Refinance now or wait??

**rooskers** · 05-12-2007, 01:03 PM

Do you still plan on moving before 2011? If you are unsure or planning to move before then I would stick with your current loan since interest rates at least for a little while don't seem to be going anywhere and you could probably refinance for a similar amount a year from now. If this is the house you plan on staying in for the next 30 years then I would refinance at 6% for the extra comfort it would bring knowing what my rate was for the next 30 years. With extra payments in effect you would be causing your real APR to go down anyway. This question has a lot to do with personal comfort level though so that is just what I would do.

**Frugalicious** · 05-12-2007, 02:52 PM

Originally posted by rooskers View Post

Do you still plan on moving before 2011? If you are unsure or planning to move before then I would stick with your current loan since interest rates at least for a little while don't seem to be going anywhere and you could probably refinance for a similar amount a year from now. If this is the house you plan on staying in for the next 30 years then I would refinance at 6% for the extra comfort it would bring knowing what my rate was for the next 30 years. With extra payments in effect you would be causing your real APR to go down anyway. This question has a lot to do with personal comfort level though so that is just what I would do.

Thank you for your advice.
We plan to stay here. Anyways, if we refinance now, we will not be making big extra payments, but I am sure we could manage 2000.00 per year
at the least.

I suppose we could always refinance out of the 6% to a lower rate if the rates go down.

**safari** · 05-12-2007, 03:38 PM

If I were you, I'd stick with 4.5% for 4 more years. You'll be saving 1.5% a year for the next 4 years, or 6% total. Don't forget about the closing costs that you'll have to pay when you refinance. If the rates are high in 2011, you can always get a 3/5/7 year fixed APR, which will be lower then the 30 year fixed mortgage.

**Frugalicious** · 05-12-2007, 08:37 PM

Originally posted by safari View Post

If I were you, I'd stick with 4.5% for 4 more years. You'll be saving 1.5% a year for the next 4 years, or 6% total. Don't forget about the closing costs that you'll have to pay when you refinance. If the rates are high in 2011, you can always get a 3/5/7 year fixed APR, which will be lower then the 30 year fixed mortgage.

That sounds like music to my ears, but I have a gut feeling rates may skyrocket...

I was hoping to hear of more opinions from the wise people out there...

No one has a crystal ball, but isn't there some historical chart that

follows interest rate trends???

**rooskers** · 05-12-2007, 10:45 PM

Here is a list of historical 30 year mortgage rates and as you can see from it we are at some historical lows. So while 4.5% is great you are correct in being concerned with what the rates will do in the future.

Financial Forecast Center's Historical Economic and Market Data

As for waiting to refinance your loan in the future so you can keep your current rate at 4.5% for a little longer sounds like to much risk in my opinion. It might work out fine holding it on for maybe the next year but to wait until 2011 is playing the lottery. Since you are making extra payments of around $2000 dollars a year you are in effect lowering your interest rate to about 4.8% anyways.

$296,700 30years 4.5% Total Interest $244,500.71
" " " " 6.0% Total Interest $263980.47(with extra 167 month)
" " " " 6.0% Total Interest $343691.91(without extra)

Safari also makes a good point about closing costs. If at all possible try not to roll over the closing costs into your refi.
If the rates are high in 2011, you can always get a 3/5/7 year fixed APR, which will be lower then the 30 year fixed mortgage
This doesn't make sense to me because then if rates are higher you would take one of those loans (3/5/7) thereby having to refinance again in the future and pay closing costs again.
I guess the decision comes down to comfort level. So with extra payments towards your mortgage does 4.8% seem like an exceptable rate or do you feel like chancing the rate game for the future.

**safari** · 05-12-2007, 11:36 PM

Originally posted by rooskers View Post

Safari also makes a good point about closing costs. If at all possible try not to roll over the closing costs into your refi.
If the rates are high in 2011, you can always get a 3/5/7 year fixed APR, which will be lower then the 30 year fixed mortgage
This doesn't make sense to me because then if rates are higher you would take one of those loans (3/5/7) thereby having to refinance again in the future and pay closing costs again.
I guess the decision comes down to comfort level. So with extra payments towards your mortgage does 4.8% seem like an exceptable rate or do you feel like chancing the rate game for the future.

It will depend on what the interests rates are. There is a chance that after the fixed period ends, the new interest rate is actually going to be lower, so in that case she can stay with her adjustable rate mortgage without refinancing. Or if the 30 years fixed rate is too high, she can wait for it to go down while keeping her adjustable rate mortgage. The same applies to her current 4.5% rate. For example, in 2011 her rate becomes adjustable and jumps to 7.5% and stays there for the next 4 years. If she refinances now at 6%, she would break even only in 8 years in that scenario (and that's without counting the closing costs). A 30 year fixed mortgage is like an insurance, which gives you a peace of mind in case the interest rates jump, but from the cash flow perspective, I wouldn't rush with refinancing. Keep in mind that your current mortgage has the interest rate capped (do you know what your cap is?), so you're already somewhat protected.

