Refinance

[jeepinmatt]

So I'm not a numbers guy and hate loans but I have learned recently that my house is at 4.75% and have it half paid off. In 7 years it's done. Last thing I want is to extend that date.... however. If the current mortgage rate's are 2.xx% it seems crazy not to look at it. Any suggestions or help you want to give a dumb ole redkneck from SC?

Check the total interest remaining before you go to refinance. At this point, you have probably paid the vast majority of the interest, and if you start over, you will again have to pay the majority of the interest up front. Renegotiating the rate on your current loan with your current bank could be the best option. I haven't done any math on it, but I would guess you are still better off with 3.5-4% regnegotiation on your current loan instead of ~2.5% on a refinance at 10 years or so.

 

[Ron]

I called my bank that has it now. They said 2.92% right now. I only owe $40K on the house. I filled in some info on Quicken loans and the phone rang the second I finished trying to get a rate idea. Damn lady irritated me too. I got some thinking to do. I was really looking forward to paying that off in 6 years.....

Here is the thing.
If you have 6 years left and refi for 15 at a lower rate. And then pay what you currently pay every month. You will still pay it off in 6 years, actually faster, you just have the option of a lower monthyl min each month IF needed.

 

[Ron]

Check the total interest remaining before you go to refinance. At this point, you have probably paid the vast majority of the interest, and if you start over, you will again have to pay the majority of the interest up front. Renegotiating the rate on your current loan with your current bank could be the best option. I haven't done any math on it, but I would guess you are still better off with 3.5-4% regnegotiation on your current loan instead of ~2.5% on a refinance at 10 years or so.

that's not exactly how it works.

They dont charge you the interest up front.

Its just that when the principal balance is higher a greater % goes to interest.

Its still compounded monthly.

 

[jeepinmatt]

BTW, I'm still not done with the refinance yet. Took forever to get the appraisal, then they had difficulty finding comps, and everything is just generally slow as crap. On the plus side, the lender credit went from $1200 to $2500 as things drug out, so it is actually costing me even less. I'm not sure if its going to be free, but its gonna be pretty close.

 

[Ron]

I'm looking at 3.125, 30 yrs, with a sizable cash out, roughly 76% LTV and decent credit. No points, loan orig fees, etc. Just the cost of the appraisal. Aside from not feeling great about that rate (seems like it ought to be lower) but I'm not up on how the various factors affect it, I also can't get my mortgage person to call me back... :-/

What your thoughts on Dan and his options?

Every situation is different, but my deal is no points no orig fees. Just appraisal, which was actually waived, lawyers closing cost, and prop tax prorate. My total cost is like $850.

At 3.125 you lender is getting a check (lender credit)... guaranteed. Tat rate on a 30 cash out should be 2.75 at the highest...unless there are demerits

 

[RatLabGuy]

One of us math geeks should just look up a calc and do the math on this. I'm in a meeting where I have to actually talk, otherwise I'll do it later.

 

[jeepinmatt]

that's not exactly how it works.

They dont charge you the interest up front.

Its just that when the principal balance is higher a greater % goes to interest.

Its still compounded monthly.

Fair point. Not sure what kind of numbers @ghost is working with (edit, just saw the $40k remaining, so cut everything below pretty much exactly in half), but to run some numbers for illustration:
30 year, $200k principal, 4.75% rate, $1043 monthly payment, 23 years in, 7 years remaining
Principle remaining $80.3k, Interest remaining $15,987

10 year refi, $80k principal, 2.5% rate, $754 monthly payment
Principle remaining $80k, Interest remaining $10,500

30 year, $200k principal, Renegotiate to 3.5% rate, $1043 monthly payment, 23 years in, 7 years remaining
Principle remaining $80.3k, Interest remaining $10,600

10 year refi, $80k principal, 2.5% rate, $754 monthly payment plus $290/month to keep payment same as current
Principle remaining $80k, Interest remaining $7250, and you pay it off in 7 years instead of 10.


So if you refi to a 10 year at 2.5% (you should certainly be able to get a better rate on this with a 10 year), you'd save $5000 in interest and drop your monthly payment 25%. Or if you stay with the same bank, renegotiate to about 3.5%, and keep the 7 year term remaining, you'll pay about the same amount in interest as refinancing, but without the cost and hassle of refinancing. Its the easier option, and will cost about the same in the long run if you don't pay extra every month. If you refinance, but keep paying the same amount, then that is by far the best way to go. Pay it off just as fast and save $8000. Feel free to send a commission check for my sage advice

 

[jeepinmatt]

For anyone who wants to play around and see the full amortization schedule, this is a good resource (direct excel download link):
https://www.mortgagecalculator.org/excel-mortgage-calculator.xlsx

 

[RatLabGuy]

I called my bank that has it now. They said 2.92% right now. I only owe $40K on the house. I filled in some info on Quicken loans and the phone rang the second I finished trying to get a rate idea. Damn lady irritated me too. I got some thinking to do. I was really looking forward to paying that off in 6 years.....

