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Old 05-07-2018, 07:28 AM
 
10,221 posts, read 6,369,371 times
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I'm just looking for info out of curiosity mostly right now,. unless rates drop back down to 3.5% or below it would not make sense for me to refinance.

When you refinance do you:

1.Get a 30 year loan or can you pick the length at say 27 or 23 years or is it mostly set at increments of 5 like 30, 25.....Meaning can you get one for the same amount of years you have left to pay with your current mortgage.

2.Otherwise does it start at 30 years again? Or even if you paid a few years can you start at 30 again?

3.Are there prepayment penalties?

4.Do most of the payments begin again as more interest than principal? or does it not matter in the long run if you plan to take 30 years to pay even if you paid 5 years already on your previous loan?


5. Is there a certain number of years after paying your mortgage that refinancing does not make sense because of the higher interest payments at first, or does it not matter because the payments will be lower?
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Old 05-07-2018, 08:10 AM
 
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I thought you were in great shape with your house and finances. I don’t think you need to worry about rates going very low again.
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Old 05-07-2018, 08:23 AM
 
10,221 posts, read 6,369,371 times
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Quote:
Originally Posted by Sharpydove View Post
I thought you were in great shape with your house and finances. I don’t think you need to worry about rates going very low again.
I'm just looking for info out of curiosity. I didn't ask you your opinion of my house or finances or what I need to worry about as far as interest rates.

I'm just trying to gather some knowledge on the subject from people who may know the answers.
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Old 05-07-2018, 09:30 AM
 
Location: Great White North Hills
10,977 posts, read 13,568,533 times
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  1. You start all over at 30 if you want. 15 and 20 are the other usual alternatives. Most lenders are flexible
  2. above
  3. Depends on the lender, get the info from them
  4. New loan, heavy interest on the front end, you can run a program to check it
  5. Depends on what you personally want to do. If the monthly payment is higher than you like, get a longer term.
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Old 05-07-2018, 09:47 AM
 
2,938 posts, read 2,838,853 times
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Quote:
Originally Posted by LifeIsGood01 View Post
1.Get a 30 year loan or can you pick the length at say 27 or 23 years or is it mostly set at increments of 5 like 30, 25.....Meaning can you get one for the same amount of years you have left to pay with your current mortgage.
Most loans I've seen are advertised as 15, 20 or 30. However, it isn't very difficult with a spreadsheet or something like a mortgage calculator (google it) to see when you'd have the loan paid off if you chip in a little more to your monthly payment. Some loan companies let you set your own term, but for the most part, the noticeable interest rate drops occur at 15 years. I didn't find any bonus for me to set a 22 year term.

Quote:
2.Otherwise does it start at 30 years again? Or even if you paid a few years can you start at 30 again?
If you've paid a few years already, it can still start at 30 if you want it to, or see above - you can make a bigger payment.

Quote:
3.Are there prepayment penalties?
I will not claim to be an expert in the business of loans, but as someone that has refinanced a bunch, I've never seen prepayment penalties. I think that's uncommon now.

Quote:
4.Do most of the payments begin again as more interest than principal? or does it not matter in the long run if you plan to take 30 years to pay even if you paid 5 years already on your previous loan?
Depends on the term and the interest rate. Here are some rough examples of what you'd pay in the first year per 100k loan:

Term Interest Rate Principal Interest
30 3.5 1900 3450
30 4.0 1700 4000
30 4.5 1600 4450
20 3.5 3500 3450
20 4.0 3300 3900
20 4.5 3150 4400
15 3.5 5100 3450
15 4.0 5000 4000
15 4.5 4800 4400

I bolded the examples where you pay less in interest during the first you than you do principal.


Quote:
5. Is there a certain number of years after paying your mortgage that refinancing does not make sense because of the higher interest payments at first, or does it not matter because the payments will be lower?
Generally speaking, I'd say no. Assuming no prepayment penalties, take this example:

On Jan 1 2013 you take out a 100k loan @3.5% for 30 years would require a payment of $449.04 per month. Let's say you carried it for 5 years like that. Your balance would be $89697 and you'd have paid $26942 with $16639 going to interest.

