Re-financing - is this a good enough deal?

Discussion in 'Archived Threads 2001-2004' started by Patrick Sun, Aug 14, 2002.

  1. Patrick Sun

    Patrick Sun Moderator
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    I need to refinance within the next year, and the current rates are pretty good, so I'm looking around now.

    I got a good faith estimate that:

    1. Rolls most of the re-fi closing costs into the loan, for which I give up 3.7% equity in my house. Out of pocket costs is around $125.

    2. Reduces my interest rate by 1.125% (zero points on loan origination and discount for a 6.5% rate @ 20 years)

    3. Reduces my payback by 4 years (I'm 6 years into my current 30 year 7/23 balloon loan, now going into a 20 year loan).

    4. Gets rid of PMI on the loan.

    5. Reduces my monthly payment by roughly $70.

    Should I do this re-fi?
     
  2. Patrick Sun

    Patrick Sun Moderator
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    One more thing:

    When you re-fi, are you always charged yet again for a Title Search and for Title Insurance for a new loan? I just resent having to pay for it the 1st go-around, and then seeing the charges show up in this go-around.
     
  3. ChuckSn

    ChuckSn Extra

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    How long do you plan on keeping your house? Getting rid of PMI is ALWAYS a good thing. You get absolutely no benefit from it since it is not tax deductible. Looks like you have several benefits besides the monthly savings. As long as you plan on keeping the house long enough to recoup your closing costs from your monthly savings i'd say go for it.
     
  4. Scott Merryfield

    Scott Merryfield Executive Producer

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  5. ChuckSn

    ChuckSn Extra

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    For the most part yes. They need to verify ownership and recorded liens on the property.
     
  6. Brian Perry

    Brian Perry Cinematographer

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    3.7% seems like an awful lot of closing costs.

    As far as the title search, I agree it sucks but the lender needs to make sure you haven't leveraged the house against other debts.
     
  7. Patrick Sun

    Patrick Sun Moderator
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    Thanks for the insight, guys.

    Well, here's another scenario:

    I got another good faith estimate that:

    1. Rolls most of the re-fi closing costs into the loan, for which I give up 2.3% equity in my house. Out of pocket costs is nada.

    2. Reduces my interest rate by 1.25% (1 point on loan origination and zero point on discount for a 6.375% rate @ 20 years)

    3. Reduces my payback by 4 years (I'm 6 years into my current 30 year 7/23 balloon loan, now going into a 20 year loan).

    4. Gets rid of PMI on the loan.

    5. Reduces my monthly payment by roughly $90.

    This is a better offer, right? Even with the 1% loan origination fee rolled into the loan (the loan company pays $2000 towards closing costs (around $2850)).

    Both lenders still stuck me with the $275 appraisal fee though I'm have 20% equity from my original purchase price, and the value has gone up in the past 6 years.
     
  8. Scott Merryfield

    Scott Merryfield Executive Producer

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  9. Todd Hochard

    Todd Hochard Cinematographer

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    You ALWAYS pay closing costs, one way or the other. They will always cost you a couple thousand dollars, either by:
    1. Paying them outright at the closing (either with cash, or by rolling them into the loan.)
    2. Getting a higher rate than you would otherwise get, if you paid those fees as in #1.
    Based on today's (meaning this week's) rates, 6.5 on a 20 doesn't seem like the best going. I refinanced in June (DOH!) at 6.75%/30 year, and that same guy could get me 6.125% today (no points, $2300 closing, from Chase Manhattan). He told me it would be 1/8% higher if I borrowed
     
  10. Tim Abbott

    Tim Abbott Second Unit

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    Patrick,
     
  11. Tim Abbott

    Tim Abbott Second Unit

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    By the way, mortgage rates took a serious hit this afternoon. That 6.25% that Todd mentioned is most likely 6.375 or 6.5 now.
    Just an FYI
    Todd, you just changed your 6.25% to 6.125......now I look like a liar [​IMG]
     
  12. Todd Hochard

    Todd Hochard Cinematographer

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    Scott,
    You mentioned eliminating Escrow. I've been told "we don't do that any longer." I'd heard that conventionally, it would be optional below 80% LTV, but's that's not what I'm finding out.
    Wasup wi dat?[​IMG]
    Todd
     
  13. Tim Abbott

    Tim Abbott Second Unit

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    Todd,

    Lenders know they will make more money off of a loan that requires escrows (they are making money off the float). In turn they are passing on a higher rate, generally an 1/8th to borrowers that want to waive the escrow requirements.

    I'm not saying its right, but thats what they are doing.
     
  14. Patrick Sun

    Patrick Sun Moderator
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    Scott, unfortunately there is that 14 month's of escrow that's rolled into the backend of the loan, so combine that with basically the 1% origination fee, so that counts towards the 2.3% of equity that I lose by refinancing with no out of pocket costs (but the $2k discount I get from the loan company helps make the deal palatable).

