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it is 11% lower than the purchase price 9 months ago.
We were planning to refi a 5.75% into a 4.25% for a savings of $300/month.
We were going to put about 14K more in the house now we would have to put 40k.
Does it make financial sense to go ahead with the refi? Should we keep the 40k and invest it in the down market? Paying the extra 40k will eat up part of our EF. TIA
Why are you surprised that your house value has dropped? The writing was on the wall much earlier than your mere 9 months ago. Hey, it's too bad but if you bought nine months ago with the intention of refinancing, and didn't clue in to the fact that house values are dropping rapidly (especially in your market), well...sorry.
Why are you surprised that your house value has dropped? The writing was on the wall much earlier than your mere 9 months ago. Hey, it's too bad but if you bought nine months ago with the intention of refinancing, and didn't clue in to the fact that house values are dropping rapidly (especially in your market), well...sorry.
I do not regret purchasing the home. I bought it at the going price at the time I bought it. I did not want to be a renter. BTW we made out like bandits back in 2006 when we sold a home in AZ so we are still way ahead.
Back to my question does anyone know how to do the numbers on what is better financially. Invest 40k on the house to save $300/ month or invest it on the down market.
We would still have some liquidity, not as good as right now though.
Location: central, between Pepe's Tacos and Roberto's
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A savings of $300 a month at a cost of $40,000 sees a break even point of 133.33 months, or 11.1 years. Assuming a pretax return of 3% compounded (conservative numbers in my opinion) that $40,000 with no annual addition would become $55,369.35 in 11 years. If you were to take that $300 a month and invest it in the market, using the same compounded 3% but with a beginning principal of $3600 ($300x12) plus an annual addition of $3600 a year for 11 years your end gross amount would be $52,474.55.
I didn't crunch the numbers quite as thoroughly as the previous poster, but $40K is quite a bit to have to give up from your kitty. I was in much the same situation, except I bought a bit earlier and my house value dropped a bit more than you. I would have had to come up with $28K in order to close on a 4.25% rate and save about $350/month, and I opted to hold off. I felt more comfortable holding onto my cushion for now - and wait to see if there was some of the refinancing programs coming down the pike that might alleviate me having to cut into my reserves in order to refinance.
I did look at this a bit differently, though, in that I only look at the refinance charges, not the downpayment portion, to calculate my break even point... simplistic, perhaps, but I plan on paying off my house at some point, so I would be putting that "downpayment" money into the mortgage at some point anyway... now or later ... and I could be putting that extra $350/month towards principal to pay it down more quickly.
No matter that my break even (in my mind) would have been quite a bit shorter than the 11 years shown above... I opted not to eat into my cushion, and I decided against the refinance. I still consider my original interest rate to be quite good...
It is up to you on what gives you the most peace of mind, though.
A savings of $300 a month at a cost of $40,000 sees a break even point of 133.33 months, or 11.1 years. Assuming a pretax return of 3% compounded (conservative numbers in my opinion) that $40,000 with no annual addition would become $55,369.35 in 11 years. If you were to take that $300 a month and invest it in the market, using the same compounded 3% but with a beginning principal of $3600 ($300x12) plus an annual addition of $3600 a year for 11 years your end gross amount would be $52,474.55.
Marry me? That's some mighty purty numberin' there!
Location: central, between Pepe's Tacos and Roberto's
2,086 posts, read 6,848,852 times
Reputation: 958
Quote:
Originally Posted by Snafu
I didn't crunch the numbers quite as thoroughly as the previous poster, but $40K is quite a bit to have to give up from your kitty. I was in much the same situation, except I bought a bit earlier and my house value dropped a bit more than you. I would have had to come up with $28K in order to close on a 4.25% rate and save about $350/month, and I opted to hold off. I felt more comfortable holding onto my cushion for now - and wait to see if there was some of the refinancing programs coming down the pike that might alleviate me having to cut into my reserves in order to refinance.
I did look at this a bit differently, though, in that I only look at the refinance charges, not the downpayment portion, to calculate my break even point... simplistic, perhaps, but I plan on paying off my house at some point, so I would be putting that "downpayment" money into the mortgage at some point anyway... now or later ... and I could be putting that extra $350/month towards principal to pay it down more quickly.
No matter that my break even (in my mind) would have been quite a bit shorter than the 11 years shown above... I opted not to eat into my cushion, and I decided against the refinance. I still consider my original interest rate to be quite good...
It is up to you on what gives you the most peace of mind, though.
This is true but simply looking at it for a dollar for dollar comparison as to what will return better, as well as how long it will take to recoup money out of pocket, I referred to it as the break even point. In reality you should only use the cost of the refinance to calculate break even. I altered the standard definition of break even a little for the purposes of this particular scenario.
I didn't crunch the numbers quite as thoroughly as the previous poster, but $40K is quite a bit to have to give up from your kitty. I was in much the same situation, except I bought a bit earlier and my house value dropped a bit more than you. I would have had to come up with $28K in order to close on a 4.25% rate and save about $350/month, and I opted to hold off. I felt more comfortable holding onto my cushion for now - and wait to see if there was some of the refinancing programs coming down the pike that might alleviate me having to cut into my reserves in order to refinance.
I did look at this a bit differently, though, in that I only look at the refinance charges, not the downpayment portion, to calculate my break even point... simplistic, perhaps, but I plan on paying off my house at some point, so I would be putting that "downpayment" money into the mortgage at some point anyway... now or later ... and I could be putting that extra $350/month towards principal to pay it down more quickly.
No matter that my break even (in my mind) would have been quite a bit shorter than the 11 years shown above... I opted not to eat into my cushion, and I decided against the refinance. I still consider my original interest rate to be quite good...
It is up to you on what gives you the most peace of mind, though.
The reason we would need 40k is because ING now only does 75% or less mortgages. We were already planning on adding 14k.
We did get 30k this month from the sale of our previous home. So it would be like transferring the money from one house to the other.
Quote:
Originally Posted by Daddys///M3
This is true but simply looking at it for a dollar for dollar comparison as to what will return better, as well as how long it will take to recoup money out of pocket, I referred to it as the break even point. In reality you should only use the cost of the refinance to calculate break even. I altered the standard definition of break even a little for the purposes of this particular scenario.
Thank you. That is what I was looking for because we will not stay in this house for a long time. $300 a month seemed like a lot of money but I guess it isn't.
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That's some mighty purty numberin' there!
