Refinance or NOT??

[txmom842]

We bought our house 18 months ago and we have a 30 year fixed rate mortgage at 5.25% with a 365k balance, $2055 monthly payment. We purchased the house for $465k. We were in the process of refinancing down to a 20 year fixed at 4.25% with a payment of $2260 per month. This would save us a ton of interest over the life of the loan BUT the appraisal came back WAY low--at $429k. So now in order to keep everything under 80% LTV we would need to bring $26k to closing. We have that in our savings but that is it. We would wipe out the savings in order to do this. I know that we could rebuild that savings within the next 6 monmths or less, but it is stressing me out to think that we would have no emergency fund in the meantime (except 401k and ira's which we would never touch unless we had no other choice). What would you do???

[Slug]

I was afraid this would happen to me when I re-financed so I armed myself with a Zillow valuation and comps that I found. I gave these to the appraiser and I let the appraiser know the number I wanted. Funny how it came back with what I wanted... This doesn't help you, but it may help others. You can influence the number.

In your situation, I would calculate the interest savings and remember that number fondly in my brain anytime I looked at my tiny emergency fund over the next 6 mths until it's replenished. So, yeah, I would pull the trigger on this assuming current job and health stability.

[MonkeyMama]

I personally would not do the refi. I think it is reasonable to assume that you will be able to try again in a few months (when you have more savings).

& even if interest rates shot up and you lose the opportunity, nothing to me personally is worth the risk of having no money in the bank.

[creditcardfree]

I also would not want to wipe out our emergency fund. I would save the money and refinance then. Find out if a new appraisal would be necessary in 6 months.

[riverwed070707]

I would have it reappraised. As slug mentioned, you can often influence the result -- let the next appraiser know what number you're aiming for.

Also, you can make extra payments without a refi and still save bundles on interest. You won't get the lower interest rate, but why not just throw the extra $200-300/mo you'd be paying for the 20-year loan at the principal each month? You'll still pay off your loan several years ahead of schedule.

[Hector]

I would not wipe out my EF. I would keep paying minimum, would stop contributing to retirement accounts beyond company match and will refinance it when I would have necessary money saved up.

[txmom842]

I had no idea that you can potentially influence the appraiser. I checked the zillow value and it was $448k--almost 20k more than the appraiser. The crazy thing is is that there was only one other comp in our neighborhood during the last 12 mo period (from a relo company of course). The whole appraisal just makes my blood boil.

[adstalker]

zillow is not accurate at all for appraisal purposes. Most of the prices on zillow are all inflated.

[tripods68]

I'm not in favor wiping EF just to REFI. I would reconsider doing a REFI, perhaps wait in the few years. This gives time for the home price to go up in value.

[krantcents]

How long are you going to live in this house? The answer is key to determine your savings. I would not wipe out your emergency fund to do the deal anyway. You can have another appraisal, but you need a reason for the house to appraise for more. Are there comparable houses selling for more than the appraisal?

[scot184]

Try to order a second appraisal...find someone that knows how to use comps to get the right value...or shop around for financing elsewhere.

[kalimaniac]

I wouldn't wipe out my savings to refi. Rates don't look like they're going to go up anytime soon so I would save more money and then pull the trigger once I had another 10K saved up. Also, I hope you're sure you're planning to keep the house for a long time otherwise you're wasting money by continuing to refi.

[1yearfrom0debt]

I would not wipe out your savings. The economy is just too volatile. I agree with the poster above that if you have the ability to save that much that fast then you should be good to wait. I don't anticipate rates rising that fast anytime soon.