OK using Matt's spreadsheet, here's some numbers for ya.

at 4.75% and 7 years, you'll pay $560 monthly, and lose another $7,096 in interest.
At 2.92% interest over 15 years (guessing, you didn't say), the payment is only $274 - but that will cost you $9,445 in interest. NOT a good deal!

But at 2.92% and paying an extra $275, so your total is $550 - saving $10 a month - you will pay off in a hair over 7 years, and your total interest lost is only $4078.
You save $3,000 in interest AND $10 every month for 7 years, or $840.

BUT there are closing costs...
Lets say $1500. that still nets you $2340.

Is it worth it? Maybe, all depends what your itme is wort hand what closing costs you.

The point - it's hard to get great gains when there aren't a ton of years left and the amount is low.

 

[/dev/ram]

Every situation is different, but my deal is no points no orig fees. Just appraisal, which was actually waived, lawyers closing cost, and prop tax prorate. My total cost is like $850.

At 3.125 you lender is getting a check (lender credit)... guaranteed. Tat rate on a 30 cash out should be 2.75 at the highest...unless there are demerits

I hover around 740, 744 today but carry a lot of debt so that's what's affecting the score. And, that's where the cash out is going to pay that off. I figured they had to be making money somehow but a half a point on $275K is a chunk over 30 yrs.

 

[/dev/ram]

Oh, came across this for @ghost 7 Easy Ways to Pay Off Your Mortgage Early and its got a link to a calculator for @RatLabGuy

 

[Ron]

I hover around 740, 744 today but carry a lot of debt so that's what's affecting the score. And, that's where the cash out is going to pay that off. I figured they had to be making money somehow but a half a point on $275K is a chunk over 30 yrs.

At 740 you are an A to A+ depending on lender.
Loan value is a factor but 275k is high enough to get best rates (they actually charge a higher rate on smaller loans)
the % cash out of total loan plays in as well...

 

[ghost]

OK using Matt's spreadsheet, here's some numbers for ya.

at 4.75% and 7 years, you'll pay $560 monthly, and lose another $7,096 in interest.
At 2.92% interest over 15 years (guessing, you didn't say), the payment is only $274 - but that will cost you $9,445 in interest. NOT a good deal!

But at 2.92% and paying an extra $275, so your total is $550 - saving $10 a month - you will pay off in a hair over 7 years, and your total interest lost is only $4078.
You save $3,000 in interest AND $10 every month for 7 years, or $840.

BUT there are closing costs...
Lets say $1500. that still nets you $2340.

Is it worth it? Maybe, all depends what your itme is wort hand what closing costs you.

The point - it's hard to get great gains when there aren't a ton of years left and the amount is low.

She said estimate $2500 in closing cost. I actually have asked about pulling equity out of the house to pay another mortgage off. So financing $65K @ 2.92 she said I'd be at $450/ month payment. My current payment is $642.45. So $200/ month to me. I'd take that $25K and pay off the shop/office. REnt paid there is $650/month. I've thought about refinancing to build my shop here in Camden but that would need $45 - $50K and I'm not sure if there is enough to pull that off. The smart play might be to refi the $40K alone and pay it off early. Things to think about for sure. I'm a loyal guy to people /banks that do me right. However should I shop this around? What will that do to my credit score?

 

[/dev/ram]

I hover around 740, 744 today but carry a lot of debt so that's what's affecting the score. And, that's where the cash out is going to pay that off. I figured they had to be making money somehow but a half a point on $275K is a chunk over 30 yrs.

