Refinancing - Worth It Right Now in Austin? (sales, mortgage)

[Raskolnikov]

We have a 5.65 percent mortage that we got back in 2007. Does anyone have experience with refinancing recently and think it's worth it? We already have a guy we'd work with, so no solicitations from mortgage lenders please.

Just not sure if it would actually save us money or be worth the hassle.

Also - this would be for a 30 year note.

Thanks in advance.

[Trainwreck20]

Well, the mortgage guy should be able to do the math for you, but it is quite likely, esp. if you are planning to stick around a while. What are the fees for the refinance? What rate are you being offered? What is the remaining principle on the note? Bankrate.com shows the 15/30 yr rates as 3.47 and 4.20.

[Austin97]

Originally Posted by Raskolnikov

We have a 5.65 percent mortage that we got back in 2007. Does anyone have experience with refinancing recently and think it's worth it? We already have a guy we'd work with, so no solicitations from mortgage lenders please.

Just not sure if it would actually save us money or be worth the hassle.

Also - this would be for a 30 year note.

Thanks in advance.

you can do the calculations but absolutely yes. If you go 15 year you might find that you pay less monthly and decrease the total amount you pay over the lifetime by half!

Im kicking myself because we missed 3.85 (15 year) in dec of 2010. So in Jan when rates started to go up we refied. Then rates immediately went back down in feb and now are at 3.5 for a 15 year.

It is almost enough to make me refi from 4.25 (but not quite).

[austin-steve]

You're working on year 5 of a 30 year mortgage, so when you do the math you also have to add back the additional 4 years of interest payments beyond your original "free and clear" date. In other words, you'll be paying a loan on the house for 35 years instead of 30 total.

Still, at 4 or 5 years in, it can make sense. What I hate to see is a home owner with only 12 years left refi for another 30. That may lower the payment but it doesn't save money or help one's net worth spreadsheet. I'm still paying 8% on 2 mortgages I have, but those each have less then 5 years until payoff. I'd be stupid to lower my payment with new 15 year loans in that scenario because I'd ultimately pay way more in interest payments.

So, refi should be evaluated from more than just a monthly payment viewpoint when deciding if it makes sense.

Steve

[Trainwreck20]

So, refi should be evaluated from more than just a monthly payment viewpoint when deciding if it makes sense.

Unless monthly cash flow is a bigger issue than total amount paid, ofc.

[Trainwreck20]

Just for grins, assume that you bought a $400k house in mid 2007 (say 6/1/2007) with 20% down and 5.65% interest. As of 10/1/2011, you have paid about $20k in principle and $76k in interest on the $320k loan. Monthly payments are around $1,850 (P&I only).

If you go forward at this interest rate until the loan is paid off on 6/1/2037, you will pay an additional $269k in interest.

If you refinance (extending the loan until 10/1/2041) at 4.2% for 30 years, you will pay $228k in interest. You save about $41k in interest compared to not refinancing (some of which may be lost due to lost tax deductions) and your payments go down to about $1,465. A lot of the $385 a month in payment savings are due to extending the loan by 4 years, but either way you are still paying off the same principle.

If you were to refinance the load at 3.47% for 15 years, you will only pay $85k in interest. You will save a whopping $189k in interest compared to your current loan and $143k compared to a refi 30 year loan, but your payments will go up to $2,140 (an increase of $290/month). On the other hand, you will be free and clear of your loan in 10/2026 - 11 years ahead of your current loan and 15 years ahead of a new 30 year loan.

Finally, you could refinance for 30 years and pay $383/month extra cash (making your payment the same as the 15 year refi loan). This would end up costing you $143k in interest (about $58K more than a true 15 year mortgage, but $85k better than not paying extra cash on the 30 year). This gives you the option of not paying the extra payment if you are strapped for cash, but if you did, the new payoff date would be 10/2031 (essentially, a 20 year mortgage).

Btw, Excel has some excellent built in mortgage tools....

[infoseeker2010]

Originally Posted by Trainwreck20

Just for grins, assume that you bought a $400k house in mid 2007 (say 6/1/2007) with 20% down and 5.65% interest. As of 10/1/2011, you have paid about $20k in principle and $76k in interest on the $320k loan. Monthly payments are around $1,850 (P&I only).