Now, let's say you had the option to refi to a 15 year @ 4.00%. That would require a payment of 664.86 on the balance of $89697 (assuming no closing costs). You'd have that loan paid off by Jan 2033. The total cost of the first 5 years of the 30 year @ 3.5% PLUS the 15 year @ 4.00% would be $146614 and interest would have cost you about $46614.

Now instead of taking that 15 year refi @ 4%, what if you simply started paying the 664.86 payment as if you were IN a 15 year refi? You'd pay the loan off about 10 months earlier (Feb 2032) at a total cost to you of $140633 with interest costing you about $40633.

So, you "saved" 6k in this scenario by sticking with you have (and keeping flexibility in your payments).

Mind you, there are plenty of permutations out there. If you need specific numbers, you can DM me and maybe I can help you out (Disclaimer: I'm not a mortgage professional, but just like the math behind it).

Point is, a higher interest rate won't be to your favor unless you getting out from PMI.
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Old 05-07-2018, 10:45 AM
 
10,221 posts, read 6,369,371 times
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Quote:
Originally Posted by Copanut View Post
  1. You start all over at 30 if you want. 15 and 20 are the other usual alternatives. Most lenders are flexible
  2. above
  3. Depends on the lender, get the info from them
  4. New loan, heavy interest on the front end, you can run a program to check it
  5. Depends on what you personally want to do. If the monthly payment is higher than you like, get a longer term.
Thanks.
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Old 05-07-2018, 10:48 AM
 
10,221 posts, read 6,369,371 times
Reputation: 10770
Quote:
Originally Posted by dspguy View Post
Most loans I've seen are advertised as 15, 20 or 30. However, it isn't very difficult with a spreadsheet or something like a mortgage calculator (google it) to see when you'd have the loan paid off if you chip in a little more to your monthly payment. Some loan companies let you set your own term, but for the most part, the noticeable interest rate drops occur at 15 years. I didn't find any bonus for me to set a 22 year term.

If you've paid a few years already, it can still start at 30 if you want it to, or see above - you can make a bigger payment.

I will not claim to be an expert in the business of loans, but as someone that has refinanced a bunch, I've never seen prepayment penalties. I think that's uncommon now.

Depends on the term and the interest rate. Here are some rough examples of what you'd pay in the first year per 100k loan:

Term Interest Rate Principal Interest
30 3.5 1900 3450
30 4.0 1700 4000
30 4.5 1600 4450
20 3.5 3500 3450
20 4.0 3300 3900
20 4.5 3150 4400
15 3.5 5100 3450
15 4.0 5000 4000
15 4.5 4800 4400

I bolded the examples where you pay less in interest during the first you than you do principal.


Generally speaking, I'd say no. Assuming no prepayment penalties, take this example:

On Jan 1 2013 you take out a 100k loan @3.5% for 30 years would require a payment of $449.04 per month. Let's say you carried it for 5 years like that. Your balance would be $89697 and you'd have paid $26942 with $16639 going to interest.

Now, let's say you had the option to refi to a 15 year @ 4.00%. That would require a payment of 664.86 on the balance of $89697 (assuming no closing costs). You'd have that loan paid off by Jan 2033. The total cost of the first 5 years of the 30 year @ 3.5% PLUS the 15 year @ 4.00% would be $146614 and interest would have cost you about $46614.

Now instead of taking that 15 year refi @ 4%, what if you simply started paying the 664.86 payment as if you were IN a 15 year refi? You'd pay the loan off about 10 months earlier (Feb 2032) at a total cost to you of $140633 with interest costing you about $40633.

So, you "saved" 6k in this scenario by sticking with you have (and keeping flexibility in your payments).

Mind you, there are plenty of permutations out there. If you need specific numbers, you can DM me and maybe I can help you out (Disclaimer: I'm not a mortgage professional, but just like the math behind it).

Point is, a higher interest rate won't be to your favor unless you getting out from PMI.
Thanks for the info. I do know about the extra mortgage payoff calculators online. I am paying a little extra each month and at this rate I can knock off 7 years on my loan, and i hope to increase the extra amount I pay to even make the term shorter.

