Should I refinance?

[night_son]

So if I can refinance my house at 2.3% for 15 years, should I do it? Basically, I'm paying off my old mortgage (4.5%) 100k on 250k house. But the fees (110k on a 100k loan) has me thinking twice about pulling the plug. Any input is much appreciated!

Do you need the money that badly? If not think thrice . . .

 

[Dekster]

So if I can refinance my house at 2.3% for 15 years, should I do it? Basically, I'm paying off my old mortgage (4.5%) 100k on 250k house. But the fees (110k on a 100k loan) has me thinking twice about pulling the plug. Any input is much appreciated!

Assuming you mean $10K in fees on a $100K loan refinance, that would be really really high. Yes you should if you can but not with that lender. The average cost of that would be about half as much. Start with a credit union if you belong one or have one in your area. From there, check with local banks that tend to hold your loan instead of reselling it. That cuts down on your costs as well.

 

[SmokeALib]

For $100K? Okay, here is how you check. A few different comparisons:

(Say you have closing costs of $2000 with appraisal. Maybe less, with some online lenders and bigger banks. Maybe more with others)

1) First, calculate the payment for $102,000 @ 2.3% for 15 yrs: $671/mo

2) Now, $100,000 @ 4.5% for 15 yrs: $765/mo

(765-671= $94/mo) * 180 mos = $16,920 saved, refinancing


So, you would save $16,920 over 15 years if you only ever plan to make the minimum payment required to pay off the home in 15 years. I.E., pay off mortgage you have for 180 months, versus refinancing it.

However, if you plan to pay more than the minimum:

Let's say you are comfortable paying $1000 per month. So, now , we hold the payment constant:

1) Keep current mortgage: $100,000 @ 4.50%, $1000 pd/mo: 125.5 payments, $125,500 paid in total.

2) Refinance: $102,000 @ 2.3%, $1000 pd/mo: 113.6 payments, $113,600 paid in total.

$11,900 saved over 9-10 years. Paying off about 1 year faster. About the same amount saved per year in the first scenario, really.

BUT you also do gain equity much faster, naturally, when you overpay. In scenario 2, where you overpay, Only about one year faster, though.

So the difference between refinancing and not refinancing is slight, if you plan overpay the mortgage by any substantial amount.

Wow. Super helpful. Thank you.

 

[SmokeALib]

Do you need the money that badly? If not think thrice . . .

Not cashing out. Just want to cut interest rates and pay off sooner.

 

[SmokeALib]

Assuming you mean $10K in fees on a $100K loan refinance, that would be really really high. Yes you should if you can but not with that lender. The average cost of that would be about half as much. Start with a credit union if you belong one or have one in your area. From there, check with local banks that tend to hold your loan instead of reselling it. That cuts down on your costs as well.

Fees are broken down as:
Points 2000
Origination fee 1200
Services (title. Etc) 1100
Prepaid (insurance and taxes) 4700
Does this sound reasonable?

 

[AzogtheDefiler]

Wow. Super helpful. Thank you.

My issue is that you can likely refi for a much lower fee not the mathematics behind it. With that fee your true rate is not 2.3%

 

[SmokeALib]

It is $10k on a $100,000 loan....and THAT is highway robbery, for refinancing fees!!!!

About 4700 is prepay for taxes and insurance. Rest is points, title, origination fee.

 

[SmokeALib]

SmokeALib If you are able to make additional mortgage payments during the year, you might get close to a 15 year payoff without those very high loan fees.

Yes we are thinking about doing that..

 

[SmokeALib]

Depends on how long you've held the 4.5% mortgage and how much is left on the 100K..

The big downside of refinancing is that the amortization tables start from paying all months at 100% interest and no principle paydown for YEARS thereafter.

If your current mortgage is already paying down the principle at good clip and is fixed rate -- it might be better to hold it.

Because for at least 3 years after you refinance, you won't own any more equity on the house than you have now if you start the tables all over again..

Also how LONG do you intend to stay?

