Refinance from 6.125% to 5.375% (30 year fixed rate)? Worth it?

johnnyjai, based on the info given, probably not. If you're trying to lower your monthly nut, $238 isn't all that much, and putting down $50,000 kind of defeats the purpose, no (it would take 17.5 years to recup that 50k alone)?

No, not worth it.

depends on your point of view about that $50K. If its sitting in a bank earning 1% and its not your last 50K and you're not the kind of person who would ever walk away from a mortgage--seems to me that it's worth considering.

I'm worried that interest rates will increase again and I would miss the opportunity to lock in at a lower rate. On top of it, what if the market tanks further - that would require a higher down payment to make the 70% LTV ratio minimum to refinance.

as noted--you need to be clear about the value to you of the $50 K in liquid assets.

I was hoping to be able to build another downpayment for a either a bigger apartment in the city or maybe even buy a home in the burbs somewhere. 50K isn't easy to come by but technically it's earning that 1% in the savings account.

Interesting dilemma.
I'd suggest that if you are going to eventually sell your place and buy another apartment in the city then you should refi - arguably in that case you're better off paying down your mortgage now with that $50K (even if you didn't get the reduced interest rate) just so you can avoid paying the 6% interest expense on that $50K of principal. Avoiding that interest exp is like getting an 8% or so pre-tax gain on that money and if it's just sitting in the bank, the put it to a better use.

If you want to buy a second home then you may need that cash to qualify for a down payment.

Agree with CC. Also, these numbers don't make sense. the finance charge on the $50,000 alone is about #3,000 annually, or more than $238 per month. You are paying about $3,000 annually in finance chages on the $50K alone. By my math, the monthly on a $500K loan @ 6.125% is about $3,000, and on a $450K loan @ 5.375% it is $2500.

Assuming it is disposable money/you have no intent of foreclosure/etc., the $50K decision is one you might consider making even without refinancing. You might be earning $500 a year (taxable) on the money from the bank, but paying $3000 (deductible) in interest on the same amount.

johnjai,
please provide more information - when did you purchase? how much do you owe now? what is the value?

To invest 50k for a saving of 238 a month seems a little too much. In your situation I would consider a 5/1 ARM or a 7/1 ARM for the following reasons:

1) Rates are much lower so you might get the same or more savings without investing the 50k
2) property values may recover in 5 to 7 years and will allow you to be in a lower loan to value at that point in time.
3) In 5 or 7 years your financial situation may allow you to refinance into a 15 year or 10 year mortgage and save thousands on interest.

btw, does mortgage tax apply to refis?

Sorry for the confusion - looks like I made an error in my calculation - nyc_sport caught it - thanks!

So my current situation is such:

Bought my 1 bedroom UES Coop for 625K back in 2007.
Loan at the time was 500K at 6.125% interest rate for a 30 year fixed. I've seen basically paid off about 15K in principle, so my new loan amount is 485K.

The lender is asking that we put down another 10% (or about 50K) on the loan to make the deal work and thereby reducing the mortage rate to 5.375%.

So monthly payment currently is $3,038 a month on the 6.125% interest on the 500K loan.

If I refinance, then I would be financing 435k at 5.375%, thereby paying only $2,436 a month or a net monthly savings of $602.

Is this worth it?

all in closing still around $1,100?

mortgage tax applies to refis, but most banks can do a CEMA which will elimate the tax if you refi for the same amount. If you refi for a higher amount than a tax has to be paid on the difference between your original loan amount and the new amount.

As far as investing the 50K, that doesn't seem like a good choice. Try other lenders.

yep, all in closing is sitll $1,100. I'm not sure if there would be a mortgage tax that applies to refinancing. I'll have to check.

Depends on how much you have in savings. 50K is a lot of money but if you have plenty of money left over, $600 per month is good savings. It will take you roughly 7 years to make up the $50K but then you'd be left with 23 years of much lower payments.

There is no mortgage tax on coops because there is not actual mortgage by a legal/tax definition. They just have a lien on the coop shares.

excuse me but you are talking about a conforming loan. you put down 20% on your loan. now that you have paid off 15 k , even more. i believe the fmacs only require 20% on a conforming. isn't that correct? why don't you call any govt home modification hotline. they will tell you. I think you can refinance at any bank for the 5.34% without putting down 30% (the 50 k your bank is asking you to pony up to make it 30%) I could be wrong but i think that only jumbo loans require 30%. Perhaps you can tell your bank you want to refinance because you are not sure you can continue to make your payments and cannot come up with the 50K. They took bailout money with the understanding that they would help modify loans to keep people is their houses.