**kv968** · 05-13-2007, 12:31 PM

Originally posted by Frugalicious View Post

We have 5K in 0% interest consumer debt all being paid off this year(including auto loan)

I know this wasn't part of the question, but why are these debts going to be paid off by the end of the year? Does the 0% interest default to a real interest rate at that time? If not, I would just pay minimums on the balances.

**rooskers** · 05-13-2007, 12:38 PM

Safari I believe both of us are giving good advice but like I said before it comes down to a comfort level. I am guessing you don't believe interest rates are going up anytime soon or in the far future and believe her ARM would only adjust to around 7.5% or possibly lower. ( It would help to know what her cap is) I believe interest rates will hold for at least the next year but remember in the 80's they were closer to 10-12% and 90's 8-9%. So if they happened to go that high her break even point shortens and they could stay that high for 20 years like they did in 70's up to early 90's. Now your point is they could go lower or stay about then same then she would be in great position without refi but my feeling is why risk it if she plans on staying in the house for next 20+ years. With the extra payments she would only effectively be paying 4.8% and that is fairly low. I guess I would take the peace of mind but can certainly understand your opinion and would even probably recommend it if say she were being asked to refi at a higher rate. Anyway I think she has at least this next year to think about it.

**LivingAlmostLarge** · 05-13-2007, 01:00 PM

Plus are you sure you are going to stay in the house? I have a 7/1 ARM as well ending 2012, a bit lower than yours but I love my Arm. I'm keeping it because even if we stayed put for 1-5 more years that's how long it would take me to lose money on it, and that's assuming it maxes out at 9% on my mortgage note.

I am also sure we're not staying in this house longer than 7 years, I'd want to die if I did. Our neighbors got a 30 year fixed, but are now regretting it. They realize after purchaing (this is their first home), that they do not want to live here forever. They thought they would, but it's a townhouse. I told them that most people want more privacy and a better layout when they have kids, and now they realize exactly what I meant.

So it's pretty easy I believe to change ones mind.

**rooskers** · 05-13-2007, 01:50 PM

Very good point from LivingAlmostLarge if you do not plan on staying or are even kinda unsure then I would most likely not refi at least for now.

**Frugalicious** · 05-13-2007, 03:25 PM

Originally posted by safari View Post

It will depend on what the interests rates are. There is a chance that after the fixed period ends, the new interest rate is actually going to be lower, so in that case she can stay with her adjustable rate mortgage without refinancing. Or if the 30 years fixed rate is too high, she can wait for it to go down while keeping her adjustable rate mortgage. The same applies to her current 4.5% rate. For example, in 2011 her rate becomes adjustable and jumps to 7.5% and stays there for the next 4 years. If she refinances now at 6%, she would break even only in 8 years in that scenario (and that's without counting the closing costs). A 30 year fixed mortgage is like an insurance, which gives you a peace of mind in case the interest rates jump, but from the cash flow perspective, I wouldn't rush with refinancing. Keep in mind that your current mortgage has the interest rate capped (do you know what your cap is?), so you're already somewhat protected.

I copied this right from the note which I found online in my Countrywide account under mortgage documents:

The rate will change to an adjustable interest rate
effective May 1, 2011 and the adjustable interest rate may change on the 1st of May every 12th month thereafter.

The index will be based on the London 1 year LIBOR.
Before each change date the note holder will calculate my new interest rate by adding two and one fourth (2.250%) to the current index. The note holder will then round the result of this addition to the nearest one eighth of one percentage point (0.125%) This rounded amount will be my new interest rate until the next change date.

The interest rate will be no greater than 9.5%...or less than 2.25%.

Thereafter my adjustable interest rate will never be increased or decreased by more than 2.00% from the rate of interest I have been paying for the preceding 12 months. The rate will never be higher than 9.5%.

That is what the Note says.

kv968: My car loan will be paid off ( I bought a economy SUV and the 0% interest is the rate on the 5 year loan) and the other debt is just credit cards. I have been rolling them from 0% intros for 2 years and I just want to raise my score and yes 1 is up in November 07 the other Jan 08, it is all interest free.

Hopefully this thread will help some other folks out there too!

**PharmacistRealtor** · 05-31-2007, 03:39 AM

refi for 30 ...

I used to sell the houses I bought but now I just leave 80% equity in the home rent them out and let them act as a 30 year savings account and buy another one....now I own 2 houses that can rent for more than the monthly payment each on a 30 year fixed...my fiance and I will buy a 3rd when we get married.....you become an investor once you can sell a house and still have a roof over your head...

Refinance now or wait??