Should I Refinance? I have a 4.5% 15-year fixed mortgage
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Just refi'd! Got a 3.75% fixed 15 year. I am bringing 17K to closing, bringing principal to 190K. I do not have to get an appraisal thanks to the Obama Refi program, so my total closing costs are $1,847. I have ZERO points or origination fees to pay. Definitely feel great!
You are thinking of a regular refinance - which means closing costs.
By doing a streamline refinance with the existing leader, the closing costs are nil!!!!!
My refi last year @ $zero points - cost me a total of $956 (including appraisal)...
That's something that will vary from state to state. You'll pay significantly more than that down here even on a modest home because they hit you with a document stamp cost on a refinanced mortgage. You may claim you're getting around that tax, but the result is that you're either folding the closign costs into the note or paying a higher rate on the new mortgage in order for the lender to cover that tax.
I've done this a few times. Like you, I don't see many scenario's that would lead to me ever selling my home (2 family) regardless. I'd rent to another family and collect two payments. With that understanding it is a matter of math. How to make sense of the math is important. I currently have a 20 year mortgage at 4.625 which was lower than the rates available when I looked to swap into a 15 year. Having never come across a lender offering a mortgage at other than standard 15,20,25,30 etc., I try to avoid the other alternative of refinancing at the same length as the last loan and make principal payments that equate to the same loan termination/maturity date. If you do this as I have done once before, you need to compare the total of payments of the current loan to the total of payments of the new loan that includes the prepayment calculation to arrive at the same loan termination/maturity date which then should be a lower amount than the original. If your new loan has a higher total of payments with all costs in the calculation than you don't have a viable refinance bases on the premise of saving money. My last refinance was with the same lender HSBC who did offer a 1200 dollar refinance program which was a streamline deal that avoided a lot of the extras in a standard refinance loan and was easy with all the paperwork done through the mail. I checked again recently and they don't offer that kind of program any longer. You should check into that one first.
Don't count on the lender caring if you are borrowing for the wrong reason. They don't often offer any recommendations because so many people don't refinance for the right reasons or use flawed logic, that lower payments are all that matters. Lenders let borrowers do stupid things as the state of our economy demonstrates. Most lenders are salesman with the smarts to shut up and let the customer sell themselves. Their only concern is you meeting the underwriting requirements.
Escrow issues are often lender specific and as mentioned earlier could require you to pony up money you may not get back until later. I opted to do my own once and found it to be a bit of a headache to keep separate accounting. Yes, it is annoying to give a quarter or more in advance but it is very convenient to let them do extra book keeping.
The other consideration in refinancing for another 15 when you have about 13.5 is that you cannot waiver in your extra principal payments or you jeopardize the entire effort. Sometimes you just miss the window of opportunity and it is best to wait for the next one. You can make some prepayments now that will help mitigate any lost opportunity. No, it is not as good as clean refinance at the perfect interval that gives you a lower payment than you have now with the bonus cherry on top that equates to win, win across the board. However, you can make a big dent in interest cost with as little as 50-100 more per month if your budget can withstand it. The game is still not over. You have a declining balance and a shorter term loan option in another 2 years. The rate environment is expected to be stable for the next couple years in light of the large inventory of bad loans and unemployment levels. No crystal ball or anything, but you will have the lower level of a 10 year mortgage rate to possibly swap into earlier which could cut off several months of payments as you approach the equivalent 10 year balance. You'll need to hawk the rates going into the 11th year balance. Its a numbers game. It either works or it doesn't.
Hope that helps.
Last edited by Former Bond Pedlar; 09-11-2010 at 07:45 AM..
Reason: proof reading, left out a comment
...With that understanding it is a matter of math. How to make sense of the math is important. ...
They don't often offer any recommendations because so many people don't refinance for the right reasons or use flawed logic, that lower payments are all that matters.
...
The other consideration in refinancing for another 15 when you have about 13.5 is that you cannot waver[sic] in your extra principal payments or you jeopardize the entire effort.
Your entry was long and a little difficult to read, but I think you hit the nail right on the head! It seems like at least 30% of people have no clue about how the refinance works or they want/need to "lower" their payments, and as a result, it is REALLY SIMPLE for lenders to trick them.
On the other hand, many people just plain can't afford the monthly payments, so even though they MAY know better, they're at the Bank's MERCY now. You know? Who wants to pay TEN TIMES the amount borrowed just to have an affordable payment? But it looks like in the future banks will be collecting a LOT of money on the loans they are "helping" people refinance into! Right?
I don't want to be a part of the evil, but I think I should buy some bank stocks.
That's something that will vary from state to state. You'll pay significantly more than that down here even on a modest home because they hit you with a document stamp cost on a refinanced mortgage. You may claim you're getting around that tax, but the result is that you're either folding the closign costs into the note or paying a higher rate on the new mortgage in order for the lender to cover that tax.
Exactly, I would like to cry when I see people refinancing with such low closing costs. I always seem to have to pay title charges, appraisal, escrow, interest (yes I know,but I don't always close at the end of the month) etc. I always wonder how the heck people get away with less than 1K in closing costs...
Oh yeah, this drops my monthly payment by over $300, but i am keeping my total payment the same as the earlier loan, which will mean there is over $350 extra going to principal only each month. This is gonna save me thousands in the end. I am so glad I got this done. It wasn't even on my radar until a month ago to even consider it, but then I found out I could get a 3.75% with zero points, fees, or an appraisal, and it was a no brainer.
Great thread. I am currently in the middle of a FHA Streamline refinancing but I am doing it for the "right" reason...I am recently divorced and I was awarded the primary house and the dude got the other house. I wanted to do a conventional refi but my house is upside down and I would have to come to the table with the difference which is like $40K in the hole plus closing and that wasn't going to happen! Apparently doing the FHA Streamline is one way to get the house in my name only without going through conventional refi. I've been making the payments consistently since I've been divorced so I am hoping this goes smoothly. I didn't pay any points but there will be some closing costs and the last update I saw was I am in a 28 year loan which is ok with me...more details later!
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