Don't understand why 2 separate people have referred to the payback on the $50K additional principal payment as being 17.5 years or 7 years. He is not paying a $50K fee, he is increasing his equity stake by $50,000 and reducing his mortgage amount by $50,000. If I pay off my $500,000 mortgage after winning the lottery, reduce my mortgage payment from $3,000 to $0, is my payback 14 years? Of course not. I'm simply making the decision to reduce debt while making the assumption that the interest I'm paying (6.00%, equivalent to only about 4% since you can deduct interest from your taxes) will still be higher than what I earn on the money invested elsewhere (1% or some right now but likely to rise). I also give up some of my liquidity by using the cash to payoff the mortgage. Most people think that they can beat 4% by investing in stock, etc and will come out ahead by not paying off the mortgage debt. Sometimes that works, sometimes it doesn't.

The 17.5 year calculation was just wrong as it took the saving (originally presented as $238/month) and determined that a savings of $238/month would take 17.5 years to recover (?) the $50K ($50,000/(17.5 years x 12 months)). The 7-year recovery is also wrong. That takes the corrected savings/month of $602/month and asks how long to recover $50K (6.9 years). The fee is only $1,100. The payback on that can easily be calculated by assuming no additional principal payment but you get the interest reduction from 6.125% to 5.375%. So, how long to recover $1,100 fee on $485,000 when the rate drops by 0.75%? I calculate he recovers the $1,100 in under 4 months.

My advice would totally hinge on how much liquidity do you have and? Do you have $100,000 sitting in an account earning 1%? If so, pay down the mortgage and enjoy the extra $602/month. You will have more equity in your place which can be realized upon a sale to buy your bigger place down the road. If you are a financial whiz and are confident you can earn much more on your cash than your mortgage rate, don't refinance.

patk14, it's not a "wrong" calculation. I don't know too much about johnnyjai's situation, but having liquidity is certainly a worthwhile objective, and the point was that making this move would effectively reduce his liquidity for quite a while. That point may be obvious to some, but I don't see the harm in pointing it out.

concurring with patk14, another option to reduce total paid and increase equity, but it won't reduce monthly payment, is to pay extra principal. you keep the savings, but get a similar effect. and you don't commit the total $50k. obviously if someone has more expensive debt, they should not be paying off principal. but as patk14 points out, if you're earning 1% on your cash your mortgage interest is more expensive.

this middle ground allows you to keep your capital in the not so likely event that it becomes easy to earn more investing in the near future, but gets you a lower lifetime payment.

could someone address the underlying point. he can refinance anywhere to get the 5.4 fmac rate and not have to put down the extra 50K. conforming loans don't require 30% down (i think). call a home modification govt hotline and get the info. the only possible catch is that if your apt has depreciated to the point where your 140 equity in the apt, no longer qualifies as 20% down. in that case, call stevef on this thread for comps cause he thinks your apt has risen in value.

depending who your bank is, they might be required to help you avoid trouble. they are asking for the 50K just because they can. negotiate with them.

All the kool kids are not paying their mortgages, then the banks give you option b, 3,5% and forgiveness of the first $100k. You can thank us the taxpayers!

apt23, missed your post. obviously if the money's available for nothing, the tricks should be for free.

Thanks for the quick replies - what I'll have to worry about is whether or not I want to sacrifice liquidity for that extra $600 savings per month.

My goal is to be able to sell my unit within 2 years - I'm entirely afraid that in that time period, the value of the apartment would decrease even further, and thereby sinking more equity into a home that's worth less.

so don't put the extra 50K down. do some work. i think you can get the same loan without putting in the extra money. start by telling the bank you want the new rate but can't afford the extra 50 and see what they say. research home modification plans first.

Dump and rent, all the 2nd tier kool kids r doing it. Just don't do the nipple piercing, uggggggggghhhhh

Bet your savings is greater than $600/ month by renting. And you'll sleep better at nite

Wouldn't hurt to see if you could negotiate the rate lower with the bank. Tell them you're willing if they get it to 5%. You never know.