30 year fixed at 4.78 avg with some at 4.373. Refi or not? Buy or not?

[Stinky The Clown]

If you have a mortgage, even at a recently good 6% ... or a not so recent 7% .... should you refi?

What about buying? Prices are certainly down and the money's cheap.

Thoughts?

[msongs]

1. if you plan to stay in your house a long time a refi is good IF you can get a good rate. nt

[Snarkoleptic]

2. I've been in the mortgage business since 1986 and don't want to hijack the thread, but ...

ask away...

[tabatha]

3. Where did you find 4.373?

[Stinky The Clown]

7. It was a typo .... it was actually 4.363 ..... here

http://www.bankrate.com/bir/

In the ad at the top ... some outfit called AmeriServ.

[Snarkoleptic]

12. Be careful with these teaser ads.

They often assume the borrower is purchasing (rather than refinancing a home) and has a 40% downpayment with a 800+ credit score.
These offers also frequently compare apples to oranges by quoting a rate assuming you will pay a point (1% of the loan amount) as a service charge to buy down the rate.
Never pay a discount point unless you are certain that your monthly payment savings will be sufficient to amply reduce your monthly payment by an amount greater than the discount point (and do so in a reasonable time frame).

[tabatha]

28. Good info.

[flvegan]

4. Refi is contingent on property value retention from the current mortgage.

That's a big part of the problem.

If I could refi at 4.78%, I'd be all over it but I'm about $15k off on my value.

[Snarkoleptic]

9. Fear not! In a rare display of awareness, Fannie and Freddie loans are eligible for refinance...

even if you put down 20% only to see your home value decline.
The major obstacle for those who used to have 20% equity had been the fact the values have declines and your equity was now less than 20%.
Loans with less than 20% equity require PMI or Private Mortgage Insurance.
The new program allows no-PMI-refinances to those who had a Fannie Mae or Freddie Mac loan with 20% equity, even if their mortgage balance is now as high as 105% of today's appraised value.

[flvegan]

10. That I didn't know. Thanks!

I'd be happy paying for PMI to lower my rate a couple points, tbh.

[Snarkoleptic]

15. If you don't currently have PMI, it's usually a losing proposition to add PMI to get a slightly

lower rate of interest.

The new program for refinances requires that you either have a Fannie Mae or Freddie Mac Loan.
Most borrowers refinancing an existing Fannie Mae or Freddie Mac loan will not be required to buy new or additional mortgage insurance if the loan at the time of the refinance is more than 80 percent of a home's value.

Any existing mortgage insurance may be carried forward to the new loan. MI coverage on the new loan must be the same as on the original mortgage

Mortgage insurance (MI) is not required if the existing mortgage does not require MI unless the new loan exceeds 80% loan to value.

A Fannie Mae or Freddie Mac loan can be refinanced up to 105 percent of a home's value with this new flexible plan, so even borrowers who are "underwater" -- who owe more than their home is worth -- may be able to refinance.

The 105% does nor include the 2nd, but the lender holding the 2nd mortgage or the Equity Line must agree to subordinate.

No new money can be added to the 2nd or Equity Line.

The maximum Total Loan To Value (TLTV) ratio is 105%, however the new Relief Refinance Mortgage cannot be used to payoff or reduce subordinate liens.

Closing costs may be rolled into the mortgage, Freddie Mac’s limit is $2,500

[flvegan]

16. I work for a major title underwriter

and have scores of agents with mtg co connections. My closing costs would be low and I have no second/equity so subordination wouldn't be needed. I'd get the reissue on my title policy. I didn't know about the LTV percentage though. For me, PMI would be worth it if needed.

Again, thanks. Nice having folks with specific expertise around here.

[Mr. Ected]

30. PMI Is Tax-Deductible As Well (In Many Cases)

Just something else to consider when crunching the numbers.

[CreekDog]

5. depends on the closing costs for that loan

what you do is calculate your new payment
find the difference between new and old
then look at the total amount of closing costs (whether you pay them up front or add them to your principal balance)
then you decide if it makes sense for you.

for example:

your closing costs are 5000 but your loan is only $100/month cheaper than your current one.
it will take 50 months for you to break even on those closing costs --only at that point are you saving money overall.

generally speaking, if you plan to stay for a long time, the lower interest rate will pay off in that term, so more closing costs may be justified.

if you don't plan to stay for a long time, reduce the closing costs though the interest rate will go up, overall it may still be worth it for the monthly savings.

[flvegan]

11. And in this day and age, closing costs should never be that high.

[CreekDog]

13. they shouldn't, but don't be surprised if they are

especially when you see a rate lower than most places are offering.

because you are paying for that rate, one way or another. :D

[ContinentalOp]

22. Really? I'm in the middle of a refi and the closing costs are over $6000.

But then we're saving over $500 a month so it works out.

