Home Loan Refi - Help Please!

**Seeker** · 09-19-2010, 07:14 PM

Regions won't do a 30 year fixed at a lower rate than Chase?

You are not exactly comparing apples to apples here.

My first inclination would be to go with the 30 year solely because you can prepay when times are good, and not commit yourself to a higher payment when times are bad. But the higher interest rate, means a higher cost. And the second option has closing costs.

Again, you need to make an apples-to-apples comparison the same to get a better picture of what you should do.

**Seeker** · 09-19-2010, 07:31 PM

One other thought.... if you do not refinance at all, how much longer would you be paying on the mortgage to finish it at your current rate of payment, or by tossing in an extra payment of $100 each month?

It's taken you 6 years to knock off 100k... another 9 years for 150k assuming the best of times?

**annabelle** · 09-19-2010, 07:42 PM

Thanks for thoughts Seeker!
Regions is offering 4.25% for a straight fixed 30 yr w/closing costs, etc. Same with other lenders I've contacted.

Your math is probably right... IF we continue to beat down our mortgage at the current rate, we *should* be done in about 9 yrs. I really don't want to bank on that. My husband's job is not stable right now. I'm considering worse case scenario.

And yes, I understand this isn't a direct comparison... just two options that we've narrowed it down to. Maybe you can help me see a bigger picture here (?)

**Seeker** · 09-19-2010, 08:08 PM

1.) Straight, stream-lined refinance thru our existing loan holder (Chase). 4.5% 30 yr loan, brings down the payment $300, NO CLOSING COSTS (appraisal, fees, escrow and other crap fees). If we don't pay the lower amount and just keep paying the SAME amount we've been paying, that knocks the loan down to 17 yrs and just under 15 yrs if we do that PLUS throw in an extra full payment/yr.

Regions is offering 4.25% for a straight fixed 30 yr w/closing costs, etc. Same with other lenders I've contacted.

The above two are an apples-to-apples comparison: same 30 year term. Then look at the differences... interest rates and closing costs.

Again, I know you want to consider option 2 because of that lower interst rate, but it has 2k closing costs.

With the last posting a third option is more pointing toward the first option as the least costing option.... yet still an overall lower interest rate... and an overall lower monthly payment that is committed.

If your husband's job is not secure and I were you, than I'd go with option 1. Without knowing your other budget items, a $300 per month less "committed" payment seems to be IMO the best option for you. You can always pay more toward principal if you want to (and as you have been doing).

But with option 2 and if your husband does take a cutback in hours or salary or commission, then you may end up more stressed with two payments per month instead of one... and while the total due is very similar ("only" $50 more per month compared to now), that can be a worrisome fact when there's cutbacks.

Option 1 is the best option to take for "worst case sceneario."

Option 2 would be the better if your husband's job were more stable.

**annabelle** · 09-19-2010, 08:29 PM

Thanks Seeker. You're confirming what my gut is telling me. Another reason why I'm starting to shy away from the autodraft option is the fact that there will inevitably be some months where we will be paying 1/2 payments THREE times in one month (like Nov 2010). I think I would rather control when we throw more money toward our loan and not the bank. Thank you again for your input.

**MonkeyMama** · 09-20-2010, 06:08 AM

I am not a fan of the 15-year mortgage, even with a steady job. Steady jobs are lost, and with a family to support, there is always some financial emergency. (We had a 15-year when we made more money and had no kids - that I would agree with. Just depends on the overall financial picture).

No doubt I would pick #1. (But I totally understand - those 3.75% rates are enticing!)

**jIM_Ohio** · 09-20-2010, 06:24 AM

I would analyze this along lines of seeker. Focus on 3 things- the interest rate, monthly payment, and free cash flow.

Do not focus on "when" the loan is paid off with extra payments- that is a product of the interest rate and free cash flow.

For example your current loan will be paid off in 2034. Over next 24 years you have an interest rate of X% and that will pay loan off (when?) with interest paid being $Y.

If you make extra payments with free cash flow of $Z, that pays $Y1 in interest (slightly less than number above).

