Yet ANOTHER refinancing question. Lol.

**jIM_Ohio** · 09-01-2010, 01:33 PM

find a no closing cost broker

I am closing a 4.25% loan next week zero out of pocket.

if my guy can work in your state, PM me for a name and number
DS was given his info, not sure if it worked or not in NJ

**jpg7n16** · 09-01-2010, 01:36 PM

Few questions and I'll post some figures for you to consider:

How long do you plan on staying in/owning this home?
How much will you pay towards the mortgage each month? (you said you were paying $1000/month extra)
Would you pay the closing costs in cash? Or roll them into the new loan?
If you don't refi and would pay in cash, what rate of return would you expect on investing that $3k that will be used for expenses? (Savings account @ 1%, or stocks at 7-11%)

**graceful** · 09-01-2010, 04:00 PM

Originally posted by jpg7n16 View Post

Few questions and I'll post some figures for you to consider:

How long do you plan on staying in/owning this home?
How much will you pay towards the mortgage each month? (you said you were paying $1000/month extra)
Would you pay the closing costs in cash? Or roll them into the new loan?
If you don't refi and would pay in cash, what rate of return would you expect on investing that $3k that will be used for expenses? (Savings account @ 1%, or stocks at 7-11%)

We will stay in this house a minimum of 10-15 years until our girls are done with school. There will be a real possibility longer. It's pretty close to my dream house, so we wouldn't move just to "upgrade. " Time flies. We were only planning to stay at our last apartment about 5-7 years and we were there 14 years. Lol. I wouldn't be surprised if we retire into this house. But one never knows that far into the future.

Well, I think that we would try to pay between $500-$1000 extra a month while we can. I feel better with the 30 year loan so that the payments are manageable even on one income just in case. I think at the bare minimum, I would try to pay about the original P&I amount that we are now even if we re-finance and the P&I is less per month.

We will probably roll the closing costs into the new loan if it was around the $3000 as quoted. Anything under $1000 or $1500, we would probably pay in cash.

Most of our savings is currently in cash and at laughable rates of 1% or less. That's also why if I have enough in EF and savings, I don't feel bad throwing extra cash at the mortgage. We have a stock and mutual fund portfolio but we aren't adding too much into it, just letting whatever is in there ride.

**jIM_Ohio** · 09-01-2010, 05:30 PM

as an FYI, I know the name I emailed both DS and graceful can do business in all 50 US states. 0 closing cost refis...

**jpg7n16** · 09-02-2010, 08:24 AM

Originally posted by graceful View Post

We will stay in this house a minimum of 10-15 years until our girls are done with school. There will be a real possibility longer. It's pretty close to my dream house, so we wouldn't move just to "upgrade. " Time flies. We were only planning to stay at our last apartment about 5-7 years and we were there 14 years. Lol. I wouldn't be surprised if we retire into this house. But one never knows that far into the future.

Well, I think that we would try to pay between $500-$1000 extra a month while we can. I feel better with the 30 year loan so that the payments are manageable even on one income just in case. I think at the bare minimum, I would try to pay about the original P&I amount that we are now even if we re-finance and the P&I is less per month.

We will probably roll the closing costs into the new loan if it was around the $3000 as quoted. Anything under $1000 or $1500, we would probably pay in cash.

Most of our savings is currently in cash and at laughable rates of 1% or less. That's also why if I have enough in EF and savings, I don't feel bad throwing extra cash at the mortgage. We have a stock and mutual fund portfolio but we aren't adding too much into it, just letting whatever is in there ride.

Okay - then you'd be in the house long enough to be worth your while. I'll evaluate a couple payment scenarios for you then. 1) At currently required payment, 2) at current +500, and 3) at current +1000.

This analysis will assume that all savings would be made at the 1%. (Because if you can invest at higher than your mortgage rate, you should prefer investing over paying down extra. Why miss out on 9% to save 4.5%?) I'll also work with the cashflow of $1852.23 + 1000 = $2852.23 available to work with. And since with your current required payment, it would take a max of 27.7 years, I'll evaluate all scenarios over the same timeframe. (332.49 months)

So if your goal is to eliminate the mortgage with the least amount of interest charged:

Baselines:
1) Pay $0 extra: $1852.23/month @ 4.875% = 332.49 payments remaining (27.7 years). So will pay $615,843.73 total to remove $337,500 = $278,343.73 interest paid over the life of the loan. At this payment you could save $1000 each month @ 1%, which would earn interest of $50,445 over the same time period. (Net interest cost = $278,343.73 - 50,445 = $227,898.73)

2) Pay $500 extra: $2352.23/month @4.875% = 215.68 payments remaining (17.97 years). Pay $507,318.95 total to remove $337,500 = $169,818.95 interest. You could save $500/month while in repayment, then the full $2852 in the remaining 116.8 months. Total savings interst earned would be $38,914.53. (Net interest cost = $169,818.95 - 38,914.53 = $130,904.42)

3) Pay $1000 extra: $2852.23/month @4.875% = 161.63 payments (13.47 years). Pay $461,005.87 total, remove $337,500 = $123,505.87 interest. You could save $0/month during repayment, and then the full payment for the remaining 170.85 months. Total savings interest earned would be $36,165.95. (Net interest cost = $123,505.87 - 36,165.95 = $87,339.92)

