Mortgage loans/refinacing

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  • jkaetz

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    Yes yes I know, don't take out a loan, but I already have and it would take forever to save enough while also paying for some type of lesser housing so here we are.

    In 2018 the interest rates were much less favorable than they are now and we got a 4.5% rate for 30 years. Both our credit scores were 820+ at the time and I have no reason to believe they would have changed significantly. We're talking with our current lender about a refinance and I've been following interest rates since around August. They currently have dropped to around 3.5% according to most charts but I'm seeing some advertising a good quarter percent less at 3.3 to 3.25. Anyone know if it's worthwhile to jump through the hoops (Unfreeze credit, give out a bunch of personal info) to get quotes from these places or are they gaming the system to advertise unobtainable rates? While it doesn't amount to much in the monthly payment over the life of the loan it is significant. We may be able to pay it off sooner once the children bills drop off but at these loan rates and market returns it almost makes more sense to pay the minimum and invest any extra we have.
     

    smokingman

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    It is worth it to try and get a lower rate. That said watch closing cost and get that information as well when looking at rates.

    It is easy for a lender to offer 1/4 percent less in a rate if they are charging 10 times more in closing costs.

    I have seen some crazy closing costs,some well over 1% of the loan value.So make sure you know those numbers up front,and you can and should negotiate those costs.
     

    CHCRandy

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    Maybe check with your current lender. I have my house with Bank of America......about 10 years ago I switched from a 30 year with 23 years left, to a 15 year. I asked BoA about refinancing and it was painless. They refinanced my home, no cash out....no appraisal. Went from 23 years to 15 years and the most money I ever made in a day....think I saved about $75,000 in interest. Just thought I would mention. Good luck.
     

    natdscott

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    Yeah, ask about a loan modification. It’s not likely with the type of loan you have, but it won’t hurt to ask.

    Loans CAN be closed in Indiana for $1,400-$1,800 in total closing costs if your HOI is already paid for for the year. Just change the mortgagee and get a new proof of insurance just before closing.

    If it’s a ton more than that, if there are points involved, etc....well, ask hard questions and play the field.

    Nobody will watch out for your wallet except you.
     

    natdscott

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    Oh yeah. If you really want to know what the market is WRITING, versus advertising copy, google

    ”PMMS Rates”.

    The FNMAE site tracks the T2W interest rates of loans that actually CLOSED, for a 15y FRM, 30y FRM, and I think a 5y ARM.
     

    Jomibe

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    Just spitballing, but depending on how much house you have your payment may not change a huge amount with only a 1.0% change in APR. If closing costs end up being $2000, and your payment goes down $50 a month, it would take a long time to break even. That's how I think about it.
     

    femurphy77

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    We're currently refinancing our home and ended up.with 3 percent for 12 years. We're looking at selling out and retiring in 6 years so will double down and pay it off in 5. Our closing costs are 1700. We used our current lender that is locally based so that may have factored in somewhere.
     

    natdscott

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    Just spitballing, but depending on how much house you have your payment may not change a huge amount with only a 1.0% change in APR. If closing costs end up being $2000, and your payment goes down $50 a month, it would take a long time to break even. That's how I think about it.

    Looking at the total interest on the loan is a better way of comparing things.

    1% is a colossal change in APR over the life of the loan.
     

    schmart

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    Just spitballing, but depending on how much house you have your payment may not change a huge amount with only a 1.0% change in APR. If closing costs end up being $2000, and your payment goes down $50 a month, it would take a long time to break even. That's how I think about it.

    With only a $50K loan, 1% is $500/year savings in interest. Considering the loan was initiated in 2018 for 30 years... that would save about $11,000 over the term of the loan. If the house is double that... then the savings would be double. I would (and have) done this in the past and have NO regrets. Depending on your current financial situation considering possible raises since you took out the loan, is it possible to INCREASE your payment? If so, look at dropping the loan term from 30 to 20 or even 15 years. It is amazing how much that saves over the term of the loan.

    --Rick
     

    nra4ever

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    Definitely look at the 15 year loan. If you can swing it definitely go 15 years. Remember as time goes on you should earn more money every year but your loan payment will remain the same.
     
