Refi again?

Discussion in 'After Hours Lounge (Off Topic)' started by Todd Hochard, May 12, 2003.

  1. Todd Hochard

    Todd Hochard Cinematographer

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    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[​IMG] ). 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
     
  2. Patrick Sun

    Patrick Sun Moderator
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    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).
     
  3. KyleS

    KyleS Screenwriter

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    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
     
  4. Brian Perry

    Brian Perry Cinematographer

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    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.
     
  5. Patrick Sun

    Patrick Sun Moderator
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    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.
     
  6. Denward

    Denward Supporting Actor

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    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.
     
  7. Patrick Sun

    Patrick Sun Moderator
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    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...
     
  8. MickeS

    MickeS Producer

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    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.
     
  9. Todd Hochard

    Todd Hochard Cinematographer

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    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
     
  10. Brian Perry

    Brian Perry Cinematographer

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    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.
     
  11. MickeS

    MickeS Producer

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    Are you two talking about the same thing? In that case, who's right? [​IMG]

    After the fees, we'll have to stay in the house roughly 2 years to break even, according to my estimates. We're getting a 7-year fixed 30-year mortgage, since we'll probably be out of this house in 5-7 years. Does it seem reasonable to go with the 1% origination fee rather than the higher interest then? Does it seem like a reasonable plan overall? The interest rate will go from 7% to 4.5%.

    /Mike
     
  12. Todd Hochard

    Todd Hochard Cinematographer

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    Where are you getting a 30 year fixed at 4.5%? I need to know.[​IMG]
     
  13. Patrick Sun

    Patrick Sun Moderator
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    No kidding! Time to refi again!
     
  14. Brian Perry

    Brian Perry Cinematographer

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    Mike,

    The origination fee, or points, is not specific to the type of loan (30-yr fixed, 3 yr ARM, etc.) -- it is usually available on all types. In your case, it sounds as though the 30-yr. fixed is 7% and a 5-yr ARM is at 4.5%. So, for example, if you paid 1 point ($2,000 on a $200,000 loan) you could reduce the interest rates to 6.75% on the 30-yr., or 4.25% on the ARM.

    To decide which is best, amortize each loan and compare the monthly payments, making sure to include any tax savings from the points (you'd be able to itemize the full $2,000 this year). Divide the $2,000 by the difference in monthly payments to see how long you'll have to live there to make up the difference. (If you save $100 a month due to the lower rate, it'll take 20 months to break even.)
     
  15. MickeS

    MickeS Producer

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    Todd, sorry if I wasn't clear, I didn't know the terms.

    I guess what we're getting is a 7-year ARM (?). The amortization period is 30 years. 7 years at 4.5%, after that the rates will change. Did I understand this correctly?

    Brian, thanks for your explanation. So this means I get a taxbreak of an additional $2000 (in your example) in addition to the break I already get when I deduct the interest I pay?

    The current rate we're paying is 7%, this would go to 4.5%. The fees divided by the difference between the payments comes out to about 22. That means that it'll take 22 months to break even, right?

    /Mike
     
  16. Marvin

    Marvin Screenwriter

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    Real Name:
    Marvin
     
  17. Todd Hochard

    Todd Hochard Cinematographer

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    Points are fully deductible when you PURCHASE the home, but must be amortized over the life of the loan on a refi.

    What Brian mentioned earlier, "buying down" the rate, are commonly referred to as Discount Points, not the Origination Fee.

    I'm not sure about the 5/1 or 7/1 ARM. When we bought this house in '94, we always thought we'd move on up in a few years. Here we are, still here, 9 years later, and thinking of staying 4-5 more.[​IMG]

    Todd
     
  18. Denward

    Denward Supporting Actor

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    There's a subtle difference between 7/1 ARM and a 7 year balloon. They both amortize over 30 years, but the 7/1 automatically becomes a 1 year ARM in the 8th year while the 7 year balloon becomes payable in full at the end of the 7th year (i.e. you must apply for refi or pay off the entire loan).

    BTW, you might want to consider a loan that has a prepayment penalty if you refi again, but not if you sell the house. With rates at historical lows, what are the chances that you're going to refi again? You might get a lower rate if you agree to have prepayment penalties built into your loan.
     
  19. Brian Perry

    Brian Perry Cinematographer

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    Sorry for the confusion--Todd is right. What I described are discount points, not the origination fee (which, as Todd mentioned, is padding). Also, the rules for tax deduction of points do indeed differ for first-time buyers and refinancers.
     
  20. MickeS

    MickeS Producer

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    So, this 1% origination fee is just another charge? I like the guy, and I'm not very confrontational about things I don't know anything about... should I try and get him to drop that??

    Todd I know what you're saying about the "we'll just be here a few years"... time really flies... that's why I'm not sure if we should do the 7 year thing for 4.5% or 5.5% for a 30-year fixed. I don't really see us being here more than 7 years, but who knows?
     

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