Help! I'm trying to figure out my finances..

[willowstudios]

Hi everyone

I've been reading and learning so much on these boards. I'd like to start participating now....and I've got a really important question to ask!

Here's my question - should I refinance my 1st mortgage and home equity loan into a new single mortgage? I'm trying to figure out the best course of action for my money...and I need help! The stats are as follows:

Current 1st mortgage:

Total amount due: $80,310.80
Monthly payment: $1062.65 (includes taxes/insurance)
Principle with minimum payment: $271.95
Interest with minimum payment: 351.36
Interest rate: 5.25%
Estimated equity: $100,000

Home equity loan:

Total amount due: $34,974.80
Monthly payment: $248.33
Principle with minimum payment: $25.37
Interest with minimum payment: $222.96
Interest rate: 7.65%

Total amount currently due: $115,300

I've got brand new rate lock for the next week on a 30 yr. refinance loan for my house at 6.235%. I'm "suppose" to pay closing costs and 2 points in a week - all total about $5000. Does it even make sense? I paid closing and points on my original mortgage already a few years ago and my amortization kicked in...so I have almost $300 a month going to principle at this point.

So, I'd be losing almost $300 a month in principle payments , but gaining $175 cash per month because of the lower monthly payment.

Does anyone know the proper way to calculate whether staying in my current situation makes sense or refinancing? I'm totally at a loss because it seems there is benefits and also downsides to doing both.

Please help, I'd really appreciate it!

[scfr]

Is the rate on your first mortgage fixed, or is it an ARM?

Also, would you have any extra money available to make any extra payments?

[willowstudios]

Hi there,

Both the original mortgage is fixed, the home equity is fixed and the new (locked, but not closed) refinance single mortgage is fixed too.

I've got about $200-400 a month extra income to make extra payments.

Thanks very much and also, thanks for such a quick reply!

[disneysteve]

Without actually running the numbers, here's my impression. You'd be lowering the rate about 1.4% on 35K and raising the rate about 1% on 80K and extending your repayment term to 30 years from whatever time remains on the current loan. Offhand, it doesn't sound like that makes sense, since the larger balance would have a higher rate. I think that would more than eat up the savings by lowering the rate on the smaller balance. Does that make sense?

[willowstudios]

Hi there...actually, that kinda confuses me. But, I think you mean the raising of the 1st mortgage from 5.25% and lowering of the home equity from 7.65% wouldn't overall make it better? The new mortgage rate would be in the middle somewhere.

Oh, I'm not sure if I mentioned it - the original mortgage at 5.25% only has 17 years left on the mortgage. It makes it so hard to figure out if getting a new loan makes sense!

Thanks for taking the time to post about this, I really appreciate it.

[disneysteve]

That's what I meant. You would save money by refinancing the higher interest loan, but it would cost you money on the lower interest loan, so in the end, I don't think you'd save anything.

I wouldn't refinance a 17 year loan to a 30 year loan. That would definitely not save you money. Have you checked rates for shorter terms?

[safari]

Don't refinance. It doesn't make sense to pay 2 points plus the closing costs. $5,000 is almost 5% of your total loan! It will be a waste of money. Your monthly payments will be lower because you will be refinancing a 17 year loan to a 30 year loan; however, over time you will be paying a lot more. It would only make sense if you're having troubles making your current mortgage payments, but based on your post, it appears that this is not the case. Also, you mentioned that you're paying insurance as part of your monthly payment. What kind of insurance is that? If you're paying PMI, you need to talk to your lender to have it removed because your equity is more than 20% of the estimated home value. You should stick with your current mortgage because 5.25% is a great rate, and you should try to pay off your equity loan sooner. That's what I would do.

[scfr]

I didn't run the numbers either, but you have a great fixed rate on your 1st mortgage. My inclination would be to keep the loans you have and make extra payments on the home equity loan as you are able to (with the extra $200-400 you have available per month).

*****By the way: If you have $5,00 available in cash right now (what you would have been paying in points and closing costs if you had refinanced), why not use that to make an extra payment on your home equity loan? And when you make that payment, be sure to write "For Principal Only" on the check and it wouldn't hurt to also send a letter with the payment emphasizing that the payment is to go to principal only. This is assuming that the equity loan allows for early payment.*****

[willowstudios]

Excellent advice from you guys - I'm going to do exactly what you said to do. I'm going to keep my existing mortgage and home equity. I'll just make extra payments on the home equity.

Thanks again!

Chris

[Hot dog]

I think that is definitely the best choice I mean the other way would almost double the amount of time you will be paying your mortgage. You would be adding on 15 years just imagine what you will be able to do with over 1,000 a month extra for 15 years You could definitely pay off the other and retire much earlier. Just pay any and all extra toward that 2nd mortgage

[Hypersion]

Don't do it. Here's the numbers I ran.

Currently you pay

$6891.8892 a year in interest

vs

New Loan

$7500.705 a year in interest.

[willowstudios]

Wow, how did you get those numbers? Can you show me how? I've been trying to figure out the calculations!

[skydivingchic]

Bankrate has a good mortgage/loan calculator that includes an amortization table. Based on the numbers in your original post, if you combine your 2 mortgages, you will end up paying about $45,000 more over the life of the loan and extending your primary mortgage by 13 years.

As others have said, I would recommend taking any extra money and throwing it toward the 2nd mortgage first, then the primary mortgage.

You can use the calculator on Bankrate to see what happens if you add extra to your payment each month or once a year as well.

[willowstudios]

Thanks very much, I appreciate the info!

[jeffrey]

We just set up a bunch of new visual calculators:

http://www.savingadvice.com/calculators/

These should make it easy to compare how different scenarios will work depending on amounts and interest rates.

[willowstudios]

Nice!

[myself]

I would not refinance based on the information you gave.

The only reason you might want to refinance, would be to a shorter term mortgage at a lower rate. In other words, a 15 year mortgage fixed rate for the whole thing.
Then again, that would increase your mortgage payment to $967 (not counting taxes & insurance), or $1,406.09 (which includes taxes & insurance), guessing the rate would be around 5.9%. So basically you'd be paying about $100/month more than you are now.