SORRY! OT: Refinancing-Early

[theRU]

Hi all sorry for the OT post in the thick of recruiting but i know there are some mortgage gurus on here.

BofA can get my rate down by .25 "at no cost to me". They've got credits that they can offer to pay for the closing costs, appraisals etc. I'm about 1.5 years in on a 30. I looked at all the scenarios and if i continue paying my existing payment, i can be done with this one after 25 years. Total cost of this mortgage plus, the 19 payments i've made (319 total payments) save me a ton of money vs the 357 payments i would make on my current mortage.

It seems like a no brainer....what am i missing? There has to be a catch....there is always a catch....right?

 

[DJ Spanky]

No need to say sorry as long as you preface it with "OT:".

 

[DJ Spanky]

Do they wrap closing costs into the new mortgage?

 

[miketd1]

I think about this fairly frequently as well.

I'm in year 4 of 30, sub 4%.

 

[ru78]

Go for it but why 30 when 15 is the way to go

 

[theRU]

Do they wrap closing costs into the new mortgage?

no, its all credited by the bank. My new mortgage amount is strictly the payoff amount of my current mortgage.

 

[theRU]

Go for it but why 30 when 15 is the way to go

LOL... i wish. Cali real estate is crazy expensive. I'm a first time buyer in Cali and i'm comfortable paying this one off in 25 years. I was fortunate enough to avoid PMI by having the necessary funds for 20% down. The other crappy part of expensive real estate is that its nearly impossible not to have a Non-conforming loan high balance loan that automatically has a higher rate.

 

[RUJohnny99]

I think about this fairly frequently as well.

I'm in year 4 of 30, sub 4%.

Refinancing an under 4% mortgage there's not really a lot of meat on the bones to pick off. What will it save you, 50 bucks? Meanwhile, you've just reset the payment period from 26 years to 30. Frankly, you're better off dropping whatever savings you would earn into an investment account and pick up a couple shares every couple months of a telecom or utility yielding over 4% with the money. In 15 years you'll be able to pay the whole house off or have a nice little dividend income to cover a good portion of the mortgage.

I have a 3.375% 30 & am not putting a penny more into paying that sucker down. I can beat that on my own with very little risk.

 

[RUskoolie]

Go for it but why 30 when 15 is the way to go

With interest rates sub 4%? I don't think so. Not unless you are near retirement and want a mortgage off your books quicker.

 

[ru78]

Agree but age and real estate location where not know initially

 

[_dave_]

With interest rates sub 4%? I don't think so. Not unless you are near retirement and want a mortgage off your books quicker.

Agreed. Sub 4%? That is almost free money. I'd stretch it out to a 200 year mortgage if I could. I am also in year 4 of a 30 year mortgage at 3.75% on my duplex. Rental income is greater than mortgage cost yet despite excellent credit I could not get the "best" rate because it is a multi-family. Makes little sense to me how the system works because it seems like there is much less risk. I can lose my job and still make payments because of rental income.

 

[patk89]

Hi all sorry for the OT post in the thick of recruiting but i know there are some mortgage gurus on here.

BofA can get my rate down by .25 "at no cost to me". They've got credits that they can offer to pay for the closing costs, appraisals etc. I'm about 1.5 years in on a 30. I looked at all the scenarios and if i continue paying my existing payment, i can be done with this one after 25 years. Total cost of this mortgage plus, the 19 payments i've made (319 total payments) save me a ton of money vs the 357 payments i would make on my current mortage.

It seems like a no brainer....what am i missing? There has to be a catch....there is always a catch....right?

Just so everyone is clear, you are talking about switching into a new 25-year mortgage (you made 19 payments plus 25x12 = 319) from your existing 30-year mortgage. You indicated that you currently making payments above the required amount that will shorten the existing mortgage to 25 years. Not sure where the "357 payments" is coming from. If the current mortgage was originally 30 years (360 payments) and you made 19 already (with some prepayment included), you would be down to 341 payments left (less than that since you are prepaying).

If I have this all correct and there is absolutely no refinancing cost/fee associated with doing this, the only risk is that you are now required to pay off the mortgage over a shorter time span. That makes the monthly principal payment higher which could be a problem if you run into financial issues along the way. People who choose 15-year mortgages to get a lower rate but considerably higher total P&I payment are taking a risk. If they were conservative and bought less than they can afford, this will likely work out. But if they are stretching to support those higher payments, it can cause problems.

