Worth it to refinance mortgage from 4.25% ?

[the DRIZZLE]

Ahh, I see what you were saying now. Basically, "Hey, you had a 5% rate for 30 years, you're 15 years into that mortgage and drop the interest to 4% - but spread it back out over 30 years - that will likely result in you paying MORE money in the long run, albeit with much lower monthly payments."

I never realized people were forced into 30 year refis - they can't refi for any duration they want? I could swear that the first time we refinanced our first house, that not only did we get a lower rate, but we also knocked 2 years off what we had remaining - keeping the payment roughly the same. I.e., 7 years into a 30 year loan, knocking the interest rate from A to B, and refinancing for 21 years, instead of the 23 we had remaining, or even a new 30 year.) Is this not an option? Or is this not an option that people bother with?

Sometimes lenders will offer a modification, which reduces the rate on your current mortgage. Usually this has lower fees but doesn't get you quite as good of a rate as a real refi.

Otherwise you generally have to start a new 30 or 15 year mortgage. Other term lengths exist but not all banks offer them and the rate is usually higher than it should be because it's a niche product.

But as I said before, you can effectively make the mortgage any length you want by paying more than the required payment every month. The only downside is you may be paying a slightly higher rate then you should based on the actual market yield curve at the time, but that isn't that big of a deal. (non-finance people can ignore the last sentence)

 

[the DRIZZLE]

Which is why I specified in my previous post RATIO of I to P, not dollar value. I always assumed at the beginning the ratio of I to P was higher and then the interest gradually decreases as the principal increases. Maybe I don't understand amortization then 😕.

So you are saying that regardless of the situation, you will never pay more in interest in that first month, as long as the interest rate is lower...even if you extend the life of the loan, which is what commonly happens in refinances?

In dollar terms, you will always pay less in interest from day 1 on new mortgage at a lower rate. (ignoring closing costs)

 

[Wyndru]

In dollar terms, you will always pay less in interest from day 1 on new mortgage at a lower rate. (ignoring closing costs)

This is what I meant (I posted it in my previous post), again - very rough numbers, just meant to illustrate, not at all for accuracy.

Original:
Rate 5%
Year 1 of 30 - $400 interest $100 principal ($500 total)
Year 5 of 30 - $350 interest $150 principal ($500 total)

After Refinance:
Rate 4%
Year 1 of 30 - $375 interest $75 principal ($450 total)

This isn't possible? You will always pay less than the $350 in interest that you were paying on the previous loan, regardless of it resetting at 30 years again?

[EDIT] Nevermind, I just played around with an amortization calculator, and I guess the length of a loan doesn't affect the initial interest payment amounts in the schedule. You pay the same starting amount of interest for a 30 year as a 15 year, it just decreases quicker the shorter the loan term is. I never knew that.

 

[the DRIZZLE]

This is what I meant (I posted it in my previous post), again - very rough numbers, just meant to illustrate, not at all for accuracy.

This isn't possible? You will always pay less than the $350 in interest that you were paying on the previous loan, regardless of it resetting at 30 years again?

[EDIT] Nevermind, I just played around with an amortization calculator, and I guess the length of a loan doesn't affect the initial interest payment amounts in the schedule. You pay the same starting amount of interest for a 30 year as a 15 year, it just decreases quicker the shorter the loan term is. I never knew that.

Yup, you got it.

 

[EagleKeeper]

It used to be the 15yr loans were from 0.25 to 0.5% cheaper than the 30 year

 

[PingSpike]

Depending on how far into the loan he is, he might be paying more, because the tables reset, and you are basically back to paying more interest than principle (which is normal at the beginning of a loan).

Only if he wants too. He can also specify he wants the loan term shorter.

 

[JTsyo]

Ahh, I see what you were saying now. Basically, "Hey, you had a 5% rate for 30 years, you're 15 years into that mortgage and drop the interest to 4% - but spread it back out over 30 years - that will likely result in you paying MORE money in the long run, albeit with much lower monthly payments."

I never realized people were forced into 30 year refis - they can't refi for any duration they want? I could swear that the first time we refinanced our first house, that not only did we get a lower rate, but we also knocked 2 years off what we had remaining - keeping the payment roughly the same. I.e., 7 years into a 30 year loan, knocking the interest rate from A to B, and refinancing for 21 years, instead of the 23 we had remaining, or even a new 30 year.) Is this not an option? Or is this not an option that people bother with?

I refinanced from 30yr to 15 yr. $500 more each month but I save over 100K over all.

 

[RagingBITCH]

Simple. Do the math. It depends on when you plan on selling the house.

I did the math on my own refi - not worth it as we plan on selling in a year. We'd have to refi from a 30 to a 15 to get the best APR, which would bank us the most in principal over the next year, and in the end, we'd have about $500 extra in principal when we sell. For the hassle involved, it's not worth it. (There are some who say "well invest the $500 and it is"...but the $500 is assuming we'd get the lowest APR offered by the bank)

 

[Thebobo]

I'm in the same boat 2 years in FHA loan 4.25 be nice to save acouple hundred bucks a month... Stream line FHA refinancing?>

 

[Slew Foot]

Just refied my loan from 5% to 3.75%, saving almost a grand a month. WOOOO!!

 

[Thebobo]

woah nice

 

[OCGuy]

I'm in the same boat 2 years in FHA loan 4.25 be nice to save acouple hundred bucks a month... Stream line FHA refinancing?>

It depends on how large your loan amount is.

If your loan did not get endorsed by FHA by the cutoff (6/09), your streamline is subject to the new higher initial and annual MI rates.

People with larger loans can still see the required 5% MI + P&I savings in order to do a streamline, knowing that someday it will be even better because the MI will fall off completely.

I would take advantage of this soon, however, because one of the new middle-class tax-hikes in discussion is not only raising the MI rates even more, but making it so that the monthly MI NEVER falls off of FHA loans.