[Oregone]

32. "But then we're saving over $500 a month so it works out."

Unless you sell quickly (bye bye $6000), or unless you have an issue paying interest (since you will be paying primarily interest first)

[dysfunctional press]

6. run the numbers.

they'll probably say YES.

our refi is going to be done in another week or so- we're switching from a 15-year fixed to a 30 year fixed, but we got in too early, and our rate locked at 5.1...but it still saves us $400/month. and we're taking $10K out, as we're doing it mostly for bill consolidation. we're also signing up for the 'buysaver'(?) thing where you pay half a payment every two weeks, instead of once/month- the loan gets paid off in 22 years and you save a bunch of interest. but we'll hopefully pay it off long before then anyway.

[John Q. Citizen]

8. Absolutly you refinance. At a point or better you go for it. Unless you got little time left on your

mortgage.

Even then, that's pretty cheap money.

[HughMoran]

14. I was going to refi, but now I got no job - doh!

I gotta get me another job!

[praeclarus]

17. yes you should re-fi ...

Look at total interest paid over life of the loan.

But I don't understand re-fi to a longer term, the
numbers don't make sense to me. All due respect to post
#6 but switching from 15 yr to 30 yr even if you save
$400 per month, you are going to pay more interest over
the life of the loan I'm pretty sure. Unless you are not
planning on the keeping the thing forever.

Anyway, personally I have re-fi in progress from
15 yr/5.125 to 10 yr/4.25. I have 13.5 yrs left on the
15 yr so will have it paid off in 3.5 years less. Saving
in interest over the life of the loan is substantial.

[Warpy]

18. Rule of thumb

Refinance when it's a whole interest point lower. Try to get a 15 year mortgage so you can pay that puppy off sooner rather than later.

As for buying, know what rents are doing. If they're close to your PITI, it's a good time to buy.

Know your market. Nobody else in other markets can tell you what to do in yours.

[Oregone]

19. BE SMART!

Figure out with fees (especially if closing costs are tacked onto the amount), when you will break even and if you are going to keep it that long.

I currently have a 30 I got 4 and a half years ago. I have 19 years left. Its at 6.125%.

If I refi to a 4.875% @ 20 years (with estimated $3K in closing fees added to principal), at normal payments, it will take over 4 years to "break even" (and I only save $60 bucks a month).

Now, if I paid the same monthly, by adding an extra $60 dollars to each payment, I can break even in 3 years!

BUT, in that scenario, I get no added benefit until 3 years (my house is for sale), and I just "spent" and extra $3 grand....

So, what if I keep my same loan, and drop a $3 grand balloon payment down now? Well, running those side by side with the scenario of a REFI and an extra $60 a month, it would take until 2013 before I "break even". Of course, if I had that money to drop now, maybe I could just pay closing costs up front and bring "Break even" to 3 years (but then I lose that dough if my house sells tomorrow).

What the fuck? I hate closing costs.

The ONLY way I can benefit more quickly is switching to a 15 year loan and paying an extra $70 a month from where I am now. These bankers have you by the balls.

Run the math. Consider the closing costs, look at scenarios of balloon payments and see where you "break even".

I want to sell my home, but in the meantime, Im stuck paying interest. There is no better option for me unless some investor wanted to pay off my small mortgage and buy equity at a discount (which I would happily do). Going the bank route seems lose/lose.

[Oregone]

20. Ouch, I even "lose" at a 15 year REFI

Looking at closing costs of $3 K and 4.75....

Well, my payments would be $75 more a month.

If I just add $75 dollars more a month to my current 30 year loan (19 years left), I only have 16 years left.\

So, in order to take off a year, I have to *gamble* that I will sell it only after the break even point (from the closing costs)...and that is like 13 years in the future.

Pretty fucked. People, be careful about resetting your amortization schedule in a REFI. Be careful about closing costs. And be careful about what you could save by just paying extra a month (if your payments will rise). Look at your "break even" point and weigh the risk of paying those costs.

There has got to be a better way to do financing! 1) build a time machine and borrow it cheaply from yourself in the future (and yourself in the future will have more money if he borrowed it from himself earlier in life). This process of time travel could actually be simulated on paper, believe it or not. 2) Sell equity states advantageously to investors and guarantee their investment as breaking even in worse case scenario.

We need new ideas in financing. This same old shit is just enforcing a perpetual class system.

[dysfunctional press]

24. sometimes there are extenuating circumstances involved.

short-term needs sometimes take precedence over long-term gains.

