Quick refinancing help please

[Via]

I've only closed on one mortgage, have little experience and need advice.

I'm currently 2 1/2 years into a 30 year at 5.35, but I've made some pre-payments and will be done in about 24 years. I have a little under 3 years left on a 5 year second mortgage; I can't remember the interest, but I owe about $10000 on it.

I called Quicken loans just to see what was out there, and the guy offered me a 15 year loan to combine the two at about $70 more a month than I pay for the 30 year, with $1600 closing costs. They can do the loan within 30 days. This seems much better than my local credit union offered.

It's a FHA loan and my current one isn't; is that an issue in any way?

The interest is 3.5%; is that high for a 15 year?

Is it dumb to roll the second mortgage into the first? I figure I could take the $300 a month I've been paying on it and invest it instead.

The guy said rates will uptick slightly the next few days so I should start the process now. I assume that's just sales pitch.

Has anyone dealt with Quicken loans? Good experience or bad? Are there any other national loan companies I should call?

It seems like a slam dunk, but I figure nothing is a good as it initially appears.

I know thats a lot of questions, so thanks in advance.

 

[the DRIZZLE]

I've only closed on one mortgage, have little experience and need advice.

I'm currently 2 1/2 years into a 30 year at 5.35, but I've made some pre-payments and will be done in about 24 years. I have a little under 3 years left on a 5 year second mortgage; I can't remember the interest, but I owe about $10000 on it.

I called Quicken loans just to see what was out there, and the guy offered me a 15 year loan to combine the two at about $70 more a month than I pay for the 30 year, with $1600 closing costs. They can do the loan within 30 days. This seems much better than my local credit union offered.

It's a FHA loan and my current one isn't; is that an issue in any way?

The interest is 3.5%; is that high for a 15 year?

Is it dumb to roll the second mortgage into the first? I figure I could take the $300 a month I've been paying on it and invest it instead.

The guy said rates will uptick slightly the next few days so I should start the process now. I assume that's just sales pitch.

Has anyone dealt with Quicken loans? Good experience or bad? Are there any other national loan companies I should call?

It seems like a slam dunk, but I figure nothing is a good as it initially appears.

I know thats a lot of questions, so thanks in advance.

We need more information. What is the rate on your second mortgage? Did he give you a quote for a 20 or 30 year mortgage?

 

[Via]

I think the rate was about 7.5% for the 5 year.

He offered 4.35 for the 30 year (like $490 a month), and 4.5 for the 20 year (it seemed to have some other options that made it atttractive, but the rate seemed high).

I don't think either was a FHA loan.

 

[Noirish]

you need to calculate how much interest you have paid and how much interest is left in your current loan. do the same calculation using the remaining principle and new term to see how much interest you have to pay (this should not exceed the combined interest above).

 

[spidey07]

Avoid a 15 year mortgage like the plague. With rates this low it makes no sense. Rates have ticked up the past few days but I would expect them to go back below 4 on a 30yr. Keep the 2nd, it's likely based on prime which again is historically low and pay it off on time.

Invest what's left over, you'll wind up way ahead in the long run in terms of net worth/wealth.

 

[the DRIZZLE]

you need to calculate how much interest you have paid and how much interest is left in your current loan. do the same calculation using the remaining principle and new term to see how much interest you have to pay (this should not exceed the combined interest above).

No, this is not the way to evaluate a mortgage that you are allowed to prepay. If the rate is lower you can pay extra every month to keep the same term which will always result in lower total interest paid. (ignoring closing costs)

 

[Via]

So you're saying do the 30 year?

The $ comparison is:

around $800 for 30 years + $300 for the next 3 years vs. approx. $1050 for the next 15.

 

[Noirish]

No, this is not the way to evaluate a mortgage that you are allowed to prepay. If the rate is lower you can pay extra every month to keep the same term which will always result in lower total interest paid. (ignoring closing costs)

you are correct about the prepay if that is his intention then it should be included in the calculation.

 

[the DRIZZLE]

Avoid a 15 year mortgage like the plague. With rates this low it makes no sense. Rates have ticked up the past few days but I would expect them to go back below 4 on a 30yr. Keep the 2nd, it's likely based on prime which again is historically low and pay it off on time.

Invest what's left over, you'll wind up way ahead in the long run in terms of net worth/wealth.

The choice between a 15 year and a 30 year depends on the OP's level of risk aversion. If he is not comfortable investing in risky assets than a 15 year may make sense.

