owed on the house before the refi. How could that get slipped past me if I understand this basic fact?

 

ETA: Just went to Zillow.com. Homes in my neighborhood have either recently sold or are for sale for between $98 and $115 a foot. That puts our house value where it needs to be. Especially considering it's a one story house on a big corner lot, which I've been told should put us on the higher end of the range.

Edited June 28, 2011 by detlef

[Azazello1313]

so you'd basically be purchasing discount points in reverse, paying a higher rate in return for them taking care of all your fees. this might be a good deal if you're out of the mortgage, either by moving or re-fi, in a couple years or less. the longer the mortgage goes, the more it slides from your advantage to theirs. there will be a breakeven point somewhere based on the amounts involved. but then again, they probably have some slick pre-pay penalty involved where they win either way. I would at the very least ask about that possibility. my hunch is that one way or another, it's going to be a bad idea for you, better to just pay the title, appraisal, and a modest origination fee rather than fold it into some gimmick.

 

as far as ARM vs 30-year vs 15. if you're pretty sure you're not going to be there long, go for the ARM. if you think you'll be there a while, go for the 15-year if you can swing it fairly comfortably.

[geeteebee]

I've refied many times using a no-cost refi when I lived in a house that I didn't expect to stay in very long and wouldn't achieve savings doing a traditional refi. You aren't missing anything. They get paid over time through a slightly higher interest rate and if you stay long enough, you end up on the losing end vs. paying the normal costs upfront.

 

Like Ramhock, I'd also advise against an ARM unless you know you'll be out.

[Ramhock]

How does he hide the costs? I know they can roll them in. But I know what I owe on my house right now. I've rolled closing costs into loans before and understood that was why we were financing more than we owed on the house before the refi. How could that get slipped past me if I understand this basic fact?

 

He gets paid on the back end, meaning the lender pays him more, the higher the rate he sells you.

 

What is your current rate? What are you trying to accomplish by refinancing? At some point soon, I will be away from a computer for a coupla hours.

 

There are more experienced loan officers here, like Mizzoula Griz. I did it for 14 months, a coupla years back.

[detlef]

so you'd basically be purchasing discount points in reverse, paying a higher rate in return for them taking care of all your fees. this might be a good deal if you're out of the mortgage, either by moving or re-fi, in a couple years or less. the longer the mortgage goes, the more it slides from your advantage to theirs. there will be a breakeven point somewhere based on the amounts involved. but then again, they probably have some slick pre-pay penalty involved where they win either way. I would at the very least ask about that possibility. my hunch is that one way or another, it's going to be a bad idea for you, better to just pay the title, appraisal, and a modest origination fee rather than fold it into some gimmick.

 

as far as ARM vs 30-year vs 15. if you're pretty sure you're not going to be there long, go for the ARM. if you think you'll be there a while, go for the 15-year if you can swing it fairly comfortably.

I'm nearly certain that there's no pre-pay and would certainly not get into the loan if there is. The deal seems simple enough. If you're in the loan long enough, you pay more. And, that number seems to be somewhere around 7 years.

 

The argument against the re-fi would be the fact that it's not like I'm in a horrible loan right now. We're at 4.625%. Of course, if we can manage to roll my car into a new loan, then there's really nothing standing in the way of pushing down our mortgage (which, based on a previous thread I started, is a goal that we have. Yes, I understand that there are, technically more savvy things to do with one's money, but like others here agreed, especially in a market that's not chock full of easy ways to make 4-5% on one's money, the idea of paying down one's home rather than investing money in other vehicles has its merits).

 

At any rate, with that said, the no-cost deal has it's allure. At very least a 15-year fixed. 1) If we're out of our house in 7 years or less, we win. If rates go down again any time soon, especially enough to make the higher no-cost rate to be as low then as what I could get for a cost-oriented loan now, we win. If not having to roll fees into the loan is the difference between being able to absorb the entirety of my car loan, as opposed to most of my car loan, we win. And, again, I break even at about 7 years. Same house, same loan.

[detlef]

He gets paid on the back end, meaning the lender pays him more, the higher the rate he sells you.

 

What is your current rate? What are you trying to accomplish by refinancing? At some point soon, I will be away from a computer for a coupla hours.

