Should I refinance (loan, escrow, foreclosures, fees)

[00molavi]

House was bought in 2009, have paid 40% down payment. 30 yr fixed with 5.125 rate. I could pay some more towards capital (another 15%) and refinance to a 15 yr with a payment that is just a bit higher than the current payment. The total payment over the life of both loans would be 2/3rd with the 15 yr loan compared to the current 30 yr. I will be paying less in interest/also getting less in tax deduction. Would not be able to invest the extra cash I am putting in the house now-but then the cash is just gaining %1 as it is.

So what are your thoughts. This has been our first home, planning to stay here for at least another 8-10 yrs.

[ShanetheMortgageMan]

13 years off your mortgage for a slightly higher payment? Other investments earning crap? I think refinancing would be one way you could save a lot of money for your family at this point. What can you do with the extra amount you would be paying every month instead? Can you build it up to the point you'd have shaved 13 years of payments off your mortgage?

[Modification Specialist]

Originally Posted by 00molavi

..bought in 2009, paid 40% down payment. 30 yr fixed with 5.125 rate.
pay some more towards capital (another 15%)

refinance to a 15 yr with a payment that is just a bit higher than the current payment. (4.5% rate?)

The total payment over the life of both loans would be 2/3rd with the 15 yr loan compared to the current 30 yr.

will be paying less in interest/also getting less in tax deduction. (what about costs of loan?)

Would not be able to invest the extra cash I am putting in the house now-but then the cash is just gaining %1 as it is. (no extra cash - new loan higher payment?)

I respect Shane's advice, he is one of the people in our forum to ask about mortgages.

However we do not know the loan amount to do exact comparisons.

You mention "Both Loans" - presume a 1st and 2nd mortgage, consolidating both into one loan is good. Also reducing term from 28 yrs to 15 yrs is a huge benefit.

You have not mentioned what the closing costs are to refinance into a 15yr mortgage. How much is the total savings.

I can guess you are being sold by the broker this is a good deal. You and your wife wondering/asking to each other a higher payment reducing all these years. This sounds like a sound deal.

You probably can tell what I do by my name - every week I speak to home owners that have over extended themselves and are facing foreclosures.

Why not consider a 20 yr mortgage - a lower rate and payment and knocking of years. Then you can sent extra into your loan to reduce your term. Not locking your self into a higher payment.

Example $126,000 20 yr loan @ 4.5% = p/i payment $797.00. Take term to 16.8yr via payment of $399 paying Bi Weekly

Better yet - reduce term to 8.8yrs paying $184 weekly. (This option is hardly ever mentioned because banks do not make money). Add 12 of your normal payments and divide by 52, then schedule yourself 52 payments to your lender. Most people now days have online checking, it takes a few hours to set up, the savings are huge!!!!......

(Cautioned on above - looking at your loan note, banks sometimes will charge a prepay penalty if more than a certain percentage of the loan is paid extra each year. By aware of this. Banks are not predicting home owners making payments into weekly - if it not stated in the note, ........ what is stopping you!!!!!!)

Good Luck....
.

[00molavi]

Thanks a lot for taking the time and responding.

By both loans I meant the current 30yr vs the 15yr. We actually had a 40% down payment when we bought it-I always try to keep things in check financially and this is the only time I have financed anything in my life. The loan is within the conventional limits-we are in CA, so houses are pricey here. The "extra" payment with 15 yr is ~ $200, not a major problem in our monthly budget at this point.

Loan is through the bank that I have checking with and I make online payments, but I don't think there is an option to pay anything less than the next month's due.

I am working with a broker, I have approached him myself, so I feel less suspicious, he also did a decent job on the purchase loan. He shows me how much his fees are and I know he can not do this for free either. The rates he offers are less than the rate the bank would give me directly. I have included the closing costs in my estimation of savings over the life of the loan.

I have looked into the 20 year loan too, the rate and the time savings make it less appealing at this minute.

[SacramentoBound]

Originally Posted by Modification Specialist

Example $126,000 20 yr loan @ 4.5% = p/i payment $797.00. Take term to 16.8yr via payment of $399 paying Bi Weekly

Better yet - reduce term to 8.8yrs paying $184 weekly. (This option is hardly ever mentioned because banks do not make money).

Is there a typo or math error in that weekly term estimate? Unless I'm misunderstanding something about your terminology, $399 biweekly means 26 payments a year for $10,374 annually; $184 weekly means 52 payments a year for $9,568 annually. I understand why biweekly payments lower the term from 20 to 16.8; you're making more payments and you're making them earlier. But it seems totally unbelievable that the term could be almost cut in half from 16.8 to 8.8 simply by making a smaller annual payment even more frequently (vs biweekly). Can that possibly be true?

[FalconheadWest]

Why don't you just take your extra cash and buy the mortgage down on your own? Closing costs can be upwards of $5000 (if you have a loan origination fee, possibly more). Why not just take what you would spend in closing costs and put that towards your principle, and then your interest payments would be reduced, which is what you're wanting, and then you don't have to worry about having to make higher payments in case something bad happens. You can always make extra as long as you have the extra, but as soon as a medical bill or car maintenance happens, you can go back to your lower payment without worrying... At a current 5.125%, I find it silly to refinance.

[00molavi]

That is very interesting, did not know that is an option to reduce interest payments. Now I found this calculator and based on paying one extra sum once and the additional monthly payments needed with the 15 yr loan the loan pay off date comes to exactly 15 yrs from today. Eye opening and unexpected. Thanks a lot.

[00molavi]

So I have been tinkering with this and going back and forth with the different calculators. Where I stand now;

1- If I prepay on the current 30yr loan and add the same amount to the monthly payment that the 15 yr loan would be, still the 15 yr loan gets me off the hook ~ 3 years earlier (I have also added the escrow fees/closing costs on a 15 yr loan to the prepayment on the original 30yr)

2- In addition seems like with the 15 yr loan, if I decided to sell in 5 yrs (for arguments sake), I would have paid more towards principal.

I know without the original loan numbers it is difficult for anybody else to do the math, but any comments are welcome.

[LegalDiva]

at 5.125 I dont think paying for closing costs is worth it. I wouldnt do it. Just pay more toward the principal and save that money.