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Message
Refi...what should I do?
Posted on 10/5/12 at 8:54 am
Posted on 10/5/12 at 8:54 am
I'm so confused about this whole refi stuff. So I've come to the experts on here 
Here's our situation.
Currently: Our original 30 year mortage loan was $137700. Our interest rate was 6.875%. Note not including escrow is $904. We've been paying the minimum on it for 5 years now, and it is now down to $129,200
We just looked into refinancing and we can refi and do a 30 year loan would be $135,500 if we rolled the closing costs into it. We can get a 3.25% rate and our note without the ecrow will be $601.
My brother told me that I shouldn't do a 30 year and do a 15 year b/c our note would probably be about the same and we could gain a lot more equity in the house. My husband and I's feelings on it is to make the note as cheap as possible in case something happens to one of our jobs but pay an extra $100/month on it to help bring it down and put the rest of the money in savings to help us save for a new house because we are wanting to move in 5-7 years. We haven't gotten the quotes on a 15 year yet but the lady said that the rates would be in the 2's.
What is your opinion on it? We want to do what is best and still be able to save and have money for a nice down payment on a new house in 5-7 years. We are young and this is our first time doing this so I'm confused about it all. Thanks for all the help!
Here's our situation. Currently: Our original 30 year mortage loan was $137700. Our interest rate was 6.875%. Note not including escrow is $904. We've been paying the minimum on it for 5 years now, and it is now down to $129,200
We just looked into refinancing and we can refi and do a 30 year loan would be $135,500 if we rolled the closing costs into it. We can get a 3.25% rate and our note without the ecrow will be $601.
My brother told me that I shouldn't do a 30 year and do a 15 year b/c our note would probably be about the same and we could gain a lot more equity in the house. My husband and I's feelings on it is to make the note as cheap as possible in case something happens to one of our jobs but pay an extra $100/month on it to help bring it down and put the rest of the money in savings to help us save for a new house because we are wanting to move in 5-7 years. We haven't gotten the quotes on a 15 year yet but the lady said that the rates would be in the 2's.
What is your opinion on it? We want to do what is best and still be able to save and have money for a nice down payment on a new house in 5-7 years. We are young and this is our first time doing this so I'm confused about it all. Thanks for all the help!
8
Posted on 10/5/12 at 9:10 am to lsugrldej8
Many options for you. My thought: get the 30-yr note to maintain flexbility on cashflow (this is sound logic), but continue paying the $904 note you've gotten accustomed to. The extra equity you will have built up will be your "savings". (I'm assuming you already have an emergency funds account.)
Posted on 10/5/12 at 9:15 am to lsugrldej8
What do you think your house will appraise for?
Weren't you asking about a streamline yesterday?
Weren't you asking about a streamline yesterday?
Posted on 10/5/12 at 9:19 am to lsugrldej8
If you're planning on being there for 5-7 years, I'd refi on the 15. Rates are unbelievablely low right now and you'll have considerably more equity in the house than putting aside $1,200 a year. $900/month is still cheap compared to renting (depending on where you are) and you're already used to paying that.
Posted on 10/5/12 at 9:21 am to Croacka
Also if you want to only be there for 5-7 years, see what rate you can get if they pay closing costs
It will be slightly higher but at least you won't add any balance to the mortgage
That way you won't have any costs to recoup just to get back to the balance you're at now
It will be slightly higher but at least you won't add any balance to the mortgage
That way you won't have any costs to recoup just to get back to the balance you're at now
Posted on 10/5/12 at 9:22 am to lsugrldej8
quote:
We just looked into refinancing and we can refi and do a 30 year loan would be $135,500 if we rolled the closing costs into it. We can get a 3.25% rate and our note without the ecrow will be $601.
Double check your numbers with your mortgage lender. Maybe i am overlooking something here, but 30 year on 135,500 @ 3.25% should be $590/month. If payment is $601 for 30 years at 3.25% then total loan amount would be $138,100.
$11/month does not seem like a big deal but $2,600 for the total loan sure does.
Posted on 10/5/12 at 9:24 am to Croacka
quote:
What do you think your house will appraise for? Weren't you asking about a streamline yesterday?
Yeah that was me
We are just trying to figure everything out right now and have a lot of questions. My realtor friend pulled up some comps in our area and the average of those is $135,100 so that's right on the edge. So we are thinking about paying out of pocket for our closing costs now to help the loan come down. The company also has a 25 year and 20 year so we might look into that as well. Thoughts?
Posted on 10/5/12 at 9:28 am to lsugrldej8
Go 30 years and take advantage of the coming inflation to pay it back with cheap dollars.
Posted on 10/5/12 at 9:30 am to Croacka
quote:
Also if you want to only be there for 5-7 years, see what rate you can get if they pay closing costs
Ok I'll have to look into this. We would really like to just move right now but it's just not possible with the way the market is. We bought right before it crashed in June 2007 unfortunately.