 

There are more experienced loan officers here, like Mizzoula Griz. I did it for 14 months, a coupla years back.

Right, the higher rate, but plugging what I can likely get on the same loan vs what I'd get from him means the loan costs me about $35 a month more. Given what I've paid before in loan costs, it seems like it would take a while to get there.

 

Like I said in my response to Azz, I'm at 4.625, so it's not like we're taking it hard. One of my goals is to absorb the car so the interest on that will be tax deductible. If we can do that and lower the rates for both, especially if it doesn't mean I have to pay a bunch of cash up front out of pocket, I'd like that.

[Azazello1313]

We're at 4.625%. Of course, if we can manage to roll my car into a new loan, then there's really nothing standing in the way of pushing down our mortgage (which, based on a previous thread I started, is a goal that we have.

 

well, if you're putting the $12K from your car into the mortgage, that doesn't somehow get you to paying down the mortgage sooner. you're paying off that extra $12K first. and you said you'd be moving it from a lower rate (presumably manufacturer financing?) to a higher rate? that really doesn't make much sense to me, unless the rates are close enough that the tax deduction tilts it in favor of having it with the mortgage.

[detlef]

well, if you're putting the $12K from your car into the mortgage, that doesn't somehow get you to paying down the mortgage sooner. you're paying off that extra $12K first. and you said you'd be moving it from a lower rate (presumably manufacturer financing?) to a higher rate? that really doesn't make much sense to me, unless the rates are close enough that the tax deduction tilts it in favor of having it with the mortgage.

Not sure where you got the part about it going to a higher rate.

 

We're at 4.625 on the house and 4.5 on the car. If I can get them both into a loan (either a 15 year at 4.08 or a 5 year ARM at 3.75), then I can pay everything down faster. Yes, the mortgage goes up as much as the car adds to it, but right now I'm paying for both. With the ARM and that rate, my total payments on the loan would be about what they are right now, despite the fact that I'd be paying on a larger loan (since my car would be included). But there wouldn't be a car payment. I could just push exactly what I'm paying for the car towards the principle each month and, by the time I would have paid the car off before, I'd be in much better shape than I'd be if I did nothing right now and just kept paying for both at their current rates.

 

Even with the 15 year and the somewhat higher rate, I'd still be doing more damage to the the total nut at about the same amount that I'm paying for the combined house and car payments than I would be if I just kept things where they are right now.

 

In fact, the only way this doesn't make sense, IMO, is if I get a traditional, fee based loan, because doing so adds so much to my mortgage that it totally offsets any savings I get from rolling the car into the loan.

 

I don't see the advantage in fixating on the fact that, rolling my car into the mortgage means I owe more on the house. I owe what I owe, be it on a car or on a house. And, assuming one of my goals is to own my house as soon as I can. And assuming that means very little if I owe money on other things, this seems like a sound way to go.

Edited June 28, 2011 by detlef

[Azazello1313]

I don't see the advantage in fixating on the fact that, rolling my car into the mortgage means I owe more on the house. I owe what I owe, be it on a car or on a house.

 

that is exactly my point.

 

however, since you got specific with the rates and the car is at an equal rate to the current mortgage and a higher rate than the potential refi, I do agree you may as well throw that in with the house if the appraisal comes in where you need it.

[Big Country]

If you go with the ARM, you are making the assumption that down the road 1) you will be able to qualify for a refi, 2) rates will be similar or lower than they are now. Both are big, big assumptions.

 

If you can lock in a fixed rate at these historically low rates, I think you should. If you can afford the 15 year, go for it. If you want the flexibility of a smaller payment for lean months, look at a 30 year fixed but pay extra monthly on your principal so you are essentially on a 15 year payment schedule (or faster, if you can afford it).

 

Now, I'm not saying pump all available cash into prepaying the mortgage, be sure you have an adequate emergency fund tucked away and are maximizing your tax-free/tax-deferred retirement space before doing that. (IIRC, this was also brought up in your previous thread)

 

Once those are taken care of, pound away at that mortgage until you are debt free. And by all means, roll up the car debt into the mortgage if you can.

[Avernus]

Your house will not appraise for near what it did in 2009. You can go to zillow.com & see what has sold recently in your area, if yours is comparable to others.