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    femurphy77

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    We've refi'ed several times on a couple of properties we own including our house. It was always as the result of dropping interest rates but unlike some people instead of lowering our payments we instead shortened the term of the loans each time. Doing so has allowed us to position ourselves where we are now after 11 years in this location; we went from a 30 year to a 25 to a 15 down to a 12 now which due to our improved financial position in life we will pay off in 5. I stopped counting how much we've saved because it's simply a math problem that has proven we've made the right decisions.:rockwoot:

    As an aside, we've always paid considerably more than the required payment so even if we'd never refi'ed we would have had that initial mortgage paid off in 23 years. As it stands from initial purchase to owning free and clear (other than the annual government rent payments) will be 16 years.
     

    natdscott

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    With only a $50K loan, 1% is $500/year savings in interest. Considering the loan was initiated in 2018 for 30 years... that would save about $11,000 over the term of the loan. If the house is double that... then the savings would be double. I would (and have) done this in the past and have NO regrets. Depending on your current financial situation considering possible raises since you took out the loan, is it possible to INCREASE your payment? If so, look at dropping the loan term from 30 to 20 or even 15 years. It is amazing how much that saves over the term of the loan.

    --Rick

    Given the short interest differential between a 15y and a 25-30y Note, I prefer to counsel many Borrowers to select those products, but simply pay on a 15y amortization if they choose.

    Doing this allows for the flexibility of a lost job, economic downturn, family illness or death, etc., but does not cost very much.

    Truly, though, the only way to make those decisions objectively is to do the work: figure the loan multiple ways, and make a decision about subjective factors based on solid objective logic.
     

    jkaetz

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    Thanks for all the input. Our loan is significant, with a pair of two year olds in daycare we are looking to reduce our payment and eliminate PMI/escrow accounts. We also plan to be here until the boys are out of the house so this is certainly a long term proposition. If we reach a point where extra funds are available we will likely pay the loan off faster but will also do the math on investing the extra rather than paying off early. If anyone else is looking, rates seem to be in freefall due to the coronavirus hysteria. I got two offers for 3.375% with no points and nearly enough $$ in closing costs to cover the lender fees. Going to likely lock things up on Monday as there is no expectation that rates will go back up soon.
     

    natdscott

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    3.375% is a fantastic rate to borrow money for 30 years. Jump all over that.

    Escrow isn’t a terrible thing. If there is ANY rate penalty if you do NOT escrow...well, take the escrow. Once you are locked down, they cannot force you to KEEP escrow (but read the docs to make sure that discontinuing does not, in fact, constitute default).

    Anyway. Yeah, PMI is balls. That’s the technical term, and I do it for a living. :)
     
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    JettaKnight

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    Thanks for all the input. Our loan is significant, with a pair of two year olds in daycare we are looking to reduce our payment and eliminate PMI/escrow accounts. We also plan to be here until the boys are out of the house so this is certainly a long term proposition.
    So, there's a few things here:
    1) Refinancing isn't going to affect PMI & escrow necessarily.
    2) If you're 80% LTV, I doubt any lender will give you a loan (30 year no less) without an escrow account - they want to protect their investment from the home owners stupidity (I'm not implying anything here). And for all the complaints, having the lender handling the taxes and insurance isn't terrible. There are rules about how much they can how in escrow, and sometimes (always?) they do pay interest on that cash.
    3) PMI can be cancelled when you get to 80% LTV with just sending the lender a letter requesting that it be cancelled. IIRC, it's automatically cancelled at some level, maybe 85% LTV. Yes, cancel that as soon as possible - it's just money wasted.

    If we reach a point where extra funds are available we will likely pay the loan off faster but will also do the math on investing the extra rather than paying off early.
    Lots of people say that...



    Definitely look at the 15 year loan. If you can swing it definitely go 15 years. Remember as time goes on you should earn more money every year but your loan payment will remain the same.
    Yeah, 30 year loans are evil, especially in a macro-economic sense.
    https://www.npr.org/sections/money/2011/01/14/132940442/the-friday-podcast-the-frankenstein-mortgage
    In a micro-economic sense, the amount you pay in interest is staggering.
     

    jkaetz

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    So, there's a few things here:
    1) Refinancing isn't going to affect PMI & escrow necessarily.
    2) If you're 80% LTV, I doubt any lender will give you a loan (30 year no less) without an escrow account - they want to protect their investment from the home owners stupidity (I'm not implying anything here). And for all the complaints, having the lender handling the taxes and insurance isn't terrible. There are rules about how much they can how in escrow, and sometimes (always?) they do pay interest on that cash.
    No offence taken, you are absolutely correct. We simply fall into the category of being able to manage the taxes & insurance without the help of an overseer. We are very close to the 80%, just need the house to have appreciated slightly. If not enough we may well pay the difference.
    3) PMI can be cancelled when you get to 80% LTV with just sending the lender a letter requesting that it be cancelled. IIRC, it's automatically cancelled at some level, maybe 85% LTV. Yes, cancel that as soon as possible - it's just money wasted.

