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Old 09-04-2008, 11:36 PM
 
4 posts, read 13,934 times
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We paid aggressively toward our principal and brought down our jumbo loan from $700K to $387K. Our current rate is 6% Fixed 30 years, 0 points (we paid 20% down payment when we purchased in 2005). We plan to live in our house for at least 10 years. No prepay penalty. We also have excellent credit scores (i.e. >800)

I know that jumbo loans usu. "cost" more interest wise, and now that this is no longer a jumbo loan, we considered a refinance for a better rate.

From our current lender we were quoted 5.625% (APR 6.026) with 1.75 discount points AND changing the term to 15 Yr fixed. Closing costs would be financed in.

I am mystified by the whole mortgage / points concept, and while the monthly payments are indeed $900 lower than what we're paying right now, I'm getting advice from people saying that it's not worth buying the discount points.

The loan officer said that the refin would pay for itself in a few months. It seemed to make sense, but is buying points really the smart way to go?

Or should we just keep our current 30Yr term, keeping paying down principal as aggressively as we can afford?

I've read various articles online re: to buy points or not buy points, to refi or not refi, but many are about refi from ARM to fixed, few on fixed to fixed.

We ended up not calling our current lender back to "lock in the rates today" because we don't feel like we understand enough to make an educated decision.

I hope I can get some clarification here!
thanks so much!
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Old 09-04-2008, 11:54 PM
 
Location: Tampa,FL
54 posts, read 238,680 times
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If you got a 6% fixed rate on a Jumbo loan, Id say to forget refi and just keep what you got. The only reason you are going to save 900 per month is because of the new loan balance.

If you compare apples to apples, this is what you get.

700K loan at 6% gives a payment of $4196

700k loan at 5.625% gives a payment of $4029.

When you compare apples, you are only saving about 150 per month. Now figure if all of those closing costs are worth it. If it were me, I would keep what you have. Just keep the aggressive payments going and you will be paid off in no time.
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Old 09-05-2008, 04:17 AM
 
4,963 posts, read 3,930,678 times
Reputation: 2917
Keep what you have. Its not worth it to refi.

d
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Old 09-05-2008, 07:51 AM
 
Location: Charlotte, North Carolina
5,137 posts, read 15,098,996 times
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Yesterday's rates were at 5.5% and 1 point with most lenders.
I would shop around!

I believe rates may go down more, and it maybe worth waiting....
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Old 09-05-2008, 08:03 AM
 
Location: Fort Myers, FL
1,286 posts, read 2,595,489 times
Reputation: 249
Quote:
Originally Posted by bacon128 View Post
We paid aggressively toward our principal and brought down our jumbo loan from $700K to $387K. Our current rate is 6% Fixed 30 years, 0 points (we paid 20% down payment when we purchased in 2005). We plan to live in our house for at least 10 years. No prepay penalty. We also have excellent credit scores (i.e. >800)

I know that jumbo loans usu. "cost" more interest wise, and now that this is no longer a jumbo loan, we considered a refinance for a better rate.

From our current lender we were quoted 5.625% (APR 6.026) with 1.75 discount points AND changing the term to 15 Yr fixed. Closing costs would be financed in.

I am mystified by the whole mortgage / points concept, and while the monthly payments are indeed $900 lower than what we're paying right now, I'm getting advice from people saying that it's not worth buying the discount points.

The loan officer said that the refin would pay for itself in a few months. It seemed to make sense, but is buying points really the smart way to go?

Or should we just keep our current 30Yr term, keeping paying down principal as aggressively as we can afford?

I've read various articles online re: to buy points or not buy points, to refi or not refi, but many are about refi from ARM to fixed, few on fixed to fixed.

We ended up not calling our current lender back to "lock in the rates today" because we don't feel like we understand enough to make an educated decision.

I hope I can get some clarification here!
thanks so much!
It is a good rate. Do you need a lower payment? The APR he is charging you is on the high side. 5.75% is currently par. When you had 20% to put down he should have then bought down the rate. In 2005 I did dozens of Jumbo loans in the 4% range.

An advantage of refinancing for a new rate and paying discount points gives you a lower payment. But it is figuring your break even point. The month the lower payment you received and the costs from the loan wash.

Based on $387,000 @ 15 years

@ 5.625% = $3,182 per month

@ 6% = $3,266 per month

" " " " 30 years
@ 5.625% = $2,228

@ 6% = $2,320

Is it save to assume your current payment is $4,197? (6% with 700k loan)

Did you consult with anyone about the tax implications about applying that much to your loan amount? Had I been your mortgage broker OR CPA/Financial Adviser. I would have suggested making extra payments.

For Example

$4,197 plus a 2nd check for Principle only. Imagine you made double payments. I am going to assume you had interest only since I don't know what month you closed (to make simple math). With $313k you could have afforded to make double payments for 6.2 years, assuming you ran out.

Leaving 2.93 years on the loan till its completely payed off.

Making double payments $8,394 a month would pay the loan of in 9.1 years saving you $602,866.73 in interest. and allowed you to get taxed benefits every year as well.

Perhaps you should consult your CPA or Financial Adviser on what you should do and then decide what is best for you.