With the refi:

-changes amount owed to 340,500 by adding $3k expense, all in the effort of removing $337,500: this expense and the interest it will incur by being rolled into the loan is all accounted for in the interest expense calcs below-

1) Pay $1852.23: @4.3% = 300.56 pmts (25.05 years). Pay $556,710.62, remove $337,500 = $216,210.62 interest/refi expense. Save $1000/month during and full after. Interest earned = $51,213.33 (Net interest cost = $216,210.62 - 51,213.33 = $164,997.30)

2) +500: @4.3% = 204.44 pmts (17.04 years). Pay $480,901.62, remove $337,500 = $140,401.62 interest. Save $500/month during and full after. Interest earned = $26,198.24 (Net interest cost = $140,401.62 - 41,738.66 = $98,662.96)

3) +1000: @4.3% = 156.06 pmts (13.0 years). Pay $445,131.05, remove $337,500 = $104,631.05 interest. Save $0/month during, and full after. Interest earned = $38,628.82 (Net interest cost = $104,631.05 - 66,002.23 = $66,002.23)

Some basics to note: the faster you pay it off, the less interest is charged (obv). But that also means the less is saved by the refi - though you could still save about $21k there. Also note that if you did the refi, rolled in the $3k expense and didn't change a thing you're currently doing, but kept paying the same amount you're required to pay right now, you would still save about $63k over the life of the current loan.

Hope this helps!

**MonkeyMama** · 09-02-2010, 08:35 AM

Probably worthwhile.

I have found a 1% drop to be very worthwhile on a $200k loan. (Usually drops payment around $200/month - have refied down twice).

I actually have 4.875% right now and wouldn't consider the refi (we are just about breaking even from last one - plus other reasons). But quick math shows significant savings, considering your loan balance. Maybe $175/month. If it's a long term home, then definitely worthwhile.

**jIM_Ohio** · 09-02-2010, 09:01 AM

Originally posted by graceful View Post

Didn't want to piggy back on DS post but was wondering the same thing.

My original broker just got back to me. It will cost me approximately $3000 to re-finance at 4.3% through my original lender (WF) to cover an appraisal and the bank attorney fees, etc.

Here are my numbers - what do you think?

Original Loan: (Closed in 11/09)
$350,000 @ 4.875%, 30 years = $1852.23 monthly payment

We paid about $1000 extra a month in principal so after 10 months our current balance is approximately $337,500. We already cut our 30 year mortgage by 18 months.

So, it will cost me $3000 in closing costs to lower my interest rate by about 0.5%.

I contacted Wells Fargo directly and am waiting for someone to get back to me to see if I can get better terms or lower closing costs than that quoted me already. I was hoping for a more stream lined process than having to to the WHOLE application process again...

Should I shop around outside of my original lender and where (website) would you suggest I shop around at?

Thanks.

Here is my math (read JPG's post, but will post my own numbers for verification)

Original loan started 11/1/2009
30 yr fixed
4.875% 350k principal
payment of $1852.23

Total interest paid is $316,802

**above is what you would have if you did nothing**

I interpreted this comment

We paid about $1000 extra a month in principal so after 10 months our current balance is approximately $337,500. We already cut our 30 year mortgage by 18 months.

as meaning you paid $1000/month extra from the start

I have the current balance at $336,915 (9/1/2010)

that extra $10,000 already knocked interest paid down to $286,459 (savings of close to $30,000).

If you continued with $1000/mo extra on current loan, you would be paying
$2852.23 for a total of 171 months. Extra payments of $171,000 and total interest paid of $135,550.

Payoff date is 2/1/2024.
at which time you would have $2852/mo available to invest or spend.

----
If you refi
$337,500k (loan payoff you suggested- about $600 higher than I calculated) at 4.3%
new P&I payment is $1670.19
If you did nothing (just make minimum payment) you would have interest owed being $263,768 (which is less than interest which would be paid on current loan).

extra payment I am entering is $2852.23-$1670.19=1182.04
This keeps the payment you are making now fixed

155 payments later the loan is paid off (9/1/2023) which is 1 year (closer to 6 months) earlier than your current payment path.

Interest paid on new loan is $102,396 (with extra payments).
----

My analysis on decision would be this-
is it worth $3000 NOW to gain 6 months on your repayment tract? In return for this $3000 there is $33,000 of interest saved when comparing the two scenarios.

I would look into the following:
15 year fixed. it might lower interest rate enough to tip scale. $33k is nothing to sneeze at, but its not as high as I would want to refi.
A 10/1 ARM or similar- so something which has an adjustable rate really low now- because you are making such high extra payments, anything you can do to lower the rate will help you. Just make sure to understand the ARM.

Meaning you might get a 3% rate on the ARM (now) and that lets more go to principal. A 3% rate has a payoff 2 years sooner than your current loan (2022 vs 2024). Is it worth the risk (to you) to gain access to your money years sooner?

Just know how the ARM adjusts (once per year, max rate of X% which might be 5.5%, just a little higher what you have today.

Yet ANOTHER refinancing question. Lol.