Refi or Not???

[zanemoseley]

Current Mortgage:

Appraisal Value- $257,500 in Nov. 2008
Original Principal - $218,875 (84.91 LTV)
Principal Remaining - $209,847
Current LTV - 81.49%
Interest Rate - 5.875% @ 30yr
Principal & Interest Payment - $1,294
PMI - $94.85
Monthly Payment with Insurance, PMI & Taxes - $1,604
Number of Payments Made - 37
Number of Payments Left - 323
Total of Payments Made - $47,874
Total of Remaining Payments - $417,962
Total of All Payments - $465,836



Refi:

Original Principle - $215,000 (rough guess with closing costs added)
Interest Rate - 3.875% @ 30yr (best case scenario)
Principal & Interest Payment - $1,011
PMI - Hopefully none but that's wishful thinking. (Appraisal may screw me)
Monthly Payment with Insurance & Taxes - $1,226
Total of Payments - $363,960


So adding what I've paid so far $47,874 to the new total of payments $363,960 is $411,834. If I continue paying my current mortgage the total payments will be $465,836. I could save $54,002.

Now the bad. I live in TN so the housing market has been more stable than some but, my house will likely not appraise for the same amount this time around, probably closer to $240,000 give or take a bit which would lead to a 89.5% LTV = shitty PMI. PMI could be upwards of $150-200.

If I appraised at $240,000 I'd have to come up $23,000 to avoid PMI. I could probably come up with $8,000 but that leaves me short $15,000. I could possibly borrow the rest from family or do a small second loan but I'd honestly not be thrilled about either. It could appraise for higher but you never know and I don't wanna count on it as I'd hate to waste $400 on an appraisal for nothing.

What to do? $54,000 is a lot of potential savings but it could turn out to be a huge PITA. $300 extra a month would be sweet though.

 

[dr150]

I've been told that after 5 years, it's not worth it to refi due to the principal/interest ratio during the first twelvish years of the loan. I've been told that you'd be looking at starting over in the sense of paying more interest again than principal...thus better to have an old loan at 6% than 4%.

Go see a financial advisor to crank out the numbers.

 

[chowderhead]

do you plan to stay the whole 30 years? What is your timeframe? Use a refi calculator to see if it is worth the fees.
http://www.bankrate.com/calculators/mortgages/refinance-calculator.aspx

 

[TastesLikeChicken]

What is the current appraisal value? You can look on Zillow for an idea of what it might be but Zillow is usually a bit on the high side. If it's nowhere close to your remaining principle you probably don't even want to bother.

 

[Capt Caveman]

I refinanced at 25 years. You may want to run your refi numbers with a 15 or 25 year mortgage.

 

[apac]

If you can afford it, refi with a 15 year mortgage. You save a sickening amount of interest.

 

[YoungGun21]

I've been told that after 5 years, it's not worth it to refi due to the principal/interest ratio during the first twelvish years of the loan. I've been told that you'd be looking at starting over in the sense of paying more interest again than principal...thus better to have an old loan at 6% than 4%.

Go see a financial advisor to crank out the numbers.

Not true at all. I know people in similar situations that refinanced and saved over $60k in the long run.

 

[boomhower]

Question is what is the house really worth today? If it will appraise for what you need I'd go for it. PMI isn't forever. Once you get to 80% and kick it off the savings will be pretty large. Just keep making the same payments since you'll be used to the money being gone anyways and pay the house off even faster.

 

[Doppel]

Math on this is fairly straight forward. If you're saving $280/month on interest and it cost $4k to refi, then you break even just after 14 months, for example.

The main other consideration is that since you'll be paying less on interest you'll have less to deduct at tax time. if your overall federal rate is 10%, for example you can apply that against the old interest you paid and compare to the new to see how much less you'll get back at taxes. That will make your payback extend out somewhat as your monthly savings won't actually be $280 and must be lowered by the reduction in tax deduction you get.

Still, if you plan on hanging around for a while and can ACTUALLY reduce your interest by 2%, then yes I'd be hard pressed not to recommend that.

 

[zanemoseley]

I don't exactly see how people/calculators say you break even after 14 months ect. You break even on the closing costs, that's it. You also reset the loan term and get to repay the first 3+ years of payments which are by far the most laden with interest.

We do plan on staying in the house but there's a chance I could inherit some money that would perhaps help pay it off quicker, but no guarantees on that nor could I even guess the amount.

