Mortgage rate is 5.5%. What is a good rate to refi at?

[glock35ipsc]

Our mortgage rate is 5.5% (30 year fixed). The loan is about 4 years old. I just read that with the Fed's moves yesterday, rates could come down by as much as .5%.

At what rate would it make sense to refi this loan? Or by how much would it have to come down to be worth doing it? I just can't see doing it at 5.0%.

[MonkeyMama]

I have refied many times and my personal experience it usually makes little sense if it is less than a 1% rate drop. I think that is the rule of thumb. (Refied so much because our first home a decade ago was financed over 8.25%. Our current rate is 4.875%).

It depends on so much though! The cost of the loan, for one. How long you intend to stay in your current home, etc.

For us, we jumped on the last refi, because we intend to stay in our house forever, and all costs considered, if we continued to pay old mortgage payment (adding $200/month principal to new loan payment), we would still shave 2 years off the original loan. I do think the average person looks at current benefit with little regard to a refi could cost them more in the end.

You can use an amortization calculator to see when/if it would make sense.

[Russell]

My rate is 5.875% and would love to refi but for some reason I can't find all the good rates you guys have been getting. I tried IndyMac and their online calculator flat out said I don't qualify for a refi. We paid $420k for the house and it's now worth $390k our loan amount is less than that. If I put in the current value of the house higher then the calculator does allow me to refi but the 4.875% (lowest option) has almost a $10k cost (points+refi)! The drop in payment is very little and will take many years to recoup. I figure we probably would want a bigger house in 4-5 years so I'm just leaving it as is.

[sweeps]

I just locked at 4.875% with no points/fees/closing costs.

[Russell]

Which bank? come on spill the beans sweeps...

[sweeps]

I have a broker.

[jIM_Ohio]

My comment to myself is that unless I save 8%, which is one full mortgage payment per year, I would not really see a financial benefit.

This does not factor in closing costs.

If I have a $1200 mortgage payment and the refi cannot get me to $1100 (saving me $100/mo or $1200/year) it is not worth my time.

[sweeps]

Jim that makes no sense to me. Saving $80/month is not worth an hour of your time just to gather some paperwork?

[LivingAlmostLarge]

When I can recoup the closing costs at in 6 months.

[jIM_Ohio]

Originally Posted by sweeps

Jim that makes no sense to me. Saving $80/month is not worth an hour of your time just to gather some paperwork?

Sweeps- the 8% does not factor in closing costs.

Means my bottom line improves 8%. I have a $2400/mo mortgage payment (5.75%). A 5.5% and 5.25% rate will lower my payment NOW, but adds "term" to the end.

The 8% drop factors in pre-payments to make sure my old 30 year loan (taken in 2005) is now a new 30 year loan, but I have enough budget to still pay it off in 2035.

My experience has been closing is around $2000-$4000 each time, so the 8% also allows me to break even cash flow wise in 2 years or less too.

To directly answer your question, I don't think I would jump at freeing up $40/mo in my budget. $80 maybe. $120 for sure.

[sweeps]

I'm not talking about closing costs. I can understand having a tough decision to make if closing costs or fees or points need to be factored in.

So, closing costs completely aside.... why would someone not spend an hour exchanging documentation with a broker so that they can save $40 a month. That's $40 a month for the rest of the life of your mortgage! People get on here and quibble about trimming $5 off the price of their cable TV for crying out loud.

[jIM_Ohio]

Sweeps- if my mortgage went down $40, it would cost me about $2000 to do so for probably around a .25% lower interest rate.

It's possible throwing that extra $40 at the mortgage would not shorten the repayment term of the new note relative to the old note either.

The higher the mortgage payment, the lower % $40 is of the payment. $40 for me is not even 2% of my payment ($2400 payment; $40 is 1.6%).

I am 3 years into my 30 year note. Payoff in 2035. I think we can agree that any plan which makes this date later "costs" me more money out of pocket?