If you go forward at this interest rate until the loan is paid off on 6/1/2037, you will pay an additional $269k in interest.

If you refinance (extending the loan until 10/1/2041) at 4.2% for 30 years, you will pay $228k in interest. You save about $41k in interest compared to not refinancing (some of which may be lost due to lost tax deductions) and your payments go down to about $1,465. A lot of the $385 a month in payment savings are due to extending the loan by 4 years, but either way you are still paying off the same principle.

If you were to refinance the load at 3.47% for 15 years, you will only pay $85k in interest. You will save a whopping $189k in interest compared to your current loan and $143k compared to a refi 30 year loan, but your payments will go up to $2,140 (an increase of $290/month). On the other hand, you will be free and clear of your loan in 10/2026 - 11 years ahead of your current loan and 15 years ahead of a new 30 year loan.

Finally, you could refinance for 30 years and pay $383/month extra cash (making your payment the same as the 15 year refi loan). This would end up costing you $143k in interest (about $58K more than a true 15 year mortgage, but $85k better than not paying extra cash on the 30 year). This gives you the option of not paying the extra payment if you are strapped for cash, but if you did, the new payoff date would be 10/2031 (essentially, a 20 year mortgage).

Btw, Excel has some excellent built in mortgage tools....

awesome calculation/summation.. nailed it..

[10scoachrick]

I know I would seriously be looking to get out of that 5.65 rate. We're at 4.3 and looking to re-fi right now, dropping to 3.5-3.6 on our 15 yr note(would be higher on a 30 yr, of course). We're less than two years into our current mortgage, having re-fi'd once since the original purchase in mid-'08. In round numbers, our payment would drop about $200/month so it would take about a year and a half to wash out the fees. We're fortunate to be below 50% LTV and our credit is strong...otherwise, the rates aren't quite as good AND that 15 year payment could be a strain.

Another thing for folks with good credit to look at is auto finance rates. If you're carrying 5-6% or more, there are credit unions who will re-fi a used vehicle at 1.99%. If you're driving something pricey, the difference could be significant. If you happen to be looking at a new vehicle, there are plenty of .9-1.99% finance rates out there.(There are even some 'zero' finance deals out there, but those usually reflect a higher sales price relative to the 'cash' price) Heck, if we didn't have other sources of cash, I'd consider re-financing our paid off vehicle($25K+ in equity) @ 1.99 and 'investing' in other areas, either to earn more money or eliminate outstanding debt.

But HEY! Let's be careful out there! As a friend once said, "You can't borrow your way out of debt." (But you sure can cut down on interest and finance charges )

[riaelise]

My personal experience has been to just stick with my current mortgage, even if it is higher than the rates now. I do not want to re-set the mortgage and start over again. That means I basically threw away six years of payments to the wind to save two hundred or so a month. Unless you are refinancing to a 15 year mortgage, I just don't see the positives anymore. The refi that we did years ago did lower our payment by 200, but then it added more $ to the mortgage and restarted it. If we had stuck with our previous mortgage, we would have paid quite a chunk of it off and the mortgage balance would have been much less. So Steve is right. You have to look beyond the monthly payment aspect. It's not for everyone.

[Trainwreck20]

That means I basically threw away six years of payments to the wind to save two hundred or so a month.

That is not completely true - you did pay down some of your principle during those six years, it is not 'thrown away'. You would have paid off about $54k in principle in the example above (30 year loan on $320k after 6 years of paying), so although you will be paying 6 years longer, you will have paid less money a the end of the 36 years than you would have paid at the end of original 30. Also, since the payments for P&I are fixed, the payment is worth less as you go into the future (time value of money). The fact that you are paying 6 more years is more of a psychological negative than a money negative.

Ofc, you are often charged some fee to refinance, but early in a loan it is almost always worth it (if you plant to stay a while).

OTOH, we just refinanced in 2002 for 4.875 for 15 years. Although it looks like there might be a lot lower rate possible (<3.5), it just doesn't pay - we only will pay a total of $14,000 more in interest over the next six years, so a lower rate saves very little. Even when we pay it off, we will owe about $550/month in taxes....