Refinancing house: need advice.

[Fausto]

So I'm in the process of refinancing the casa as we bought in May of last year....when the interest rates peaked:|

My question is this: I will have a few options as to what kind of deal I put together. I could: just do the vanilla 30-year at the lower rate and throw some extra $ at the principle each month to build equity quicker. I could set up a shorter loan and keep the same monthly payment thanks to the lower interest rate. I could set up a home equity line of credit and do a little debt consolidation (kill off my damn Mastercard balance and remainder of car loan...)

Anyone been through this before and have words of wisdom to impart?

Thanks!!!

Fausto

 

[Total Refected Power]

Fausto:

I could: just do the vanilla 30-year at the lower rate and throw some extra $ at the principle each month to build equity quicker.

I could set up a home equity line of credit and do a little debt consolidation (kill off my damn Mastercard balance and remainder of car loan...)

I would do this: Get the regular 30 yr at lower payment. Set up home equity loan to kill off credit card and car and get tax break on interest. Once paid off you can throw extra cash at principal each month.

Remember: One extra payment per year and you shave 7 yrs off a 30 yr mortgage!

 

[Yo Ma Ma]

Do you plan to remain in your house an indefinite amount of time? If you have any thought of moving in the semi-near future it can be beneficial to try a 5 or 7-yr with a balloon. They can be written to enable them to be converted if ite ends up being longer. If you find a good loan officer they can provide a lot of options to consider.

 

[rahvin]

Wait 6 months, there will be at least 2 more cuts to interest rates and I bet one of them is a .5 reduction.

 

[Lvis]

Rahvin gives good advice. Why refinance now when you will just want to do it again in a few months?

 

[myputer]

What is the rate you are borrowing at now? Just curious, my mortgage rate is 7.25, I don't think they will ever be low enough for it to be worth refinancing for me.

 

[cipher00]

TRP is on target; pay off higher interest debt (as long as you are cool with the higher payment -- you are putting your house up as collateral). As for waiting, it depends on what type of instrument you are planning to go with. A regular 30 year, or even a 5-7 year balloon, will be priced off a longer security. The (treasury) yield curve is already inverted (long rates lower than short) to about the 5 year point (well, to the 1 year point at any rate, after which you get a normal curve, but you have intermediate rates below current short rate). What that means is that the market is already anticipating the rate cuts (personally, I'm not, but that's a different story!) so the effect of further easing is already in the rates that the bank/broker will use to quote your individual rate. Good luck.

 

[Total Refected Power]

Careful. Mortgage rates are funny and not directly influenced by the Fed rates. The prices are set by investors. Once stocks become attractive again you could see rates creep up. In addition, they are near 30-yr historical lows.

I would do the refinace now, especially if you coming in under 7%.

 

[rahvin]

TRP,

In the current market mentality a .50 drop right now would have near zero effect on the market or bond rates and the over the counter drop would trickle down within a week to consumer mortgage rate. The fed IS going to drop interest rates at least 2 more times and I will wager you that one of them is a .50 drop. The economy is stumbling big time and it's gonna take some big interest rate drops to reverse the trend.

 

[Ornery]

I'd do the refinance now for 30 years, pay off those credit cards and throw the extra money in a 401K. No sense paying off a 6.5% loan when the money can be used to make mucho tax free interest (stocks will go back up) instead.

 

[Total Refected Power]

rahvin:

All you say is true. What I should add is that these rates cuts have largely been factored into mortgage rates.

 

[rahvin]

They haven't factored in future rate cuts to consumer mortgage rates. Don't be silly, every time the fed cuts rates consumer rates usually fall the next day.

 

[Total Refected Power]

Basically my point is that rates are really attractive now. They have been hovering between 6.75-7.0% for weeks now. It's really cheap money. The real cost of the money at 6.75%.

Mortgage interest rate multiplied by (1 - tax rate) minus the annual
inflation rate. For example, 6.75% times .7 (30% tax bracket) equals 4.45.
Then subtract 3.4 (this year's inflation rate).

The result is 1.05%!!!!!!!!!!!

Less is better but I remember my parents paying 18% in the early 1980's. To worry about squeezing another 0.25-0.5 is not my style. Bird in the hand.

 

[Total Refected Power]

Good Link:

Mortgage Rates Forecast

Bottom line. Close to nirvanna.