DISQUS

pidgeon92 · 3 months ago

I would leave well-enough alone, unless you are going with a 15-year, which does not seem to be the case. Try increasing your principal payments instead.... If you can send an extra $50 - or even $20 - (principal only) every two weeks, you will reduce your principal that much quicker, and pay less in interest as well.

Apex · 3 months ago

The other information that is missing is what is the total of the other closing costs in addition to the points. So the points cost about $4500 (maybe a little less). Closing costs could typically be about the same. If that were true that means an up front layout of cash of around $9,000 (it doesn't matter if they are rolled in the loan or not, its money gone up front).

So to save 7/8 percent on an approximately 195,000 loan saves about $1700 in the first year and will be close to that for a number of years. So that would mean if there were another $4500 in closing costs it would take almost 5.5 years to break even on the refinance from an equity standpoint.

There are other considerations such as the extra cash flow it frees up but unless that is of high importance then the 5.5 years to break even is the major decision point. Unless you are nearly 100% certain that you would be in the house for atleast 7 or more years then this would just not make any sense from an equity stand point. If you knew that you would be there for 20 years and would not expect to be making any extra payments then it would be a very good idea.

All things considered I suspect that from an equity standpoint this is likely not worth the risk. 7 years is a long time and even if you do stay long enough, the amount you would gain won't be significant until you get out to 10+ years.

Jim · 3 months ago

5.875% is not a bad rate. I don't think I'd refinance. It sounds like their closing costs would be fairly high with the points and fees and they are only getting 0.875% less on the interest. Plus it sounds like they are going to go to a 30 year which would mean they'd be making their mortgage payments an extra 4 years compared to their current loan. I think in the long run refinancing and paying it off in the 30 year period would end up costing them more in the long run. If they threw their numbers into a "should I refinance?" calculator, it will probably tell them refinancing will cost them more in the end.

I'd find other places to cut some costs.

Kelly · 3 months ago

As a rule of thumb I wouldn't refi if the rate is less than 1% difference.
I also think closing costs should be equal to or less than the difference in payments x 12.
In this case $120 x 12= $2400.
I'm guessing closing costs would be more than that.

I'd stick with the current mortgage and look at other ways to cut expenses or make more. Even people that are bare bones on expenses can sometimes find enough "fat" to save $120/mo.
Shopping for auto insurance, cancelling subscriptions, getting rid of eating out, etc could all be considered.

Good luck!

Maurice · 3 months ago

I completed my refinance 7/31/09 and started the project 12/15/08. Great credit, money in the bank, no money out, lots of equity, wife and I with good stable jobs. Turned down 4 times, paid for 3 appraisals. Finally got a re-fi from 6% to 4.875. If I was in your situation, I sure wouldn't go through that hell again for a $100 or so a month in savings. Never mind paying $10,000 on top of it.

It's a nice feeling to have a bit lower interest rate, and good to have $100/mo more, but the new Obama re-fi rules will kill all of those gains. You have to get new appraisals every time you are turned down or object to the mortgage companies outright lies, and closing costs are wildly unpredictable.

You need to take the advice of Suze Orman and Dave Ramsey and cut your expenses drastically and stock pile cash. You might soon will be living on only one income.

You've done great managing your finances up to now, don't blow thousands to get bragging rights on a half percent interest rate.

Heather · 3 months ago

Thanks for your thoughts. We had been leaning towards 'no' anyway and this helped us feel more confident that we were making a good decision.

@Jim: we did crunch the numbers originally, and with the first offer, we would have saved both short term and long term. We never re-crunched them, though I couldn't tell you why...

@Maurice: unless one of us is incapacitated, we won't be living on one income for at least another nine months — we're both contracted teachers.