Zillow says $224k for my house but honestly my house is quite a bit nicer than many in my area so it "should" appraise on the high side per sq/ft compared to many of the comps.

 

[blinblue]

I don't exactly see how people/calculators say you break even after 14 months ect. You break even on the closing costs, that's it. You also reset the loan term and get to repay the first 3+ years of payments which are by far the most laden with interest.

We do plan on staying in the house but there's a chance I could inherit some money that would perhaps help pay it off quicker, but no guarantees on that nor could I even guess the amount.

Zillow says $224k for my house but honestly my house is quite a bit nicer than many in my area so it "should" appraise on the high side per sq/ft compared to many of the comps.

What you can do is calculate the new mortgage at 323 months instead of the full 360. Using your numbers, a $215k mortgage at 3.875% for 323 months is $1073, so you are saving $221 a month (and that's actual savings, the mortgage would get paid off at the same time). So it would take about 24 months for the monthly savings to match the cost of the refi.
Basically if you plan to stay in the house at least 2 years it would be a good idea. Of course the whole reappraisal could bit you in the butt. But as long as you see yourself in the house for the long term it is almost certainly worth it.

 

[Squisher]

There is government sponsored mortgage plan called HARP, you'll see it called Home Affordable. If your mortgage was sold at one time to FannieMae or FreddieMac you can qualify. There is an online search to see if the mortgage was sold. With this plan you can finance up to 125% of appraised value. Interest rates are a little higher than conventional mortgages, an escrow account is required, and closing costs vary on the percent of equity, no PMI. Not all lenders do HARP so shop around.

I'm refi-ing $162K at 4.000% for 25 years. If the house appraises at $160K closing costs will be $1200, if it appraises for $180K closing costs will be $100. This is because there is a lender's rebate paid by the gov't that depends on the percent of appraised value.

EDIT: my original loan was 5.625%@30yr. so at 4% my payments will go from $1036 down to $855/mo.

 

[Wyndru]

It's a 2 point drop, I would do it, I usually refi anytime it's over 1 point. You could always go 30 year and pay more on the principle each month (i.e. pay half of your savings in principle or something similar) and you will pay it off much sooner than 30 years, and save even more on interest. Just make sure your new loan allows prepayment on principle.

 

[GotIssues]

I don't exactly see how people/calculators say you break even after 14 months ect. You break even on the closing costs, that's it. You also reset the loan term and get to repay the first 3+ years of payments which are by far the most laden with interest.

4% of 100k is still 4% of 100k, whether you are in year 1 or 20. The front end of loans are by far the most laden with interest when compared to itself later in the timeline, not compared to a refinanced loan.

Once you recover all the closing costs (and PMI, if that is added due to refi), you start coming out ahead on the refi.

We do plan on staying in the house but there's a chance I could inherit some money that would perhaps help pay it off quicker, but no guarantees on that nor could I even guess the amount.

You should never rely on an inheritance to pay off something. You don't know how much you'll inherit (if any) or when you will. Inheritance should be a happy surprise to a sad occassion.

Zillow says $224k for my house but honestly my house is quite a bit nicer than many in my area so it "should" appraise on the high side per sq/ft compared to many of the comps.

From my understanding of how comps work, unless what you have is quantifiably better (more sq ft, bigger garage, more land, etc), it's really not going to show up. However, I'm not an expert on house comps, so take that with a grain of salt.

EDIT: And I'd do it for a 2 point drop, unless I was planning on moving very soon.

 

[zanemoseley]

Avoiding PMI would of course be awesome. However, the greatest benefit regardless of PMI would be the lowered monthly P&I payment. Even if my PMI stayed at $95 a month like it is now I could put the saved $300/month back toward the principal. Based on an online calculator that would mean I would pay off the new mortgage in 233 months instead of the full 360. Add this to the 37 payments I've already made on the old mortgage and I'll own my house in 270 months (22 1/2 years) instead of the full 30 years, a sweet ass 7 1/2 years early. Not to mention once my PMI drops off I can put another $100 toward the principal if I choose. So I can pay off my house 7 1/2 years earlier and save a total of $112,527 in interest versus staying with my current loan.