    Lots of people say that...
    Yes they do, and lots of them live paycheck to paycheck. We've chosen a different path. Rather than pouring our liquid assets into property, we're attempting to save them for future children related expenses. As it stands, the house is our only debt if you consider a house a debt.

    Yeah, 30 year loans are evil, especially in a macro-economic sense.
    https://www.npr.org/sections/money/2011/01/14/132940442/the-friday-podcast-the-frankenstein-mortgage
    In a micro-economic sense, the amount you pay in interest is staggering.
    I've done the math, if one pays out a 30 year loan to term they are paying nearly ~1.8x for the house. This of course gets worse if refinanced and extended multiple times. We accept that we're paying for the privilege of living in the house now and if we weren't paying interest we'd be throwing away $$ on a rental or making due with a significantly smaller space. In general we should be able to sell the property at any point recovering the principal and at least a chunk of the interest. This is a personal choice that we are grateful to be able to make. Trust me, I'd love to be able to pay off the loan and never look back but that would just pave the way for the next large kid related expense. Yes I consider the house a kid related expense. Selected for size, location, and school district. If not for the extra four feet running around we'd likely still be in our much smaller and well below our means house. :D
     

    BehindBlueI's

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    Paying extra on my mortgage was the stupidest thing I did this year. I never paid extra until 2019 and started getting nervous because things were looking "too good". My investments came in at about 28% gains this year. My mortgage rate is 3.25%. Nobody has a crystal ball, I get it, but that stings a bit. I've got freaking CDs paying 3.5%. I'm not doing myself any favors paying my mortgage down.

    So, in short, run your opportunity costs as well, not just cost of the loan over the lifetime of it. Once you're not paying PMI, you might not be ahead as much as you think.
     

    dudley0

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    Paying extra on my mortgage was the stupidest thing I did this year. I never paid extra until 2019 and started getting nervous because things were looking "too good". My investments came in at about 28% gains this year. My mortgage rate is 3.25%. Nobody has a crystal ball, I get it, but that stings a bit. I've got freaking CDs paying 3.5%. I'm not doing myself any favors paying my mortgage down.

    So, in short, run your opportunity costs as well, not just cost of the loan over the lifetime of it. Once you're not paying PMI, you might not be ahead as much as you think.

    You have CD's paying 3.5%? Man you must have a chunk of change in there to get that rate. Too bad I don't make big time money like you do.

    Taking mortgage interest off taxes is a perk as well (barely). We pay our primary home mortgage weekly. Next payment isn't due until June last I checked. If things get tight we can skip with no worries. This has helped in the past.

    I just refinanced a rental and got 3-5/8% on a 30 FRM. Banker tried to talk me into going shorter term, but for the rentals I look at cashflow versus speed.
     

    CampingJosh

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    You have CD's paying 3.5%? Man you must have a chunk of change in there to get that rate. Too bad I don't make big time money like you do.

    I would bet these are just very long term CDs. I volunteer with a charitable foundation that recently (2018, I think) had a CD paying 4.5% come to maturity, but it was a 30-year CD.
     

    BehindBlueI's

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    You have CD's paying 3.5%? Man you must have a chunk of change in there to get that rate. Too bad I don't make big time money like you do.

    I would bet these are just very long term CDs.

    Nope, just a credit union member. I have a small ladder of CDs as an emergency fund and it's split between Navy Federal Credit Union and Teacher's Credit Union. Also a small amount in an IRA CD since I got 10% match for $500 deposit, along with 3.5% rate.

    Navy Federal (with a minimum of $50, maximum of $3k, and requires you to have a checking account with direct deposit):
    Special EasyStart℠ Certificate3$5012 months3.44%3.50%

    You have to watch the "specials" and be prepared to jump in when a nice one comes along.
     
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