Mortgage Experts -- Need Advice (loan, interest rate, escrow, rate)

[coolcats]

I have about 27 years and $132k left on my mortgage with Wells Fargo. My current interest rate is 4.685%. Today I called the company about something else, and they offered to do a no-cost refi with 3 options:

-- 30 years at 3.85%, which would decrease my monthly obligation by $91

-- 20 years at 3.75%, which would increase my monthly obligation about about $80

-- 15 years at 3.25%, which would increase my monthly obligation by about $200.

Note that I already pay about $50 a month above my required payment. So the 20-year option would only require me to pay about $30 more than I pay now. The 30-year option would allow me to apply an extra $140 toward principle each month without increasing my monthly paymen. I don't really want to increase my required payment by $200, so I don't think I want to do the 15-year option.

So I am left wondering:

1) Why would they make such an offer?

2) Are there any downsides to refinancing at no cost, especially at the 30 or 20-year terms?

3) Which of the above scenarios makes the most sense?

Are the rates decent for a no-cost refi? I'm not really interested in spending a lot of money on closing costs because my loan amount is relatively small and I already have a decent rate.

[sj08054]

Originally Posted by coolcats

I have about 27 years and $132k left on my mortgage with Wells Fargo. My current interest rate is 4.685%. Today I called the company about something else, and they offered to do a no-cost refi with 3 options:

-- 30 years at 3.85%, which would decrease my monthly obligation by $91

-- 20 years at 3.75%, which would increase my monthly obligation about about $80

-- 15 years at 3.25%, which would increase my monthly obligation by about $200.

Note that I already pay about $50 a month above my required payment. So the 20-year option would only require me to pay about $30 more than I pay now. The 30-year option would allow me to apply an extra $140 toward principle each month without increasing my monthly paymen. I don't really want to increase my required payment by $200, so I don't think I want to do the 15-year option.

So I am left wondering:

1) Why would they make such an offer?

2) Are there any downsides to refinancing at no cost, especially at the 30 or 20-year terms?

3) Which of the above scenarios makes the most sense?

Are the rates decent for a no-cost refi? I'm not really interested in spending a lot of money on closing costs because my loan amount is relatively small and I already have a decent rate.

Anytime you are offered a no-cost refi for lower rate, you take. As long as

1. It's truely no cost and not rolled into the new loan.
2. You understand and new terms and that there are no catch.
3. You have enough equity.

In your case, I would go for the 30years if you want to be "safe" but note that your loan will reset back to 30 years. If you are comfortable doing the extra $50 already for the last 3 years, then converting to a 20years may make more sense.

[chet everett]

The paltry discount of one tenth of a percent on interest is hardly enough incmetice to choose 20 years over 30. Even the six tenths discounts for 15 years is pretty measly. The flexibility you have by either deciding to pay down your mortgage with additional principal payments vs having to cough up another $2400/yr would generally lead me to suggest the 30 yr term. I suppose if you are the type to spend any extra cash instead of investing or perhaps is already sitting on top of a massive mound of retirement savings I could see going with a 15 year term, but only if you have some highly stable employment situation AND the likelihood of your property appreciating faster than average is high -- essentially your valuation increase should be thought of in terms of the likely rise of alternate investments for the portion of the payment that you are diverting to accelerated equity...

[Thinking-man]

Take the 15 year option!
it's just 150 more than what you're paying now, and if you can afford it, it'll save you THOUSANDS!!!!! (about 20k-30k at least)

[do_not_have_a_cow]

Take the 30 year loan...but commit to paying it like a 15 year loan. It would turn the 30 year into about a 19 year loan...but if you hit hard times it gives you the ability to "pay less"

[VictorBurek]

Originally Posted by do_not_have_a_cow

Take the 30 year loan...but commit to paying it like a 15 year loan. It would turn the 30 year into about a 19 year loan...but if you hit hard times it gives you the ability to "pay less"

I totally agree. the only homeowners that should consider a term of less than 30 years should have 2 things met first. No debt other than the mortgage and a liquid emergency fund of 6 months living expenses.

[Modification Specialist]

Originally Posted by do_not_have_a_cow

Take the 30 year loan...but commit to paying it like a 15 year loan. It would turn the 30 year into about a 19 year loan...but if you hit hard times it gives you the ability to "pay less"

Here's a link for some excel spread sheets, you plug in the numbers. (Note the numbers do not reflect your escrows.)

Spreadsheets - The Mortgage Professor

Currently loan paying $709.83 + $50 = $759.83

A new 20 yr loan = payment $782.61 - Knocks off 7 years.

The 20yr is your best option.




..