 

[theRU]

Just so everyone is clear, you are talking about switching into a new 25-year mortgage (you made 19 payments plus 25x12 = 319) from your existing 30-year mortgage. You indicated that you currently making payments above the required amount that will shorten the existing mortgage to 25 years. Not sure where the "357 payments" is coming from. If the current mortgage was originally 30 years (360 payments) and you made 19 already (with some prepayment included), you would be down to 341 payments left (less than that since you are prepaying).

If I have this all correct and there is absolutely no refinancing cost/fee associated with doing this, the only risk is that you are now required to pay off the mortgage over a shorter time span. That makes the monthly principal payment higher which could be a problem if you run into financial issues along the way. People who choose 15-year mortgages to get a lower rate but considerably higher total P&I payment are taking a risk. If they were conservative and bought less than they can afford, this will likely work out. But if they are stretching to support those higher payments, it can cause problems.

My current 30 year would be 360 total payments... If i paid it at the rate i currently pay, i will be done early and need only 357 payments.

If i switch to a new 30 with a new rate, but paid at the same level i'm already paying (slightly more than my minimum ) it will be paid off in 25 years. So 300 payments plus the 19 i've already made.

This makes the comparison 357 payments vs 319. The 319 saves me a large sum of money. No tangible change in monthly payment to me, no cost to make the change, and added flexibility to reduce my payment by 200 per month should i ever need to pay less.

Does that make sense?It just seems too good to be true right now, so i just wanted to see if i'm not looking at something correctly.

 

[LevaosLectures]

I refinanced recently to take advantage of the pmi cut and get a lower rate. Saved $200 at zero cost....and I put basically zilch into the house to begin with.

Now if I could only do something about my property taxes.

 

[patk89]

My current 30 year would be 360 total payments... If i paid it at the rate i currently pay, i will be done early and need only 357 payments.

If i switch to a new 30 with a new rate, but paid at the same level i'm already paying (slightly more than my minimum ) it will be paid off in 25 years. So 300 payments plus the 19 i've already made.

This makes the comparison 357 payments vs 319. The 319 saves me a large sum of money. No tangible change in monthly payment to me, no cost to make the change, and added flexibility to reduce my payment by 200 per month should i ever need to pay less.

Does that make sense?It just seems too good to be true right now, so i just wanted to see if i'm not looking at something correctly.

I see. The way I would look at it, and others may disagree, is that if you do nothing, you have 341 payments (28.4 years) left (360-19) and your outstanding mortgage balance is what it currently is. Any refinancing that is truly costless will result in that exact mortgage balance being rolled over in the new 30-year mortgage but at a 0.25% lower interest rate. On a $250,000 mortgage, that 0.25% lower rate (from 4.25% to 4.00%) would reduce the required monthly payment (assuming 30 years) from $1,229.85 to $1,193.54 ($36.31/month). If your mortgage is $500K, the savings would double to $72.62/month. Over the entire duration of your mortgage, assuming no prepayments, you would save over $13 thousand on a $250K mortgage and over $26K on a $500K mortgage. Since you intend to make prepayments that will shorten the new 30-year to a 25-year, your interest savings would be slightly lower.

If the guy guarantees you that your current mortgage balance will not be increased (have fees rolled into it) and you pay nothing out of pocket, take the lower rate and new 30-year mortgage. Be disciplined, continue to make the same monthly payment that you currently are, and you will pay down the balance faster. I am skeptical that the new mortgage company can do this. What is the incentive for them? Refinancings always involve fees and the difficult calculation is how long will it take to make the lower rate worthwhile.

 

[theRU]

I see. The way I would look at it, and others may disagree, is that if you do nothing, you have 341 payments (28.4 years) left (360-19) and your outstanding mortgage balance is what it currently is. Any refinancing that is truly costless will result in that exact mortgage balance being rolled over in the new 30-year mortgage but at a 0.25% lower interest rate. On a $250,000 mortgage, that 0.25% lower rate (from 4.25% to 4.00%) would reduce the required monthly payment (assuming 30 years) from $1,229.85 to $1,193.54 ($36.31/month). If your mortgage is $500K, the savings would double to $72.62/month. Over the entire duration of your mortgage, assuming no prepayments, you would save over $13 thousand on a $250K mortgage and over $26K on a $500K mortgage. Since you intend to make prepayments that will shorten the new 30-year to a 25-year, your interest savings would be slightly lower.

If the guy guarantees you that your current mortgage balance will not be increased (have fees rolled into it) and you pay nothing out of pocket, take the lower rate and new 30-year mortgage. Be disciplined, continue to make the same monthly payment that you currently are, and you will pay down the balance faster. I am skeptical that the new mortgage company can do this. What is the incentive for them? Refinancings always involve fees and the difficult calculation is how long will it take to make the lower rate worthwhile.

Yea the value for me is that it allows me to pay down faster.