At first i didn't realize you example but now I see how shorter terms can pay more into principal than interest.
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Old 05-07-2018, 11:18 AM
 
10,221 posts, read 6,369,371 times
Reputation: 10770
Quote:
Originally Posted by dspguy View Post



Point is, a higher interest rate won't be to your favor unless you getting out from PMI.
How much higher. it is a hard and fast rule that if your current rate plus PMI is less that the rate you can get that you should stay with what you have? I know with closing costs to refinance it might also be better to stay with what you have and you can always prepay and be done in 15 years.
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Old 05-08-2018, 06:54 AM
 
2,938 posts, read 2,838,853 times
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Quote:
Originally Posted by LifeIsGood01 View Post
How much higher. it is a hard and fast rule that if your current rate plus PMI is less that the rate you can get that you should stay with what you have? I know with closing costs to refinance it might also be better to stay with what you have and you can always prepay and be done in 15 years.
It is easier to figure this out with hard figures instead of my giving hypothetical examples. With the new tax reform act, the answer might be more muddled. If you aren't able to do itemize higher than the standard deduction, there are no tax benefits to the interest you are paying. In that case, if your options are:

- Pay PMI and a lower interest rate
- Refi out of PMI and a higher interest rate

then you'd have run the actual numbers to see if makes sense to keep paying that PMI. Check your loan terms. Are you forced to pay PMI for 5 years total OR whenever your LTV is 78%? Most loans I've come across is "at least 5 years even if LTV hits 78%."

With actual numbers, the answer could become obvious. Of course, it is always important to keep in mind that when you refi, closing costs will be somewhere. Some might be paid by the lender or buried in the principal. You'd need also figure out where the breakeven point is since you may not own that property for the term of the loan anyway.
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Old 05-08-2018, 06:58 AM
 
12,392 posts, read 9,116,565 times
Reputation: 8837
Quote:
Originally Posted by LifeIsGood01 View Post
I'm just looking for info out of curiosity mostly right now,. unless rates drop back down to 3.5% or below it would not make sense for me to refinance.

When you refinance do you:

1.Get a 30 year loan or can you pick the length at say 27 or 23 years or is it mostly set at increments of 5 like 30, 25.....Meaning can you get one for the same amount of years you have left to pay with your current mortgage.
Most lenders don't offer "oddball" mortgage terms. 10, 15, 20, and 30 year loans are often available. My suggestion is get a 30 until you can comfortably afford the payments on a 20, and get a 20 until you can comfortably afford to pay a 15. If you want to have 23 years left, you can use an online calculator to figure out how much extra to pay each month on a 30-year loan so the loan will be paid off in 23 years. In other words, you can treat your 30 year loan as a 23-year loan by paying extra towards principal each month.

Quote:
Originally Posted by LifeIsGood01 View Post

2.Otherwise does it start at 30 years again? Or even if you paid a few years can you start at 30 again?
You choose at the time of refinancing.

Quote:
Originally Posted by LifeIsGood01 View Post

3.Are there prepayment penalties?
Usually no, but read the contract.

Quote:
Originally Posted by LifeIsGood01 View Post

4.Do most of the payments begin again as more interest than principal? or does it not matter in the long run if you plan to take 30 years to pay even if you paid 5 years already on your previous loan?
If you refinance into a 30-year loan, then your minimum payment will be mostly interest and only a little principal. However, you can pay extra principal each month on top of the required payment if you want to reduce the total interest you will pay over the life of the loan.

Quote:
Originally Posted by LifeIsGood01 View Post

5. Is there a certain number of years after paying your mortgage that refinancing does not make sense because of the higher interest payments at first, or does it not matter because the payments will be lower?
The issue is the closing costs. If you are 25 years into a 30-year mortgage and only owe $45k for instance, the interest savings probably would not justify a refinance. However, it is sometimes possible to find home equity loans with a lower rate than the mortgage. In this case, you can just get a home equity loan with no closing costs, and then use the money to pay off the first mortgage.
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