 

[DaWhim]

Avoiding PMI would of course be awesome. However, the greatest benefit regardless of PMI would be the lowered monthly P&I payment. Even if my PMI stayed at $95 a month like it is now I could put the saved $300/month back toward the principal. Based on an online calculator that would mean I would pay off the new mortgage in 233 months instead of the full 360. Add this to the 37 payments I've already made on the old mortgage and I'll own my house in 270 months (22 1/2 years) instead of the full 30 years, a sweet ass 7 1/2 years early. Not to mention once my PMI drops off I can put another $100 toward the principal if I choose. So I can pay off my house 7 1/2 years earlier and save a total of $112,527 in interest versus staying with my current loan.

hey, look like you answered yourself right here.

even better, instead of paying the extra toward the principle, invest it. your cost of capital is 3.875%* your tax rate

 

[Dr. Zaus]

I've been told that after 5 years, it's not worth it to refi due to the principal/interest ratio during the first twelvish years of the loan. I've been told that you'd be looking at starting over in the sense of paying more interest again than principal...thus better to have an old loan at 6% than 4%.

Go see a financial advisor to crank out the numbers.

you done been told wrong.

If you're saving $280/month on interest and it cost $4k to refi, then you break even just after 14 months, for example.

Yep

Keep it at 30 an put the extra in the stock market.


PS at 3-4% they are giving you the money for free. Take the longest loan you can and put the remainder into in an aggressive-growth mutual fund.


Unless you plan on moving soon.

 

[zanemoseley]

you done been told wrong.


Yep

Keep it at 30 an put the extra in the stock market.


PS at 3-4% they are giving you the money for free. Take the longest loan you can and put the remainder into in an aggressive-growth mutual fund.


Unless you plan on moving soon.

If by free you mean $150,000 of interest if I were to take a $215k @ 3.875 loan to full term then yes its free lol. I realize that's not technically a lot of money over 30 but in the grand scheme of things its a lot to me.

 

[Dr. Zaus]

If by free you mean $150,000 of interest if I were to take a $215k @ 3.875 loan to full term then yes its free lol. I realize that's not technically a lot of money over 30 but in the grand scheme of things its a lot to me.

By 'free' I mean that the exact same amount of money in your matrices will depreciate at the same rate (that is, you'll pay that much in "Interest" just by holding the dollars in your hand and watching inflation devalue it).

Buying stock, on the other hand, will keep the value of your money at very least stable because as prices go up, so does profit, even if the marginal percentage stays the same. Thus making stocks assets that go up with inflation.


At 3-4 % I would go interest-only if I could and put the rest into the stock-market as this would maximize my total life wealth.

 

[TastesLikeChicken]

Zillow says $224k for my house but honestly my house is quite a bit nicer than many in my area so it "should" appraise on the high side per sq/ft compared to many of the comps.

Most appraisers will do a drive-by and won't even bother to come in the house. They will value your house vs. comparables in the area that have recently been sold based solely on square footage and land. If you have made significant interior upgrades - for example: a completely new kitchen with solid wood cabinets, marble countertops, and high-end appliances - you can make the apparaiser aware of that prior to the appraisal and they might come inside to take that into consideration.

 

[DaWhim]

If by free you mean $150,000 of interest if I were to take a $215k @ 3.875 loan to full term then yes its free lol. I realize that's not technically a lot of money over 30 but in the grand scheme of things its a lot to me.

i always treat taking out a mortgage as a hedge against inflation, maybe you should see it as such. then you will see why I would rather put the money in the stock market.

there are more ETFs than I can count that will easily give you 5% return and I deal with different securities daily.

 

[zanemoseley]

Ok guys I just locked in a rate today! I ended up going with Nationwide Advantage Mortgage which is the same people I have now. The base rate is 4.125% (1/8 point) or I can get a 4.000% for .75% points, I'm leaning toward the 4% rate since the points will pay off in 7 yrs then its just straight savings.

I believe they incorporate the HARP program into their loans. I asked if I could save off the rate by looking at a non-HARP loan and they said theirs run the same either way.

The agent asked what I thought the home would appraise for and I said I hoped for at least $240k. The cool thing is that he put that into the system and it said that all I need is a "drive by appraisal" which means I'm pretty much guaranteed the $240k appraisal which is nice considering Zillow only listed $225k. They probably did this since they already hold the existing mortgage with a $257k appraisal. They also said that my PMI rate factor would remain the same. Actually once I got my GFE my PMI remained exactly the same ($94) even though the LTF is now 89.5% instead of 84% like when I closed the first time.

I could have probably have rate shopped and got a bit better but its nice not having to fret the entire process as to what the house would appraise for. Then having to deal with an inflated PMI or the possibility of a super low appraisal which would mean no refi at all.

Now I gotta figure out whether I want to put the savings into the stock market or throw it on the loan.