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The interest rate on your mortgage is 6%, and you plan on staying in your current home for a long time. Your financial advisor says it’s a great time to refinance. Go or no go?

Go
No go
I'm not sure
Posted by Briana ·

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The financial advisor doesn’t always see your complete financial situation. The interest rate itself should not determine your decision. I choose not to refi even when market interest rate was lower by 3 points because I would end up paying more interest on the new loan with the additional payments I made each month. 

JoJoJennifer posted:

We refinanced 7 years ago , saved $75 per month on our monthly payments and got a 10 year loan instead of the 30 year we had previously. Just switched to  another bank that I had a good relationship with and it was pretty easy. Didn’t take much time either. Our current interest rate is 3%. 

Shaving off 20 years of debt, lower interest rate (=> less interest being paid), and a lower monthly payment! Now that is what I am talking about!! Way to go!!

We refinanced 7 years ago , saved $75 per month on our monthly payments and got a 10 year loan instead of the 30 year we had previously. Just switched to  another bank that I had a good relationship with and it was pretty easy. Didn’t take much time either. Our current interest rate is 3%. 

MakeDo posted:

Obviously 51.9% want to pay extra interest. You already give enough to the bank, why start again?

How would that be paying extra interest? If anything, the person would end up paying less interest as they would be paying a lower interest rate.

Now, granted, my statement above is only valid if the person refinancing is wise enough to:

  • keep paying at least the same  payment amount as before they refinanced
  • refinance with an interest rate that creates a saving that is higher than the closing costs
  • refinance for an interest rate that is less than the current loan's interest rate
  • refinance with no early payoff penalty fee
  • only refinance the amount owed instead of taking on additional debt
  • refinances so that each payment includes interest and principle and all extra funds in a payment is applied to the principle owed

 

If they were foolish enough to take on additional debt, only make minimum payments, agree to an early payoff penalty fee, refinance at an interest rate that fails to create additional savings overall, refinance for the same or higher interest rate, refinances so there are interest only payments, or any combination thereof.... well, that would be just plain sad for them. 

All we need is love, PMI is an aggravating and pricey add-on to your mortgage payment by lenders for insurance that protects THEM, not you, in case you default on the loan.  What's even more aggravating is that during the crash of 2008 and on, the PMI insurance companies many times came back on the homeowner who had been paying for the insurance and filed judgments against them for the loss they incurred by what they paid out to the mortgage companies because of foreclosures.

PMI or MIP (depending on the type loan) is not to be confused with mortgage insurance you can also pay for that would pay off the homeowner's mortgage in the case of death. Lenders are quick to sell that to borrowers, too and that's another Buyer Beware, but at least it is optional.  Sometimes a life insurance policy can be the better answer to that situation.  Too much fine print with mortgage insurance, IMO.

Jeanine posted:

You also want to make sure that:

1.  You watch the principal loan amount balance.  Once the balance is 80% and lower you can tell the bank that you want the PMI (Private Mortgage Insurance) removed from your payments.

2.  Pay the same amount, even when your payment is lowered.  You will pay off the mortgage faster if you apply the extra payment amount towards the principal balance.

 

 

AnnieB posted:

Depends on how much equity you have in the house, what the costs of refinancing are, your credit score, what the rates will be, and what the break even time frame will be.

Break even time frame = costs of refinancing vs reduction in the loan.  How quick before you get that money back in lower interest rates?  If your rate is 3-4%, then you'll recoup the costs quicker than if it was 5%.

Also depends on the type of refinancing. Are you going 30 year to 30 year?  Are you going 30 year to 15 year?  What is the reason for the refinance?  Are you doing it to just drop the payments and starting all over with a 30 year mortgage? Are you getting rid of PMI? Are you going to a shorter loan and thereby getting rid of a ton of interest?

One size does not fit all in this survey.  It is completely fact dependent.

sounds like me

It all depends.   With the current interest rate environment, I would have long since refinanced.   And I'd refinance as far out as possible - 30 yrs ... and as long as the rates were low, I'd make larger payments ... much like it were a 10 or 15 yr note.   But if the interest rate environment went up or life threw a curve ball, my minimum monthly nut required would be relatively low.   In fact, I've done the above strategy several times in the last decade ... assuming current rate, house will be fully paid in a couple of years ;-)

NANAWALLER14 I didn't realize some mortgage companies and banks were doing this, never heard of it and I'm a retired real estate broker.  Never to old to learn!! That is fantastic!! Any fine print?  A bit amused they are charging even $50 to give them 100K, they should be paying you to park your funds there!!!

NANAWALLER14, right now you are at or slightly below market mortgage interest rates so I would think you might be best, if you want to try to get your mortgage paid off, to just apply $100K towards the principal of your current mortgage if you are still able to make the current monthly payment you have.

Or, invest that $100 into something that is bringing a higher interest rate than 3.875.

You overall portfolio and current income might be leading the decision.

This is very timely!  We sold our business and were arranging to do a recast of the mortgage, keeping our 3.875% rate.  We were going to put $100,000 down, making the balance about $170,000.  Our financial adviser is looking for a better rate to refinance.  Now I'm thinking, that unless it's 1 or 2.875 or less, with no upfront fees, we shouldn't do it!  Is that correct thinking?

 

Depends on how much equity you have in the house, what the costs of refinancing are, your credit score, what the rates will be, and what the break even time frame will be.

Break even time frame = costs of refinancing vs reduction in the loan.  How quick before you get that money back in lower interest rates?  If your rate is 3-4%, then you'll recoup the costs quicker than if it was 5%.

Also depends on the type of refinancing. Are you going 30 year to 30 year?  Are you going 30 year to 15 year?  What is the reason for the refinance?  Are you doing it to just drop the payments and starting all over with a 30 year mortgage? Are you getting rid of PMI? Are you going to a shorter loan and thereby getting rid of a ton of interest?

One size does not fit all in this survey.  It is completely fact dependent.

The correct answer is maybe. Rule of thumb used to be re-fi if you could obtain a mortgage rate at least 2% less than your current rate. Also depends on how much in points and other fees the re-fi would cost. If the lower payment can cover the points and fees within two years and you're staying in the home a good while longer than that, then it's probably a good idea.

Refinancing your home no matter what the rate is a bad financial decision.  Unless the refinance is 100% free, it takes 7 years to stay in a home to break even on your refinance fees.  Horrible investment.  

You also want to make sure that:

1.  You watch the principal loan amount balance.  Once the balance is 80% and lower you can tell the bank that you want the PMI (Private Mortgage Insurance) removed from your payments.

2.  Pay the same amount, even when your payment is lowered.  You will pay off the mortgage faster if you apply the extra payment amount towards the principal balance.

 

" GO" , BUT, only of all the costs are included in the mortgage  and no out of pocket cash is needed. save your cash and come out cheaper , and shorter time,after the contract /re-fi . THEN YES . OR if you do not like your banker/ advisor, you can switch as well.  LOL.

Since our financial adviser has repeatedly helped us make good financial decision overall and he said it was a good time to re-fi, yes we would certainly look into it.  There will be closing costs, but just a few years ago a lot of lenders and banks were promising no closing costs to the borrower on a re-fi, especially if one took out their original mortgage with that lender; so I'd search to see if there are attractive offers like that out there still.

If the new interest rate is at least one percent less than I'm currently paying, since I plan to retire in this home, it would be a good strategy. The only way it works for the consumer is if the interest rate is low enough that over time the refinancing fees (averaging 2%-3% of existing loan), are made up over the course of the loan.

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