Then if you refi with Chase, focus on x% and interest paid of $Y with loan paid off in whatever year.

Then if you refi with different bank, focus on x% and interest paid of $Y and loan paid off in whatever year.

If you put everything in a table, focus on 30 yr fixed in one table

then create a second table for 15 year fixed.

Because of volatile sales job, I would suggest keeping 1 years expenses in cash, then aggressively paying down the mortgage. Whether that is a 15 year note or a 30 year note with a much higher payment plan (meaning higher extra payments) you decide. If you think you will pay off loan (regardless) in less than 12 years, go 15 year fixed to get that lower interest rate now. If the loan payoff is between 13-17 years regardless of scenario (meaning a 15 year payoff is not likely on 30 year fixed with free cash flow) then stick with 30 year fixed to keep payment low. In either situation, have 12 months of expenses in the bank to cover a bad year.

If you plan to do the 2 payments a month thing (1/2 payment on 1st and 1/2 payment on 15th) make sure
a) you are not charged extra for this (this cost is free cash flow which could be used to pay down the note yourself)
b) you create a third table where you do this for each loan (similar to 30 yr table and 15 year table for existing loan and new loans)- track interest paid and payoff date for each bank's terms.
c) only do this if the cost above trumps the repayment schedules on the 15 year fixed. If you can afford the higher payments on 15 year fixed, just do that and send any extra money to pay down the loan (if you can send in an extra 8% on the loan, that will be one extra payment per year... $1000 payment, send in $1080 (8% more) and by year's end you made one extra payment at no cost to you).

In the end the best choice is the lowest interest rate with highest free cash flow. However if rate drops .25% and free cash flow only drops $100-$300, its possible that a 4.5% rate is better than 4.25% if the difference let you pay down more of the loan (earlier), but that really depends- usually the lower rate would be better- but you need to track your numbers all the way through to make sure.

**littleroc02us** · 09-20-2010, 06:36 AM

My suggestion is to stay with option #1 for a couple of reasons. First of all you have done such a great job of paying down your loan and don't really have that much left. You can always make extra payments when you get more money.
Second, because he is in a comission based profession, you should have an extremely large EF becuase of the volitility of his job. Your worries would go out the window if you had a 6-9 month EF that could make payments for your mortgage until he finds another job.

Good luck!

**EconoMutt** · 09-20-2010, 07:09 AM

I'd say stay with option one also.
I just took a giant pay cut.
I'm really glad my payments are based on a thirty year timetable.
As long as you have discipline and pay more in the good times, you'll be fine.

**NJDebbie** · 09-20-2010, 08:04 AM

I'd stay with a 30 year mortgage. Your payment will be less and you can aggressively pay down the mortgage if your finances allow and stop paying on the principal whenever you feel like it. Good luck.

**Seeker** · 09-20-2010, 01:48 PM

Originally posted by jIM_Ohio View Post

In the end the best choice is the lowest interest rate with highest free cash flow. However if rate drops .25% and free cash flow only drops $100-$300, its possible that a 4.5% rate is better than 4.25% if the difference let you pay down more of the loan (earlier), but that really depends- usually the lower rate would be better- but you need to track your numbers all the way through to make sure.

This is true also. The 4.25% can be better than the 4.5%, but she also must calculate out the points or closing costs with those options that were not enumerated above.

Her original posting was conflicted; with two conflicting goals:
1) Paying off as quickly as possible
2) Concern about her husband's job stability in order to be able to continue to pay off quickly.

But I think she's figured out what she needs to do now.

**annabelle** · 09-20-2010, 02:40 PM

Yes... I guess there were conflicting messages. In the past we have been very aggresive with paying down our mortgage. But under our *current* circumstances, his job is not too secure going into the next year.

But we could be wrong... and we still might be in a good position to have an early pay off. So in essence, I'm trying to prepare for both ends of the spectrum. I want the lowest interest rate without obligating ourselves to TOO much monthly.

Thanks everyone for all the advice. I just put in the phone call today to go with the stream-line, zero cost refinance.

Home Loan Refi - Help Please!