280k financed at 5.75% is a PI of $1657
drop rate .25% and its lowered to $1612 ($45 savings)

If it cost me $2000 to refinance (to close), that $45 savings would break me even in 44 months (almost 4 years).

If I then applied the $45 savings to my note at the 4 year mark my payment period shortens by 18 months, but the payoff is in 2037, which is 2 years longer than I have to go now.

This does not even factor in a 2nd mortgage of 53k at 7.6%. To get my attention I need to see the 8% savings on the payment of the first.

[jIM_Ohio]

Originally Posted by sweeps

I'm not talking about closing costs. I can understand having a tough decision to make if closing costs or fees or points need to be factored in.

So, closing costs completely aside.... why would someone not spend an hour exchanging documentation with a broker so that they can save $40 a month. That's $40 a month for the rest of the life of your mortgage! People get on here and quibble about trimming $5 off the price of their cable TV for crying out loud.

The big difference is if I cut a thing or two off my direct TV package it costs me $0 to save the $5. The $5 is immediate into cash flow.

To cut something from the mortgage will cost you (in closing and time) to get the savings. By time I mean you don't get the mortgage payment into cash flow until the loan is paid off.

A better analagy is would it be smarter to pay off an 80k student loan at 3% or a 300k mortgage at 5.75%? Paying off the student loan first improves cash flow faster where as the mortgage pay off would not benefit the person until all 300k is paid in full (the payment is locked in).

[sweeps]

You're still talking about refinancing with closing costs. Which is fine, but it's not my point.

I am able to refinance without paying a DIME in closing costs, fees, points or anything else. It benefits me to refinance for even 1/8% lower rate. The only cost to me is time.

I will still pay the same amount I have always been paying (even though my minimum payment decreases). The difference is more of my payment will go to principal, resulting in a faster paydown.

[Russell]

I think what Jim is trying to say is most of the time you'll pay closing costs, your's is a special case in which any amount saved is worth the time to refi. However, most, like me will have to see how many years will it take to repay the closing costs if you're saving say $80/mo. If your closing cost was $2k/$80=25 months before you'll start seeing the savings, until then you'll be applying your savings towards the closing cost.

If there's no closing cost like I said that's a totally different story.

[jIM_Ohio]

Originally Posted by sweeps

You're still talking about refinancing with closing costs. Which is fine, but it's not my point.

I am able to refinance without paying a DIME in closing costs, fees, points or anything else. It benefits me to refinance for even 1/8% lower rate. The only cost to me is time.

I will still pay the same amount I have always been paying (even though my minimum payment decreases). The difference is more of my payment will go to principal, resulting in a faster paydown.

sweeps if you have to put the entire $40 to the newly refinanced mortgage (to maintain payoff year of original note), technically you gain flexibility but you have not saved anything until the whole note is paid off.

[sweeps]

Originally Posted by jIM_Ohio

sweeps if you have to put the entire $40 to the newly refinanced mortgage (to maintain payoff year of original note), technically you gain flexibility but you have not saved anything until the whole note is paid off.

By not changing the amount I pay each month, my refinanced mortgage will be paid off quite a bit faster than if I hadn't refinanced. That's definitely a tangible benefit and a good thing.

Having a lower minimum payment is a nice-to-have just in case I get into a bind and need to conserve cash, but that's not a primary motivation for me.

ETA: Let me put it a different way. I'd rather my newly-freed-up cash (actually it will be $120/mo, not $40, but who's counting) go toward paying down my mortgage principal rather than go toward paying interest which is essentially money down the drain.

[JinCO]

I am also in the process of re-financing with no fees, points, etc through Wells Fargo. They have a program for existing mortgage holders where they wave all of the fees. The rate I was quoted at was 5.125% a few weeks back. I’m wondering if it would make sense to cancel our existing application and re-apply given the fact that rates have dropped since then. As it stands, the 5.125% rate will save us about $350/month.

[jIM_Ohio]

I was quoted a rate in "mid 4's" today. I am sure the rate will be more specific once the person runs credit and gets an appraisal.