[Oregone]

25. Yes, like if you need to lower payments substantially

I could drop to a 30 year loan and save 200 a month, although I add 11 years to my loan and the closing costs to the principal, and a shitload of interest.

If I made the same payments on those terms, I would actually save money. Of course, if I just paid an extra 20 dollars a month with my current loan, I would save more than the REFI.

Anyway, yes, you can lower payments but fuck yourself in the long run. It sucks. Its a shitty situation to imagine that an "opportunity" is essentially going to drain wealth from you long term.

And even in the short term, if your home is for sale (like mine for the last 2 years), you lose the closing costs and more if you sell before the "break even" point. I think it is almost all a big scam. Yes, there are some circumstances that warrant it. But, in a lot of the cases being encouraged, people can get really fucked.

BTW, I have no idea what closing costs are here where I live in BC, but their interest rates are 3.5% (now were talking!). Too bad they wont REFI a US property. Maybe the US lending rate is just too damn high? The cost of credit doesn't seem realistic.

[dysfunctional press]

29. we dropped to a 30yr to save $400/month...

and our loan will only be for less than half the appraised value- so we'll still have tons of equity.
and by making 1/2 payments every two weeks, we can pay it off in 22 years- whereas we still have 13 years on the current 15yr. mortgage- which we're only paying monthly.

but- due to some otherwise very painful family circumstances, it's very likely that we'll be able to pay it off within a couple years at most.
depending on how quickly things metastasize.

[Oregone]

31. Yes, you save money monthly in the short term

But in the grand scheme of things, resetting your amortization table and switching to a 30 is likely going to cost you a mountain load of more money in interest (and closing costs). And in the short term, if you have to sell, poof goes the closing costs and fees.

I guess to me Im all about looking at whether this is helping me get wealthier or not. Am I building more equity this way? Is it easier to just balloon? Is saving a few hundred a month worth having the majority of my payment go back to interest? Personally, unless you really run the numbers, I think a lot of people stand to fuck themselves on this whole thing.

[dysfunctional press]

33. since we need to lower our payment in the near term, we didn't have much choice...

but we won't be paying for anywhere near the full term of the loan, and the closing costs will be covered in about 9 months, based on our monthly savings. AND we're also taking cash out to enable us to be closing out all credit cards save two- our costco amex card, and a mastercard, plus our debit card is also a visa.
so we'll be back to zero balances- no debt except for the mortgage, and payments that are $400 less per month- which should all get our heads back above water, hopefully to stay for awhile, at least.

i've never been one to look at things as whether it's going to make me wealthier- rather i usually base my decisions on whether something will make me happier. and my happiness is seldom tied to any kind of wealth whatsoever. :shrug:

[Oregone]

34. "closing costs will be covered in about 9 months, based on our monthly savings"

I just want to point something out regarding this line here for some people who do the short math (I'm not disagreeing with you immediately here)...

You may be able to "save" $400 a month, and after 9 months, that 'may' zero out your closing costs (but, more on this below, but your closing costs are never really negated). But while you are paying yourself in cash during those 9 months (liquid wealth), you may not be paying yourself in equity in your home anymore (since the payments disappear more readily in interest). If, at anytime you try to realize your non-liquid wealth (equity), you may come up short.

In my situation, I currently pay $226 in principal every month (with a 30 @ 6.125). If I refinanced to another 30 year, I would initially pay $130 in principal a month. It would take maybe 16 months for me to "save" enough to make up for an assumed $3000 in closing costs. So, after 16 months, my principle balance would still be $1000 dollars higher than it is currently! Meanwhile, on my current plan, after 16 months, I put $3.75 K in equity in my home.

So, in the refinance scenario, my net wealth after 16 months is:

LIQUID + SAVINGS + (EQUITY - CLOSING COSTS + (~130*16 in principal pay down))

OR:

LIQUID + SAVINGS + (EQUITY - CLOSING COST + $2140 in additional equity)

And to consider them "covered":

LIQUID + (EQUITY + $2.1 K in additional equity)

* This assumes you bundled your CC into the loan

Now, in the scenario I keep my current mortgage:

LIQUID + (EQUITY + $3.75 K in additional equity)

So, in terms of net wealth, we are anything but equal, even after costs are "covered". Looking 3 years down the line, on my current plan, my balance will be $94 K on my mortgage. If I refinanced, my balance in 3 years will be $100 K. So in 30 months:

Current: LIQUID + (EQUITY - $95.6K MORTGAGE)
REFI: LIQUID + (EQUITY - $101.8K REFIMORTGAGE) + ($190 Liquid savings * 30)

So after 30 months, Ive almost evened out my wealth (not my equity). So then, one would think, anything from there is pure savings, right?