 

[the DRIZZLE]

I think the rate was about 7.5% for the 5 year.

He offered 4.35 for the 30 year (like $490 a month), and 4.5 for the 20 year (it seemed to have some other options that made it atttractive, but the rate seemed high).

I don't think either was a FHA loan.

Yeah the 20 year is high, I think 20 years often don't have attractive rates because it's an unusual term. It would make financial sense for you to do either the 15 or the 30 (assuming the mortgage isn't ridiculously small). The question is if you do the 30 instead of the 15 how will you invest the money you are saving every month? That is the main factor in picking between the two.

 

[Via]

There's something about paying off the house in 10 fewer years that really appeals to me. I could invest the $250 amonth, I guess. But in 15 years I could invest $1000 a month.

I don't like math.

So FHA loans are cool?

 

[the DRIZZLE]

There's something about paying off the house in 10 fewer years that really appeals to me. I could invest the $250 amonth, I guess. But in 15 years I could invest $1000 a month.

I don't like math.

So FHA loans are cool?

Invest in what? The choice of investment effects the mortgage decision.

 

[spidey07]

The choice between a 15 year and a 30 year depends on the OP's level of risk aversion. If he is not comfortable investing in risky assets than a 15 year may make sense.

As long as people realize it is an emotional vs. more net worth decision. Some prefer the emotional aspect of paying early, others prefer to be richer.

Investing the difference between 30 and 15 every month into earning as little as 5% average you'll come out much richer than paying the 15. 30 is financially better, but some prefer the emotional aspect of a 15.

 

[the DRIZZLE]

As long as people realize it is an emotional vs. more net worth decision. Some prefer the emotional aspect of paying early, others prefer to be richer.

Investing the difference between 30 and 15 every month into earning as little as 5% average you'll come out much richer than paying the 15. 30 is financially better, but some prefer the emotional aspect of a 15.

You are defining rational as risk neutral which is not the way it is typically defined in finance. The return on all financial instruments is adjusted for their risk. Do you buy stocks on margin? The stock market has higher historical return than the margin interest so you are a rational risk neutral investor you should. But people aren't risk neutral and that's why returns are adjusted for risk.

Unless you can show me a financial instrument with a duration equal to a 15 year mortgage with a yield greater than 3.5% the mortgage remains a rational choice.

 

[marmasatt]

As long as people realize it is an emotional vs. more net worth decision. Some prefer the emotional aspect of paying early, others prefer to be richer.

Investing the difference between 30 and 15 every month into earning as little as 5% average you'll come out much richer than paying the 15. 30 is financially better, but some prefer the emotional aspect of a 15.

Explain this to me like a 5 yr old please?

 

[crownjules]

Explain this to me like a 5 yr old please?

Let's say you spend an extra $250 paying off a 5% loan. You're saving yourself $12.50 a year in reduced interest for paying off the principle.

Now let's say you instead took that $250 and invested in an index fund with an average yearly return of 8%, which is fairly typical. You make $20.

20 - 12.50 = a net gain of $7.5 which will likely grow bigger each year as you reinvest dividend gains back into your investment.

 

[ajskydiver]

Explain this to me like a 5 yr old please?

Here's some computed numbers I used based on OP:

Used 150,000 loan amount on the approximate 300 difference/month between 30/15 year loans.

3.25% rate for 15 year
4.35% rate for 30 year

Monthly PMT 15 year: 1054.00
Monthly PMT 30 year: 745.72
Difference to be invested: 307.29

After 15 years:
15 years of payments on 15 year loan: 189,720.57
15 year loan paid off/Interest paid: 39,720.57

15 years of payments on the 30 year loan: 134,409.18
Remaining Loan balance on 30 year loan: 98,595

Value of monthly invested @ 5% year: 82,134
===========================================
IF you have the discipline to really invest that money without fail...
IF you can find a guaranteed investment of 5% year that never loses money...

And you took all of your investment money to pay off the 30 year after 15 years...

You would've paid 134,409 (amount paid over 15 years) + 82,134 (investment)

You'd still owe ~16,000 and would have paid ~66,000 in interest (26,000 more than the 15 year).

How is a 30 year better?

The only possible way would be a higher return on investment -- which is NOT a no brainer, NOT guaranteed to always make money (you could lose your butt and be worse off) and it could skew the values better or worse.

