Refi again?

Todd Hochard · 05-12-2003, 01:49 PM

I'm looking into refinancing my house...again. I just refi'd last June (took a bit of cash out to add a screened porch, so as not to milk my suffering stock account

). This time, I'm strictly doing it for the rate.

The numbers show that it will take 32 months to break even (going from my current 6.75% to 5.375%), so that works pretty well.
My only reservation is that we've talked about moving. However, the reality of that is that our tastes are too expensive for our income. As I've not received a raise in 3+ years, I've not moved on up as planned (I should note that everyone else in my office has been "moved on out" as it were, so I'm grateful for that). We've been planning a modest custom home for a number of years, but increased home costs have outpaced our income. So, setting aside this dream, we've looked around at other homes, but I'm not really interested in moving to another cookie-cutter neighborhood for just a few hundred sq. ft more.

So, does this sound like a good idea?

Thanks,
Todd

Patrick Sun · 05-12-2003, 02:03 PM

What about going the "no-cost" route (taking on an extra 0.50% more on the interest rate, which shaves off 0.875% off your current rate)?

This would retain your equity (with no payback period).

KyleS · 05-12-2003, 02:10 PM

How does that Work Patrick? I am also in a situation where I could move but the rates are so low I think it would be wise to take advantage of them. I just dont want to pay fees or roll them into the loan where it takes years to break even.

KyleS

Brian Perry · 05-12-2003, 02:23 PM

I believe what Patrick is referring to is a loan "modification." My bank offers it for a $750 fee. Basically, for $750 you get to switch to whatever the new rate is without having to go through a full re-fi. You avoid all the other hassles and fees (title search, appraisal, etc.)

I'm not sure that every bank offers it, though. One other thing--the original amortization dates still apply. That is, let's say you were three years into a 30-year mortgage. Your new loan will still end in 27 years, not be extended another 30.

Patrick Sun · 05-12-2003, 03:59 PM

Actually, a "no-cost" refi is a different loan, but for the pleasure of sticking the closing costs on the mortgage company, they charge a higher interest rate, around 0.5% more, than their usual interest rate (for loans with closing costs).

My loan officer told me that the only way the mortgage companies lose money on the "no cost" refi's is if that person rolls the loan again within 2 months.

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Denward · 05-13-2003, 10:01 AM

I found http://www.amerisave.net/refinance.cfm on bankrate.com

I just started a refi application with them. Their website lists many different rate options depending on how much you want to pay in closing costs. I just locked in at 5.125% 15 year fixed with zero upfront costs. They did take a $500 deposit with the application but that will be refunded at closing.

Patrick Sun · 05-13-2003, 10:28 AM

Denward hit upon that other way to shave off points, which is to go with a 15 year loan, which shaves 0.5% off the 30 year rate (usually). So if you can swing the additional monthly mortgage payments, a no-cost 15 year loan can be a very attractive way to go.

I was a chicken and went back into a 30 year, and just decided to pay extra along the way (3x the monthly principle), which gives me a little more in payment flexibility along the way. Only 352 payments to go...

MickeS · 05-13-2003, 12:31 PM

What is "origination fee" (or similar)? The mortgage broker I'm using will charge a 1% origination fee. That along with the other costs will be rolled into the loan. Is this a standard thing? He seems to know what he's doing, but I don't know any of this stuff so I'm hoping he's not screwing me over.

Todd Hochard · 05-13-2003, 12:51 PM

1% Origination fee is the "we're charging you 1% of the loan value for the privilege of loaning you the money." In other words, it's BS.
Watch out for other fees, too. "Processing fees" and "Loan App fees." I'm not saying that they should all be zero (after all, the broker has to make SOMETHING on the deal), but watch out for exorbitant charges.

I'm definitely going 30yr, for the flexibility of the loan. I can pay extra when I feel like it (which, as of now, is every month), or pay the required when I'd like the money for something else.

I'm waiting for a call back on the no fee, but I got indication that it would be AT LEAST 0.5% higher, and possibly more.

EDIT- I just found out that the "no fee" rate is 6.125%, vs. 5.375% for the "regular" way. I won't be doing that.

Todd

Brian Perry · 05-13-2003, 01:01 PM

An origination fee, or "points," is pre-paid interest that usually results in a lower overall interest rate. For example, you might have a choice between a 6% mortgage with no points or a 6.25% mortgage with 1 point (which is 1% of the loan amount).

If you will be in a house for more than a few years, it makes sense to choose the lower rate and pay the points, which are 100% tax deductible the first year.