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Should I refinace?
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18 comments

Current rate is 4.5% with a 30 year fixed term with 28 years remaining on the mortgage with mortgage payments of approximately $3000 per month. The closing costs with CEMA would be approximately $5000.

New rate would be 3.75% with a 25 year fixed term which would shave 3 years off my loan and my new mortgage payments would be approximately $2950 which is 50 dollars less than my current mortgage payments

I am unsure if I should refinance. It would take me approximately 7.5 years to recoup back the closing costs according to mortgage refinance calculators.

Any help would be much appreciated.

It is always a question of age and long term plans for the apartment. However, if you will stay for 15 years (if it is even possible to project that far) compare the financials of getting a new 30 years with lower cost at different bank. It will be 12 months to recoup the fees and then just add @200 to your monthly payment and you will shave off few years.

we plan on staying in this condo for 10 years

You would be saving (4.5% - 3.75%) * $600,000 = $4500 in interest in the first year. You need to adjust that for the tax deduction - say knock it down by a third - so you save $3000 net a year in interest net of tax.

Closing cost of $5000 (assuming none of this is deductible points) means it'll take you a bit under two years to be even on the deal.

Not sure where the 7.5 years came from - sounds like you did your math on a payment basis? The expense in a mortgage is in the closing costs and the interest, and not the part of the payment that reflects principal. You can always pay more quickly, and if you pay more slowly, you can always invest that money separately. The goal is to built net worth, not to be myopically "debt free."

3.75% with $5000 in closing cost sounds extremely high. Shop around.

@mucuk: I thought the closing costs and interest rate seem high as well. I did shop around to Wells Fargo, Astoria Federal, Citibank, and Bank of America. Since I have my current mortgage with Bank of America they gave me the best rate at 3.75% with approximate $5000 in closing costs for a mortgage of $567K (25 year term).

Could check the other thread for additional banks. We're using TD.

We tried to do our refi with BoA and after five months of underwriting (!), we gave up. A real lack of professionalism (the application stalled for a month because the processor went on a long vacation), as well as endless dickering over amazingly minor things like the deductible on the building's insurance for embezzlement. They then panicked after Hurricane Sandy and kept sending people to verify our building still existed. Those guys were a total and complete waste of time.

For a conforming loan that sounds like a pretty high rate today. What is your LTV? Do you have at least 25% equity?

CEMA is a pain in the ass for banks too, Wells just did mine and they said it was denied, but ate the mortgage recording tax cost to get the loan done.

If you can make your money back in two years, the answer is yes.

you are shopping for a non-conventional loan of 25 yrs. look at a 30 yr and you'll see more options and lower rates. then prepay for a few years to get you down to 25 yrs and you want.

I think it comes down to if you believe the Fed will continue its current monetary policy and in a sense send mortgage rates lower? If rates were to go under 3% then there will be another wave of refinancing which is when I think you will want to take advantage of those rates.

With the fiscal cliff resolved, rates have gone up today since people have moved money out of treasuries and into stocks.

That said we still have the debt ceiling to deal with in a few months, and that can get pretty hairy and people may again be selling stocks and going back into treasuries, hence lower rates. Apply for your loan now, but don't lock it in.

However if you want to reduce your years to pay off your mortgage, simply make one extra payment a year and that will reduce the time to pay off your mortgage.

As far as a 25 year mortgage, that rate should be lower than the 30 year. Therefore 3.75% sounds high.

But only saving $50.00 a month. Your mortgage must not be very big.

Ellen Silverman
Mortgage Broker
www.esfunding.instantlender.com

Comment removed.

echo ab_11218's comment. That is good advice.

The difference in your monthly payment has nothing to do with how much money you are actually saving, you have to look at the loan amortization schedule that shows you what your principal and interest payments are for each month. While your out of pocket payment may only be $50 less, you are paying more principal and less interest in each one of those payments. Most basic mortgage calculators don't get that specific, and most lenders likely won't get into that detail either since it requires extra math for them.

As mucuk said above, your payoff is more likely 2 years when you factor in the extra principal and less interest being paid. E.g., I re-fi'd my loan and went from 4.875% to 3.375%, with closing costs of about $5,500. I rolled it into my new loan amount so nothing was paid out of pocket, and with the 150 basis point reduction in my rate, I get that money back in just 5.5 months. My monthly payment is $675 lower, but my net monthly savings is actually $1,050 because I'm paying more principal and less interest to boot.

Hope that helps you clarify. Rule of thumb I've always used (and heard from many in the mortgage world) is that if you are still early in your loan, which you are at just 2 years in, and plan to keep your loan for at least 5 years, 100 basis point reduction in rate is almost always going to be worth the cost of the re-fi (depending on the amount of the mortgage recording tax, if applicable, which you say wont' be if your CEMA is approved).

Comment removed.

thanks for all you help...by the way my LTV is approximately 60%..Loan of 567K and conservative value 950K on the condo.

i read a wsj article stating that even though published refinance rates are low with reduced competition in the mortgage market, the big banks are offering higher rates to customers than their low published rates because more people are saying yes to these higher rates...they want to reduce the volume of their mortgage business with more profitable mortgages

http://online.wsj.com/article/SB10001424052702303459004577364102737025584.html

@streetsmart: I thought any debt ceiling political stand off would scare investors from buying Treasury notes thus increasing mortgage rates. with a potential standoff, investors would have doubts about the worthiness of US debt

however, i could be wrong aobut this point since i am not a financial expert by any stretch of the imagination

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