LOTS of assumptions with the 30 year to make it work perfectly.

 

[ajskydiver]

...

Invest what's left over, you'll wind up way ahead in the long run in terms of net worth/wealth.

Not in his situation.

Even if he did what you propose and never missed a monthly investment payment AND got a guaranteed rate of return of 5% he'd be behind.

It can work, just not for his situation.

 

[ajskydiver]

As long as people realize it is an emotional vs. more net worth decision. Some prefer the emotional aspect of paying early, others prefer to be richer.

Investing the difference between 30 and 15 every month into earning as little as 5% average you'll come out much richer than paying the 15. 30 is financially better, but some prefer the emotional aspect of a 15.

Obviously not in all cases. ;-)

 

[LurkerPrime]

I hate to tell you, but things don't add up here. Do you have a good faith estimate from the lender, or are you just going by what they've told you on the phone? The banks closing costs might only be $1600, but thats not the amount you'll have to pay. Since its an FHA loan, that basically tells me you dont have 20% equity in your home. That means the bank is going to require PMI, which will require an upfront premium at closing (around 2%) along with additional money on your monthly payments for a minimum of 5 years.

Other fees you'll incur from a refi are an appraisal fee to get your house reappraised (around $300-$500) and most likely attorny fees ($300-$1000). Anway ask for a good faith estimate and then evailuate once you get that. Also be wary that alot of the other costs can be rolled into the loan amount, so for instance you may owe $110k on your house right now, but after the refi your loan amount might be $117k.

 

[ajskydiver]

I hate to tell you, but things don't add up here. Do you have a good faith estimate from the lender, or are you just going by what they've told you on the phone? The banks closing costs might only be $1600, but thats not the amount you'll have to pay. Since its an FHA loan, that basically tells me you dont have 20% equity in your home. That means the bank is going to require PMI, which will require an upfront premium at closing (around 2%) along with additional money on your monthly payments for a minimum of 5 years.

Other fees you'll incur from a refi are an appraisal fee to get your house reappraised (around $300-$500) and most likely attorny fees ($300-$1000). Anway ask for a good faith estimate and then evailuate once you get that. Also be wary that alot of the other costs can be rolled into the loan amount, so for instance you may owe $110k on your house right now, but after the refi your loan amount might be $117k.

I would bet that 1600 for closing costs are the origination fee only and his total amount would be around 4000 total (including prepays, etc.).

 

[LurkerPrime]

I would bet that 1600 for closing costs are the origination fee only and his total amount would be around 4000 total (including prepays, etc.).

You are probably right. 1% origination fee is typical and it seems like 160K is what the OP is going for.

To the OP. Most lenders will sell your loan not long after you get it. This can be a hassel as your loan may be sold multiple times and you keep having to send checks to different places. If you ask, a bank will tell you what % of loans they sell, try to pick one that sells a very small amount. Also take your good faith estimate and shop around your local credit unions and banks. The overall rates will probably vary very little if you have stellar credit, but its always worth getting more than just one offer.

 

[Via]

The house is appraised at 154000.

I owe 93000 on the first mortgage at 5.35, and 10000 on the second.

As I posted before, the guy said he could combine the two into a 103000 FHA mortgage at 3.5% for $1050 a month for 15 years as long as their appraiser values it at at least 138000. The numbers are pretty clear in the e-mail he sent me.

It seems too good to be true to me too.

 

[Via]

Well, I'm going to go ahead and pursue this.

Turning a 30 year mortgage with monthly payments of around $960 into a 15 year mortgage with monthly payments of around $1050? It still seems to good to be true.

I'm curious what the catch is. I'll update this thread when I find out.

 

[mshan]

http://askcarolynwarren.com/page11/page11.html

IIRC, normally from historic perspective, rate on 15 year fixed should run about 0.5% below comparable 30 year fixed.

There is some rule of thumb about taking current mortgage balance and dividing into $125000 to see minimum rate reduction that makes refi make sense:

http://video.cnbc.com/gallery/?video=3000050857

http://www.cnbc.com/id/40533411/Mortgage_Rates_Are_All_in_Your_Head

http://realestate.yahoo.com/promo/wheres-my-super-cheap-mortgage.html (from time stamp of article, I'm guessing demand for refi may have subsided somewhat because all of bad news since then, so you might be able to capture a rate closer to the best "par" rate a mortgage lender / broker might be willing to process)