We will retire here most likely...
I've paid 4 years on my 30 year note at 4.5.

 

[Toddsterpatriot]

Fees are broken down as:
Points 2000
Origination fee 1200
Services (title. Etc) 1100
Prepaid (insurance and taxes) 4700
Does this sound reasonable?

2 points?
What's the rate with zero points?

 

[SmokeALib]

I missed the point about the 100K in FEES !!! What kind of raw deal is that? Good catch and good point..

10k!

2 points?
What's the rate with zero points?

1.75 points. I will ask them the rates for zero points tomorrow. Thank you.

 

[OKTexas]

A while ago. They're currently in the 2.5% range.

April. But I get letters all the time of companies wanting to refi my loan. I think he can beat 2.5% by shopping around. Of course that's assuming good credit.

.

 

[OKTexas]

About 4700 is prepay for taxes and insurance. Rest is points, title, origination fee.

You'd get the escrow back from your current lender which would cover most of the 4700.

.

 

[MarathonMike]

SmokeALib Just MAKE SURE there isn't a prepayment penalty on your 30 year. The devil is in the details.

 

[Dekster]

Fees are broken down as:
Points 2000
Origination fee 1200
Services (title. Etc) 1100
Prepaid (insurance and taxes) 4700
Does this sound reasonable?

I would rather see your points about half that amount. Your origination fee is a little higher than what I see around here but not way out of kilter. If nothing else try lending tree and let them compete for you. Your prepaid taxes shocked me but I looked them up. Damn you people have a high tax rate. Your property taxes are a full $1 per $100.00 of value higher than mine. Otherwise, it seems okay. Those prepaids aren't really costs of your loan since you have to pay them regardless of whether to refinance. You will get a reissue rate if you already have lenders title insurance and go with same company and the search will just be an update search from the last time so that is cheaper as well. Usually the recording fees are lower on a a refinance deed of trust than a purchase money deed of trust in many places. So I would look for someone with an origination fee of around a point but otherwise, sure I would do it.

 

[Care4all]

Fees are broken down as:
Points 2000
Origination fee 1200
Services (title. Etc) 1100
Prepaid (insurance and taxes) 4700
Does this sound reasonable?

No, not reasonable at all! Imo.

 

[Care4all]

About 4700 is prepay for taxes and insurance. Rest is points, title, origination fee.

Ohhhh, just caught that....

 

[Dekster]

10k!

1.75 points. I will ask them the rates for zero points tomorrow. Thank you.

Just as an addendum so you know, if you are ever going to refinance, you are going to need to do it within the next few years. Some lenders won't do them if you owe less $75K and very few will do them if you ever drop below $50K. You instead would have to go to a higher interest HELOC to "refinance". I learned that lesson the hard way so am stuck in a 5% loan until I pay it completely off, but I am only a couple years from the finish line

 

[Fort Fun Indiana]

Wow. Super helpful. Thank you.

You're welcome. And the reason the difference is slight is that 4.5% is already a nice, low rate. And, due to the logarithmic nature of the math, a 2.2% drop in rate makes less of a difference when applied to 4.5% than it would, say 10%.

If your rate were 10%, and you dropped to 7.8%, it would reduce your payment about $135/month, on a 15-year loan

Dropping from 4.5% to 2.3% on the same loan only reduces your payment by about $90

 

[Fort Fun Indiana]

2 points?
What's the rate with zero points?

Fees are broken down as:
Points 2000
Origination fee 1200
Services (title. Etc) 1100
Prepaid (insurance and taxes) 4700
Does this sound reasonable?

You can do better than that, fee-wise The prepaid will be the same anywhere you go. But you can get close to that rate without buying points.

But again, you are talking say 2.75% at another lender without buying points vs. 2.3%. It could be a wash, over 15 years, depending on how much you plan to overpay.

Do not look at prepaids as an extra cost. Also, with prepaids that high, you should be getting a large refund from your existing escrow account, after closing. (The entire balance)