 

I have done the loan officer job, nothing is free. Stay away from an ARM unless you are 100% sure that you will be out of that house in the allotted time. FYI, looks like the rates went up about 10 basis points today.

 

From someone that gives a shat.

 

zillow.com is off by 10-20k from what the estimate probably would be....but it would be highly unlikely still that it would appraise for the 2009 estimate

[Ramhock]

zillow.com is off by 10-20k from what the estimate probably would be....but it would be highly unlikely still that it would appraise for the 2009 estimate

 

Zillow does have a graph, showing the movement of their bad estimates. And they can be much more than 20K.

 

Personnally, i would only do this loan if I were going from a 30 to a 15.

[The Irish Doggy]

The advantage that is sold to the consumer is that almost nobody ever stays in their mortgage long enough to save in interest what you pay in upfront costs on traditional loans, even if they stay in their house that long. That the threshold tends to be around 7 years when the savings catch up. We've been in our house 9 years and are already re-fied 2x, so we're certainly a candidate.

 

There are small banks/credit unions in my area that will refi for $350 - $500. Makes the payback calculation very different compared to some places where the costs are in the thousands.

[detlef]

If you go with the ARM, you are making the assumption that down the road 1) you will be able to qualify for a refi, 2) rates will be similar or lower than they are now. Both are big, big assumptions.

 

If you can lock in a fixed rate at these historically low rates, I think you should. If you can afford the 15 year, go for it. If you want the flexibility of a smaller payment for lean months, look at a 30 year fixed but pay extra monthly on your principal so you are essentially on a 15 year payment schedule (or faster, if you can afford it).

 

Now, I'm not saying pump all available cash into prepaying the mortgage, be sure you have an adequate emergency fund tucked away and are maximizing your tax-free/tax-deferred retirement space before doing that. (IIRC, this was also brought up in your previous thread)

 

Once those are taken care of, pound away at that mortgage until you are debt free. And by all means, roll up the car debt into the mortgage if you can.

So, here's what I did:

 

I plugged into a mortgage calculator the ARM and the 15 year to get the base monthly payments based on our mortgage plus my car. Then I looked at our current mortgage statement to get the additional monthly charges and added those to see what we'd be paying per month.

 

Now, as of a few months ago, we were paying our mortgage plus two cars, plus a few hundred extra against the house (the last of which we decided to stop doing until the cars were paid for and, instead started throwing an extra grand a month for the last few months against my wife's car until that was paid off, but we'll forget about that). I convinced my wife that we had no trouble doing that and there's little reason to think we will going forward. So, I backed up a few months, added our current mortgage, what we were paying for both the cars, plus the extra we were throwing at the house and got a total. I subtracted the monthly mortgage payments for both the new loans from that and added that number in each calculation to the "add extra payments per month" field.

 

The calculator gave a running count of what the mortgage balance would be each month until it was paid off. So I looked at July 2016, which is when the ARM's rate would expire. In that time, we would have done 86K worth of damage to the nut as opposed to 84K. That doesn't seem like a big enough spread to account for the lack of certainty we'd have going forward.

 

After all, the arguments I'd been given (away from here, obviously) for going with the ARM was that it made sense if I really wanted to go ballistic on the loan. Well, the above scenario is sort of based on that. Yet, pushing exactly as much money against the house in both situations yields nearly the same results.

 

So, it's the 15 year for sure.

[Avernus]

Zillow does have a graph, showing the movement of their bad estimates. And they can be much more than 20K.

 

Personnally, i would only do this loan if I were going from a 30 to a 15.

 

yeah...actually I've seen it off as much as 27k, but that was only once...the estimate on my property value jumped up a good 10k just by hitting the refresh button one day after checking ... so take that site with a grain of salt.

 

edit: and I also concur with what you said about going from a 30 to a 15...only way it makes sense to me.

Edited June 29, 2011 by Avernus

[SEC=UGA]

Don't do the ARM unless you're out prior to it resetting.

[Ursa Majoris]

If you can lock in a fixed rate at these historically low rates, I think you should. If you can afford the 15 year, go for it. If you want the flexibility of a smaller payment for lean months, look at a 30 year fixed but pay extra monthly on your principal so you are essentially on a 15 year payment schedule (or faster, if you can afford it).

This, all the way.