Just for my own understanding, the lender probably doesn't get the full difference in the rate as a credit - they get a kickback from the mortgage company for offering a higher rate which gives the mortgage company a bigger profit? Or is my cynicism showing thru?! ;-)

 

[Ron]

Just for my own understanding, the lender probably doesn't get the full difference in the rate as a credit - they get a kickback from the mortgage company for offering a higher rate which gives the mortgage company a bigger profit? Or is my cynicism showing thru?! ;-)

It’s not a kickback per se and it can go both ways.
Let’s say that based on your application you are rated for a 3.0 rate.
All these mortgage brokers are selling this a 3rd party. All “points” are are kendr charges or lender credits.
So in above scenario you qualify for 3.0% at even or...
2-7/8 if you pay 1000
Or they will pay you 1000 to accept a 3-1/8
And a hundred variations of such.

an honest Lender disclosed that and shares or gives to you.
A shady one will tell you the best rate is 1 worse than best and keep the credit for themselves

 

[obullfish]

I called my bank that has it now. They said 2.92% right now. I only owe $40K on the house. I filled in some info on Quicken loans and the phone rang the second I finished trying to get a rate idea. Damn lady irritated me too. I got some thinking to do. I was really looking forward to paying that off in 6 years.....

Screw quicken and rocket mortgage.

 

[RatLabGuy]

She said estimate $2500 in closing cost. I actually have asked about pulling equity out of the house to pay another mortgage off. So financing $65K @ 2.92 she said I'd be at $450/ month payment. My current payment is $642.45. So $200/ month to me. I'd take that $25K and pay off the shop/office. REnt paid there is $650/month. I've thought about refinancing to build my shop here in Camden but that would need $45 - $50K and I'm not sure if there is enough to pull that off. The smart play might be to refi the $40K alone and pay it off early. Things to think about for sure. I'm a loyal guy to people /banks that do me right. However should I shop this around? What will that do to my credit score?

When comparing your payment, keep in mind there may be taxes in there that go to escrow. If so don't forget to remove it when comparing rates and monthly payments, and then add it back to the new total, because it won't really change.

 

[Ron]

When comparing your payment, keep in mind there may be taxes in there that go to escrow. If so don't forget to remove it when comparing rates and monthly payments, and then add it back to the new total, because it won't really change.

He shouldn't be escrowing at that balanve level.
If he's is he's getting screwed

 

[RatLabGuy]

He shouldn't be escrowing at that balanve level.
If he's is he's getting screwed

Please explain? Id think at such a small amount it would matter even less vs handling yourself.

 

[rodney eppes]

Referring to Matt's delays, I started my application Aug. 25. I'd say within the first 2 weeks, I had all the paperwork & request, satisfied. Three - four weeks, the Appraiser came out, & in 24 hours I had my copy of his report, & comparable's. I think I was told at the beginning, it would take about 45 days, due to their back-up. I'd say 5 business days back, I got an email, just letting me know they were working as fast as they could, to get mine to closure. They're staying in touch, at least, but guess I'm looking at the end of November.

 

[Ron]

Please explain? Id think at such a small amount it would matter even less vs handling yourself.

It’s the same principle as getting a tax refund. Prop taxes are paid one time per year, installments are interest free loans to the gov before you have to pay..and they have to over shoot because of Fannie and Freddie regs to keep a balance

escrow hurts everyone but the undisciplined

 

[RatLabGuy]

It’s the same principle as getting a tax refund. Prop taxes are paid one time per year, installments are interest free loans to the gov before you have to pay..and they have to over shoot because of Fannie and Freddie regs to keep a balance

escrow hurts everyone but the undisciplined

I get all that, but if he still has 7 years left and only 40k balance, this is not likely a super expensive home, which means the taxes couldn't be several thousands of dollars. The interest you'd get on investing that size of money for a short period to pay taxes biannually (thats what they do here) or even annually is peanuts in actual dollars and hardly worth the effort.
DIY taxes makes sense in large sums but not small unless you are really pinching pennies.

 

[ghost]

I get all that, but if he still has 7 years left and only 40k balance, this is not likely a super expensive home, which means the taxes couldn't be several thousands of dollars. The interest you'd get on investing that size of money for a short period to pay taxes biannually (thats what they do here) or even annually is peanuts in actual dollars and hardly worth the effort.
DIY taxes makes sense in large sums but not small unless you are really pinching pennies.

Taxes are on the $600 - $700 range that I pay each year. House was bought in 2012 in a short sale for $110K. So no not a super expensive house. 1700 square feet with about 500 square feet garage. Right at half acre in a small neighborhood. Typical 3 bedroom 2 bath home. I'm wondering if I should call the other 2 banks I do business with too...?

 

[ghost]

Screw quicken and rocket mortgage.

No doubt they called back this am I told them not to call again. I fucking hate high pressure sales people.....

 

[rcalexander105]

A lot of these assume he pays the "minimum" payment. @ghost said his main objective was to not extent the 7 years to pay it off. If he refi's and continues to make the same payment he currently makes...that 7 years more than likely goes down significantly irrespective of the extended "term" by jumping back in another 15/20/30yr mortgage.