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I split my mortgage with a sibling, and we split everything halfway.
Our property was purchased at: $258,xxx (based on the town tax assessment, the value property went down this year)
Our current mortgage amont is: $218,xxx
We have 30 year fixed at 6%
We have PMI because we don't have 20% equity down(extra $100/month)
Originally, the plan was to keep paying extra towards principal until the equity is up to 20% (and then we can get rid of PMI). Then the rest would just be paid over the remaining years.
Having that said, mortgage rates are still at a record low. I am looking at the rates at the local bank and they're offering 4.50% for a 15 year loan (no points, closing cost ~2k). I've been crunching numbers and figured that the cost could be recouped within a year. The payment would be increased to an extra $300/month, which is do-able since we have no major debts.
I'm hesitating due to the following:
1) We may or may not eventually sell the place in the next 5-10 years (uncertainty here)
2) I'd like to keep more liquid asset for a home purchase (so that we each have our own place eventually.) When I purchase a new place, the loan will need to be adjusted to our names.
3) Don't want to hedge it in case of layoffs. We have some emergency funds saved up for mortgage payment. While layoff seems unlikely at this time, one can never know.
4) Even if I get rid of my PMI at my current bank, I may still have to pay PMI for my refinanced loan if the appraisal value of the property goes down.
5) I don't have a lot saved for retirement (most were saved for the downpayment), so I'd like to bulk up in this area.
The obvious perks would be a much shorter loan (15 year) and we'd end up paying less interest. The rates probably won't ever go this low again. But I'm hesitating due to the above reasons and I'm not sure if a refinancing makes the most financial sense. Thoughts or advice?
Some additional info would be helpful:
Month/year of purchase, property zip code and former & current property tax value? How old are you?
Current comparable sales values in your area? Do you and sibling file standard deduction or itemized returns?
I think spirited, you don't understand the "mortgage"... they put most of your payments with interest first on the first 15 years of your mortgage... that means most of your payments went to the interest part of your mortgage... so if you refinance, you start it ALL over... you end up paying a LOT more in interest albeit at a lower interest rate... so I break it down to you...
30 year 6% interest rate ... just for fun lets say you paid 50k in interest already... you refinance it at 4.5% for 30 years and will be paying an additional 100k in interest for the refinance... that means you pay in total 150k in interest (again, just making up numbers)... let's look at what would of happened if you did NOT refinance...
30 year 6% interest rate and you paid 50k already... you decide to NOT refinance and keep paying your mortgage... you end up paying only 30k more in interest... that means you paid 80k in interest... saving you 70k in money by NOT refinancing...
Of course this all assume that you have been paying regularly for SEVERAL years... so the ONLY way to know for sure is to know WHEN you bought the home... and if you are going to live there forever or not cause it matters a lot and based on your response, its hard to help you at all... but if you make additional payments throughout the year, your interest payments go down a LOT... some people point out that your monthly payment is lower BUT you also pay "X" number of years MORE... don't trust the banks they always want you to refinance, that's how they make their money...
Lower interest rate means you will pay LESS for the amount borrowed.
Lenders are not currently eager to refi without the borrower having 20% or more equity, though there ARE programs (including FHA and other special situations) that may work.
Lenders often charge POINTS upfront to borrowers who want to refi -- these points may make the lower interest rate non-competitive for a period of time THUS it is vital to determine how long you are likely to remain in the house.
It is flat out incorrect to say that by refinancing "you start over". It is possible, though not common, to have a mortgage written for 20 years, 25 years, 10 years, whatever term you find the rate will be adjusted by the lender so that they can get the return they expect and the borrower will have a loan that gives them the liquidity they want.
By carefully evaluating the rate and terms of the loans (which include length as well as up front points) it is often possible to leave much more money in your pocket.
I split my mortgage with a sibling, and we split everything halfway.
Our property was purchased at: $258,xxx (based on the town tax assessment, the value property went down this year)
Our current mortgage amont is: $218,xxx
We have 30 year fixed at 6%
We have PMI because we don't have 20% equity down(extra $100/month)
Originally, the plan was to keep paying extra towards principal until the equity is up to 20% (and then we can get rid of PMI). Then the rest would just be paid over the remaining years.
Having that said, mortgage rates are still at a record low. I am looking at the rates at the local bank and they're offering 4.50% for a 15 year loan (no points, closing cost ~2k). I've been crunching numbers and figured that the cost could be recouped within a year. The payment would be increased to an extra $300/month, which is do-able since we have no major debts.
I'm hesitating due to the following:
1) We may or may not eventually sell the place in the next 5-10 years (uncertainty here)
2) I'd like to keep more liquid asset for a home purchase (so that we each have our own place eventually.) When I purchase a new place, the loan will need to be adjusted to our names.
3) Don't want to hedge it in case of layoffs. We have some emergency funds saved up for mortgage payment. While layoff seems unlikely at this time, one can never know.
4) Even if I get rid of my PMI at my current bank, I may still have to pay PMI for my refinanced loan if the appraisal value of the property goes down.
5) I don't have a lot saved for retirement (most were saved for the downpayment), so I'd like to bulk up in this area.
The obvious perks would be a much shorter loan (15 year) and we'd end up paying less interest. The rates probably won't ever go this low again. But I'm hesitating due to the above reasons and I'm not sure if a refinancing makes the most financial sense. Thoughts or advice?
Going from a 6% down to a 4.5% is going to save you a lot of money. We went from 5.75% on a 250k down to 4.5% and are saving 200 per month after the first 6 months when we are repaying cc.
Regarding PMI, you may qualify for the Making Home Affordable - Home Affordable Refinance program. You will still have to pay PMI but it won't be based on the appraised value.
Anyway it does not hurt you to call around a few lenders and do some comparison shopping.
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