If you are looking to free up cash flow or a smaller payment, then refinance. Buy points if you want your payment in the future to be lower and you don't plan on refinancing.

If you have the Income that I suspect you do. What I would do would give you a small cashout to cover all loan costs and closing. New loan amount of $415,000 at:
5% - 30 year APR of 5.545%, Total Closing fees = $24,385, Monthly Payment= $2,212. Make Double payments and pay off in 9.9 Years and save $276k in interest, a total payment over 9.9 years of $526,868 with double, without $802,012 over 30 years.

4.5% - 15 year APR of 5.329%, Total Closing Fee's = $21,953, Monthly Payment = $ 3,152. Make double payments and pay off in 6.3 years and save $94k in interest, a total payment over 6.3 years of $477,235 with doubles, without $571,450 over 15 years.

And yes these fee's seem high because you are buying down the rate with discount points.
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Old 09-05-2008, 09:07 AM
 
4 posts, read 13,934 times
Reputation: 12
Thank you, everyone for your helpful replies!

BrokerDave,

Yes, we are paying $4197/month.

In terms of taxes, I assume you meant if we've consulted with someone re: paying down over $200K toward our principal: no, we haven't. However, we're more interested in having our house free and clear and not have a mortgage hanging over our heads than whatever tax "advantages" we may realize.

We have been making extra payments on our own from the beginning. What we have done until recently is to add an extra $803 "principal only" to our mortgage payments, therefore, we pay $5K each time, and we "pay ahead". (Then recently we decided to take $200K out of our savings and apply it to principal).

According to the lender, the way that our monthly payment is applied is:
$2288 for Principal
$1989 for Interest
(then add extra $803 to Principal / month that we pay)

Right now we're paid through 11/2009. Since one of us is self employed, our strategy has been "minimize debt risk when we have a stellar year, so that we don't need to worry about the bills when we have a less than stellar year." For now, this approach has worked for us, esp. we recently had a baby and one of us has decided to stay home with the baby for 2008.

(Can you tell we're extremely risk averse and fiscally conservative?)

If I understand you correctly, you're suggesting that we can keep what we have but pay additional principal each time, so we can get the tax benefit but still pay it off early and save on interest. Right?

Thank you so much for being helpful, you've explained it better than how we were able to figure it out on our own; if we're ever looking to refinance, we'll be looking for you.
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Old 09-05-2008, 10:51 AM
 
Location: Montrose, CA
3,031 posts, read 7,867,732 times
Reputation: 1925
Bacon, nothing to add here other than it's good to see someone who is really digging in and taking care of their mortgage obligations so efficiently! Good on ya!
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Old 09-05-2008, 12:24 PM
 
Location: Fort Myers, FL
1,286 posts, read 2,595,489 times
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i would def recommend you consult a CPA. it is very important especially since someone is self-employed. i cant believe you dont already have one from the sound of it. so that you can take full advantage of tax sheltering. people should not file for themselves or for small fee company's from H&who knows who block unless they make minimum wage. you need to protect yourself financially from the IRS. what if you get audited and missed $100, they will hit you with compounded interest over 5 years?

what happens if the primary wage earner gets disabled or dies tomorrow? can the other still make 4200 a month payment? a CPA would probably recommend some sort of CD for theat 200k and then making extra payments using the interest you make off the CD. do you have proper insurance? these are things that a professional can give you advise concerning.

imagine being able to tax shelter your money through expenses. instead of paying 35% in taxes paying 28% or less.for example instead of paying taxes on $300,000, you pay on $75,000 in a lower tax bracket.

If i remember correctly per $50k at 5% is $250 a month. assuming you dont get a higher rate for more money, imagine getting $1000 a month through a cd in interest and using that to apply to your mortgage?

this is why professionals get paid the big bucks

this is just an example, obviously i would suggest you consult a licensed professional.

Last edited by brokerdave; 09-05-2008 at 12:35 PM..
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Old 09-05-2008, 02:39 PM
 
4 posts, read 13,934 times
Reputation: 12
Thanks, SuSuSushi

BrokerDave, we do have a CPA for our taxes and he does both our personal and biz filings. I thought you meant if I first consulted with the CPA before deciding to shave off principal.

We also use a SEP-IRA to help with the tax bracket.

I haven't seen a 5% CD in a while! We both had our money in interest generating CDs and Money Market. The reason why we decided to take this $ out and apply it to the mortgage is that none of these conservative investment vehicles are generating more than what we're charged at 6% of mortgage.

Thus it makes sense for us to first pay off the debt at higher interest rate, even if I've read many articles that advocate investing the $. I think psychologically we're too risk adverse to deal with stocks, and we aren't interested in becoming landlords (i.e. investing in commercial real estate).
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Old 09-05-2008, 02:55 PM
 
Location: Fort Myers, FL
1,286 posts, read 2,595,489 times
Reputation: 249
4.65% for a jumbo CD

what i was saying is, you should really be contacting your CPA before doing these things. that's what he is there for. you want to pay off your mortgage, but how do you know if your going about it the best way.

what if you were able to keep 50-100k per year in income over the next 5-15 by using your money wisely and applying a certain amount at the end of the year (extremely common) to offset your income.

would you rather pay high taxes? or keep more money that is earned?
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