Posted on 10/5/12 at 10:01 am to lsugrldej8
Getting a 15 year vs. a 30 is not always the best thing to do. It's true that with higher payments you will build up equity in the home faster, but there's more to consider:
1) The difference in rate between a 15 and a 30 is unusually small. This means you may be better off with a 30 and prepaying when you feel like it.
2) If you get a low enough rate, it really isn't worth it to prepay at all. Your pretax return on investment is the mortgage rate. Your after-tax return is less, so at current 30 year rates that's around 2.5%, which is not good at all. After inflation (even if inflation is low) that is a negative real return.
I am personally doing a refi for 30 years and intend to keep the property even if I move. If you qualify for the best rates I would borrow as much as you can for as long as you can, and invest (not spend) the savings.
1) The difference in rate between a 15 and a 30 is unusually small. This means you may be better off with a 30 and prepaying when you feel like it.
2) If you get a low enough rate, it really isn't worth it to prepay at all. Your pretax return on investment is the mortgage rate. Your after-tax return is less, so at current 30 year rates that's around 2.5%, which is not good at all. After inflation (even if inflation is low) that is a negative real return.
I am personally doing a refi for 30 years and intend to keep the property even if I move. If you qualify for the best rates I would borrow as much as you can for as long as you can, and invest (not spend) the savings.
Posted on 10/5/12 at 10:37 am to lsugrldej8
quote:
$129,200
We just looked into refinancing and we can refi and do a 30 year loan would be $135,500
$6300 in refi'ing cost? WTF?
Posted on 10/5/12 at 10:44 am to Chad504boy
If I had to guess, that number may include some prepaids. Otherwise, they are paying points or something.
Posted on 10/5/12 at 10:46 am to LSU1018
quote:
If I had to guess, that number may include some prepaids. Otherwise, they are paying points or something.
Yeah it's the prepaids for our home owners insurance, taxes, and flood insurance
Posted on 10/5/12 at 11:30 am to lsugrldej8
I would refi for 30 years and pay extra or invest the difference. I just refi'd 2 months ago and went from a 20 back to a 30 and was just going to pay extra. Well, I found out yesterday that I'm getting laid off next week, 
so that extra $350 that I was planning on paying on principle will come in handy while I'm looking for another job.
so that extra $350 that I was planning on paying on principle will come in handy while I'm looking for another job. Posted on 10/5/12 at 11:35 am to LSUGUMBO
quote:
I would refi for 30 years and pay extra or invest the difference. I just refi'd 2 months ago and went from a 20 back to a 30 and was just going to pay extra. Well, I found out yesterday that I'm getting laid off next week, so that extra $350 that I was planning on paying on principle will come in handy while I'm looking for another job.
I'm sorry to hear that you are getting laid off. This is a reason on why we are thinking about just doing a 30 year. That and we aren't staying in our house forever.
Posted on 10/5/12 at 11:51 am to lsugrldej8
I did the 15yr not long ago. I saved a point. With loans being front loaded, my 30 yr mtg never went anywhere. When I switched to 15yr I could see the difference in principal payment...
Zillow has a mortgage app that can help you run the numbers.
15yr also forces me to have more financial discipline and essentially makes me save more.
Zillow has a mortgage app that can help you run the numbers.
15yr also forces me to have more financial discipline and essentially makes me save more.
Posted on 10/5/12 at 12:13 pm to foshizzle
I've run the numbers several different ways and I plan to refinance in the next few weeks from a 30yr @ 4.375% to a 15yr (I'm 2yrs into the 30yr).
I looked at the return on investment and even when taking into account the taxes, I've decided on the 15yr refi.
Refinancing saves me $6,000 over the life of the loan when looking at NPV with a 3% discount rate. I know people are expecting inflation in the future and I agree, but I already invest the amount that I want to invest and any excess cash would be held as cash likely earning only 1% for the next several years. I plan to pay the house off in 8-10yrs and move once it's paid.
I know there are a million ways to slice it, but at the end of the day there is not an obvious winner and it really just depends on everone's individual situation.
eta: my return on investment calculations are based on maintaining the current payment no matter if it is a 15 or 30yr loan. Currently pay 167% of principal due.
I looked at the return on investment and even when taking into account the taxes, I've decided on the 15yr refi.
Refinancing saves me $6,000 over the life of the loan when looking at NPV with a 3% discount rate. I know people are expecting inflation in the future and I agree, but I already invest the amount that I want to invest and any excess cash would be held as cash likely earning only 1% for the next several years. I plan to pay the house off in 8-10yrs and move once it's paid.
I know there are a million ways to slice it, but at the end of the day there is not an obvious winner and it really just depends on everone's individual situation.
eta: my return on investment calculations are based on maintaining the current payment no matter if it is a 15 or 30yr loan. Currently pay 167% of principal due.
This post was edited on 10/5/12 at 12:15 pm
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