Should I refinance your mortgage?

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I saw the title of today that mortgage rates will fall, which forced me to think about my question … I have about $ 115k in my house, valued at approximately $ 180k. I’m in my fifth year at a rate of 30-year loan at 6.125% I currently pay about $ 1050 (plus about $ 150 extra) per month. My credit is very good. I could easily afford to pay $ 1500 or $ 1600 per month mortgage payment. Can I do it, and I’ll try to refinance now? If yes, do I go for the loan of 20 years because I could probably make the payments and the possibility of obtaining a lower rate?

  1. Reply
    April 29, 2011 at 11:56 pm

    sounds like a good idea, call your bank and see what they can do for you

  2. Reply
    April 30, 2011 at 12:02 am

    I would look at a 15 year note first as the rates get better with fewer years

  3. Reply
    April 30, 2011 at 12:05 am

    try to look into having a 15 year mortgage if you can afford up to 1600.00 and get a lower rate at that. Go that way then!
    Good Luck!! 🙂

  4. Reply
    April 30, 2011 at 12:31 am

    If you can afford to refinance into a 15 or 20 year, definitely do it now. The lower the term, the better the rate. Rates are plummeting and I would imagine you can easily get a rate close to 5% if your credit is as good as you claim. Your only drawback might be if your home has lost value… but hopefully your LTV will still be under 80% to avoid mortgage insurance.

    You can take a slightly higher rate and have your mortgage broker pay some of your closing costs as well. That’s the worst part about refinancing- the closing costs. Make sure to get a good faith estimate (GFE) and compare with a few companies to make sure you’re paying the lowest costs.

  5. Reply
    April 30, 2011 at 12:56 am

    I would just pay the 1500 each month. Be sure that there is no prepayment penalty. Paying extra will have no closing costs, points or other fees that a new loan will. The difference in interest rate if you refinance will be small. Paying $ 1520 per month will pay off your loan in 8 years. $ 1600 will pay it off in 7.5 years. Thats what I would do. Any extra your can pay will save you tons of interest. If you have any other loans they should be paid first. Your home interest is tax deductable and the others probably aren’t..

  6. Reply
    April 30, 2011 at 12:58 am

    Well my answer to this questions varies, if you want to refinance to take out equity as well as lower the interest rate, I would have to say no. By pulling out the equity you would actually end up paying more interest than you are right now. Unless you are very good with money and investments, in which case leveraging equity from a home can turn a good profit, but you need to make sure you have all of the pieces of the puzzle before you make a decision.

    If you simply want to refinance the current amount owed for a lower interest rate and plan on staying in the house for a while, go for it. You will have to spend some money to refinance so again, make sure you do your research, but lowering your interest rate by even 1% can make a big difference in how quickly you can pay off your loan.

  7. Reply
    Jerrold J
    April 30, 2011 at 1:01 am

    NO!! This is a math question so you need to run the numbers but do NOT look at the difference in the payoff date OR the difference in the payment. What you REALLY need to look at is the RATE of RETURN on this transaction and EVERYBODY has missed this in the previous answers.
    Let’s say that you COULD refi the loan for 15 years at 5% fixed interest rate and this would cost you 4% of the loan amount to get the loan underwritten and funded. So the cost to refi is about $ 4,600.00 in loan funding fees. IF the new loan is 15 years at 5% then the PI portion of the loan would be $ 910.20. Since your current loan is 30 years at 6.125% and I need to guess at original loan amount of $ 172,000.00; the DIFFERENCE in PI (Principal and Interest) between the 2 loan would be $ 140 a month. To RECOVER $ 4,600 in NEW loan fees; you would have to stay in the house AND keep new loan for ($ 4600 / 140 = 32.86 months / 12 months = 2.74 years to BREAK EVEN. Now you need to get a return on the investment of those $ 4600 and this strechs you over 3 years..
    So basically you would HAVE to get a new loan for 5% interest OR LESS AND with funding costs of $ 4600 or less, stay in the house another 3 years, AND that would put you EXACTLY where you are today.
    If there is ANY rsk of you having to sell or move in the next 3 years then it is a gamble not worth taking.
    IF your sole goal is to payoff the loan early then you are making another mistake. Any additional funds you pay towards extra principal payments you are getting 6.125% interest MINUS the tax deduction you lose by reducing the interest paid on the loan for tax purposes. AND you are locking those funds up until you refi or sell the house. If there is ANY emergancy where you need cash OR where you could invest those funds in a higher rate of return then that would be a better option for you.
    Another thing for you to consider is the fact that you “think” your house is worth 180K but depending on where you live house prices have been cut in HALF in some cities and we are still seeing declining values so you MAY not be able to get an appraisel for the amount you think you can. And the more “equity” you build in the house, the more funds you have exposed to risk IF the real estate market in your area nosedives.

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