To refi or not to refi?

[Scott K]

I am pondering doing a refinance on my house. I can drop a couple years off, and drop .875% off, with my payment staying the same. I wish I would have done it a month ago, before the interest rates went up. Any how, your opinion, I see it as an advantage anyway I look at it, less year, and about the same payments, actually $30 less a month. My question, should I wait, see if the rates go down again? Jump on it now, do the rates look like they will continue to rise more?

[Lip_Ripper Guy]

With the overall economy and real estate markets improving quickly, I don't see that there will be a lot of pressure to keep rates this low for much longer.

[lispeej]

What are the fees your bank is going to charge you? If I were you, I'd take that into consideration.

Here's an article I found online. Hope this helps.

Good luck.

http://www.mtgprofessor.com/A%20-%20Refinance/when_does_refinancing_really_pay.htm

[ClownColor]

unfortunatley if we knew...we'd all be millionaires. If you can grab a "no-closing" cost then by all means go for it. It's also an election year so stand by for good deals and changes...

[Getanet]

I'm not a banker, Realtor, or anything of the sort. But I had been in the market to buy my first house for the past year or so, and because of that I've been keeping a close eye on interest rates.

They seem to be trickling up over the past few weeks to a month. But even with that said, they are still very good and I can't see them going much lower than they currently are. The housing market in general seems to be improving (if you're a seller or Realtor), so I would think they'll continue to rise, not drop.

If the closing costs aren't outrageous, and you can cut years off your loan and lower your payments at the same time, seems like a no brainer. Waiting for a great deal instead of a good deal could bite ya.

[hanson]

I think the key thing here is closing costs and then how long you plan to stay in the house. If you have to pay closing costs... it may take you 5-7 years to get back to where you were before refinancing with a less than 1% reduction in interest rates. The benefit is on the back end so if you stay in your house for the full term, you'll see it.

Some of the banks have a "streamline" refi where you can refi with your current lender. One of my coworkers just did this through Wells Fargo. A local branch mailed her a letter, she thought "yeah right", but then called on it. She ended up lowering her interest rate to 3.8 something, going from a 30 yr to a 20 yr, and actually went up slightly in payment with no appraisal required and no closing costs. They sent out a package for closing and had to sign all the documents in front of a notary, so in front of our accountant. Wish I could have got that deal.

[Tom7227]

They sent out a package for closing and had to sign all the documents in front of a notary, so in front of our accountant. Wish I could have got that deal.

My daughter did this with USBank several years ago and the mistakes on the paperwork were just incredible. The notary that came out looked like a homeless guy. We ended up hiring a professional closer who fought to get the paperwork cleaned up before we signed. It was a refi so there shouldn't have been a hassle but there was.

[harvey lee]

I agree with Hanson 100%.

Closing costs or points could be spendy if they are charging you any.

Again, do you plan on staying there for sometime? If not and you have closing costs and depending on how much, you could lose out on the benefit of a refi.

Unless the economy goes down, I see no reason why interest will do nothing but go up. We were at a all time low I believe.

[Jameson]

...Some of the banks have a "streamline" refi where you can refi with your current lender. One of my coworkers just did this through Wells Fargo. A local branch mailed her a letter, she thought "yeah right", but then called on it. She ended up lowering her interest rate to 3.8 something, going from a 30 yr to a 20 yr, and actually went up slightly in payment with no appraisal required and no closing costs....

Got my letter in the mail a few weeks ago. Closed on the refinance Friday. Hopefully it's all on the up and up. My mortgage amount $$ stayed the same, no closing costs/fees, with a lower interest rate and same term resulting in a lower monthly payment. Seemed to good to be true to me, but hoping for the best.

[Lund79]

I got one of those letters in the mail by CitiBank a few weeks back too. You only had a short window to act on it. That threw up up a big red flag in my head. I thought to good to be true and did not even think about it.

[Sifty]

I just got done with doing it.

I was able to save on the monthy payment lowered my rate and dropped four years off my loan. Mine was through GMAC.

I to thought it was to good to be true but called a few places (my local bank included)and found out there are a number of these loan programs out there.

There was no required apparisl and closeing costs where next to nothing.

I got my new morgsgte payment in the mail on sat. and it all seems right.

Sifty

[thatoneguy]

Former banker here (don't worry - I was one of the good guys who kept underwriting standards tight and didn't get creative in order to chase money!).

Refinancing is all about two things (well, mostly about two things):

1. How long you plan on staying in the house

2. How much lower rate you can lock in and/or years you can shave off the term

With interest rates as ridiculously low as they are now, most people would see a benefit from refinancing (unless you closed within the last year or so on your existing loan).

For a personal example, my wifey and I will be closing on our refi on Wednesday. Our previous 30-year loan had a rate of 4.875 % and a payment including taxes and insurance (PITI) of about $1225/month. We're refinancing into a 15-year loan at 3.15%, which will include $8k in cash-out to take out a higher-interest line of credit that has a balance due to some medical bills. The new loan will have a PITI of about $1300/month, but will also eliminate a $200/month payment on our LOC.

So how do you know if it would make sense to make that change before you sign on the dotted line? Again, you need to have a sense of how long (barring the unforeseen like job loss etc) you will be in the house. Step two is to look at amortization tables for your current loan and your potential refinance loan. An amortization table shows you the principal vs interest breakdown of your payments over time, and is an invaluable tool in calculating the value of a refi.

In our case - even excluding the savings or refinancing the higher-interest debt at MUCH lower (and tax-deductible) rates - our break-even point (the point at which we will have recouped our closing costs) will come in about 26 months. When you factor in the savings mentioned above, we will break even in less than two years.

A decent amortization calculator can be found here Amortization Calculator (hope it's OK to post that - don't ban me!). Just put in the info for your current loan, jot down/print out the info, then do it again with the terms of the refi you're looking at.

It's very simple and takes just a few minutes once you have your information. It's very helpful for a lot of people to actually see it on paper and know how the different loans work over time.

In our case, the refinance is- assuming we make just the payment due on the due date for the next 15 years - the difference between paying about $139,000 in interest over the life of the loan (old loan) and paying $about $43,000 in interest over the life of the loan.

No-brainer, especially considering the monthly payment will not change a whole lot.

Hope this helps. As I always used to tell my customers, UNDERSTAND WHAT YOU'RE SIGNING! If you're not sure you understand, take the paperwork with you to a friend or relative who does understand. This is a huge financial decision, and you've got to go into it with eyes wide open.

Good luck!

[hanson]

I to thought it was to good to be true but called a few places (my local bank included)and found out there are a number of these loan programs out there.

What my co-worker told me when I told her "that sounds too good to be true" was that Wells Fargo was looking at retaining their current "good" mortgage holders as customers and if that meant reducing their interest rates through a refi process, that was worth it to them.... versus having them refinancing with a different lender. Great strategy in my opinion.

You could argue these lenders could have done a bit more earlier but I think they've all learned what has happened I hope. The precipitous downward spiral was started and blossomed. Those who quit paying drag the rest down and the lenders slowly lose their paying mortgage borrowers one at a time, one after another.

[Lip_Ripper Guy]

If you have one of the big lenders as your mortgage company, you are probably relatively safe from the "too good to be true". They are being watched VERY closely, and are under immense pressure from the government and general public to "do SOMETHING". They are being pretty pro-active right now by offering modifications, refinance, and short sales to a lot of their borrowers. Don't just throw away their offers...they CAN be VERY good, and may save you a lot of money.