    On the plus side, I can use the escrow that I get back from the old loan, and pay it down towards the new loan's principal to "get back on track", so the payback for me (to get back to the equity I started with at the start the re-fi process) is roughly 10-12 months since I'll be saving $90/month with the new loan.

    I think I'll probably go with the 2nd scenario, it's much cleaner, and I might be able to get some of the fees reduced.

    Why 20 year term and not 30 year term? With the economy going the way it's going, I want to pour as much into the house for the time being, and if I actually lived here for 10-13 years, I think I can have it paid off in full. Something about owning a house outright is appealing to me. I've been putting almost twice the principal extra with each payment, so I've been cutting into the principal pretty well, and with the new loan, I can cut $3k off the principle every year at my current payment schedule with no change in my lifestyle.

    I will most probably stick with the escrow account just because I won't be doing that much with it to be making that much on the interest to have to bother stashing away a bit every month to pay the property taxes and insurance every 6 months or so.

    Thanks for the feedback. If anyone has anything else to look out for, bring it on, I'm sure others are in somewhat of the same re-fi boat.
     
  15. Jeff Ulmer

    Jeff Ulmer Producer

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    I don't know that I would consider it worthwhile to refinance over only 1.25%, especially with your title and closing costs, this may end up costing you more than keeping the current rate. Dropping the amortization is a very good idea, since you are paying a huge amount of interest as a ratio on the front side of any mortgage.

    When I had to renew my mortgage I went for a below prime variable rate, which even with recent increases is only around 4%. For the amount I've saved since renewing, the rates would need to double before I'm actually paying more interest, and in the meantime I'm watching my principle drop over $1000 a month.

    I had also looked into doing a large paydown of the principle, but even knocking a fifth off my mortgage didn't save all that much interest over the long haul, certainly not enough to warrant being out the cash. I'd play with one of the online mortgage calculators to compare exactly what different scenarios mean over the long term.
     
  16. Todd Hochard

    Todd Hochard Cinematographer

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    Tim,
    Interesting about the escrow. I figured as much.
    You must be "in the biz."[​IMG] I have friends that are brokers, and the guy I used told me that, lately, he's been getting up to three rate-change sheets in the afternoon. Lately, it seems the rates swing with the S&P500. Up today, so rates go up.
    My co-worker got a 15 yr fixed at 5.625%. I guess he locked that last week, though.
    I look at a mortgage as the cheapest money I'll ever borrow, and, eventually, the ONLY money I want to borrow. So, in spite of the big temptation to want to pay my house down (which, financially speaking, can be considered a fixed rate investment, at your APR, for the remainder of the loan), I instead plow into investments (not that they're doing great NOW, but I'm not investing for NOW), and/or pay extra on my car. With tax-deductible interest, my house note is closer to 5% for me. I can live with that- plus I've built up a FAT nest egg (in spite of the market's best attempts to take all my money!)
    Todd
     
  17. Patrick Sun

    Patrick Sun Moderator
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    Jeff, I NEED to re-finance within the next 12 months - I have a 7/23 balloon loan. I don't have a choice in the matter (except sell the house and buy another one, or go rental).
     
  18. Jeff Ulmer

    Jeff Ulmer Producer

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    Okay, I'm not familiar with balloon loans. Do they penalize you if you renew the loan at the end of the term? Up here they don't, and you are usually allowed to make adjustments to the mortgage on its anniversary date, ie. changing the amortization, payments, etc. When it expires (1-5 years) you simply get another one, but if you try to do things mid term you get nailed with penalties.
     
  19. Scott Merryfield

    Scott Merryfield Executive Producer

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  20. Patrick Sun

    Patrick Sun Moderator
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    Jeff, with a reset of the balloon loan, the best rate I would get is my original rate, which is not very competitive compared the existing rates of today, even with the closing costs associated with re-fi.

    So, I think I'll be going with a 30 year @ 6% with the 3% rolled into the existing loan amount. It lowers my monthly payments by $34/month vs. going with a zero closing cost 30 year at 6.875%, with a "payback" of 6 years.

    This allows me to save $209/month, though I do lose 3% of equity. Since I pay extra every month, I can knock down the principle even more with the smaller mortgage amount. It'd take a year at the new savings amount to gain back the equity lost by the re-fi (if I continue to pay at my previous mortgage payment level), and after that it goes into eating away at the principle even more than before.

    Going with the no-cost re-fi, I'd be saving $175/month.

    My reasoning for going with a 30 year over a 20 year loan is mainly for flexibility and the "relative" cheapness of the money (have to go with a 15 year loan to knock off 0.5% off the interest rate).

    Hmm...maybe I should have gone with the no-costs refi. My head hurts.
     

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