Wrong. I currently have 19 years left. This is a 30. For 11 more years of my life I will be paying $560 dollars a month. In order to save $200 dollars for 19 years, I need to agree to pay $73000 over those 11 *extra* years. So, with my current payments, I have about $170 K (principal and interest included) left to pay. With a REFI, I have $200 K left. I put $30 more on in interest, and save ($190 * 12 * 19) in monthly payments, which is $43000. All in all, to full term with a REFI, I net $13000 in wealth.

But, that is if I pay it off until full term. If I sold my home BEFORE the monthly savings balanced out the additional mortgage and interest, I lose. So Im essentially *gambling* that I will stay there before that point to get $18 K in wealth (I definitely wont keep the home that long), and I get easier payments during it (immediate cash reward). But, instead of gambling, what if I wanted to take out a costly "insurance policy", where I will beat both these scenarios whether my house sells or not*? With a mere $50 dollars extra a month, I take 4.5 years off my current mortgage (equity I instantly realize if I get an early sale). Further, paying in this manner would result in $153,000 if paid to full term. Consider short and long term possibilities, this appears the best option (that is correct, the "best" option for me is paying $50 dollars extra a month rather than REFIing my loan into any thing Ive done).

* And I recognize that losing a job or income source doesn't make paying extra a viable option.

I advise EVERYONE to print out their amortization table of their current loan, and their proposed REFI (with fees bundled). Look how many years down until they even up (if they ever do). Consider the scenarios. Until you look at things side by side, you may not realize how much you are saving or losing.

=======================


"closing costs will be covered in about 9 months, based on our monthly savings"

AS A NOTE: This is a bit of a false premise if the fees are bundled into the mortgage (if you pay up front, also run the math on a balloon payment on your current mortgage)

You are assuming that covering you closing costs will take the same amount of money as the amount you "paid" in closing costs. This isn't true; your closing costs are amortized. They are never really "covered". The additional amount from them will continue to take its toll for a full 30 years.

Example: Compare $100K, 30 year, at 5% ($3K paid up front) vs $103K, 30 year, 5%:

$100 K Mortgage:

Total Repaid: $193255.20
Total Interest Paid: $93255.20
Interest as percentage of Principal: 93.255%

$103 K Mortgage:

Total Repaid: $206715.64
Total Interest Paid: $103715.64
Interest as percentage of Principal: 100.695%

Because the closing costs were added to the amortization schedule, in the end, the second loan cost $13 K more to repay to full term!

So, what I am trying to say, is that in order to "cover" your closing costs, essentially, you may need to save up far more than the value of the closing fees before they are covered. The true cost of bundling them in, in that example, is about 4 X more than paying them up front. Of course, you are looking at a REFI, so its a bit different to think about, but adding them in takes a heavy toll and they aren't merely recaptured when you save up an equivalent amount in liquid assets. You also need to examine what you are losing in equity (examine what interest it is adding to your debt).


=====================


"rather i usually base my decisions on whether something will make me happier"

Say what you will, but living mortgage free can help you be happy. It gives you a new found freedom to pursue your dreams, and a sense of security that comes with having firm assets no one can take from you. Being mortgage free opens up many doors, in terms of work, vacation, retirement, etc. The quicker you build real wealth in equity, done smartly, is the quicker you can be mortgage free. Yes, money isn't the root of all happiness, but living in a virtual slave environment where assets cost 2X as much to the borrower as the owner can stick you in a job you hate and in a place you despise. While a few hundred in lower payments may make you happy in the short term, having freedom and mobility, in the future may help me be happy in the long term.

[dysfunctional press]

35. wow. you are waaaay more money-centric than i am.

i had to stop reading your post two paragraphs in, and skip to the bottom.

it really doesn't matter all that much to me. i don't worry or even think too much about amortization schedules, as i doubt that we'll be paying the mortgage payments all the way to the end, anyway.

but- either way, i prefer to be happier in the moment, rather than worrying about how to get to where i think i might be happy in the future- because it generally doesn't work out that way, for one unforeseen reason or another.

[Muttocracy]

21. I'm willing to run an experiment in buying if someone puts up the research funds

:7

[BootinUp]

23. If you have the equity to refi from 6 or higher

then hell yes you should. For me alas tis not the case.

[Oregone]

26. Seriously, "hell yes" is not the right attitude. Do the math first!

I have a crapload of equity and a loan at 6.125%

Every way Ive ran the numbers, Ive pretty much barely broke even from a REFI. If my home sells before then, I lose. Its a literal gamble for me to REFI, with such a small chance of reward (in the even I stay in my home 15-17 years longer) that its not worth it.

[pnutbutr]

27. POINTS

you have to factor in how many points on that 4.xxx%. Each point is equal to about 1%.