worked up numbers with the mortgage guys. The rate will come down from 5 to 4 something. Insurance money will not be required each month (because of less than 20% equity previously) but it is not much anyways - 100-200 bucks each month. close to 3 grand in closing costs. Minor change in monthly installments. It looks like the rates have crawled up and the benefit isn’t enormous. I feel like the morgtage guys are just interested in their closing costs and pushing us towards refin. Would it be a better idea to put in a lumpsum towards mortgage instead of refinancing? Guess with all the CFA knowledge I should better be running the numbers.
Trying to finalize a refi in the low 3s now…had a rate lock so timed that well, but need to get this thing done! It’s simple: what do you pay now, what will you pay later and how long will it take you to save the same amount as the cost of closing the loan.
How far into your mortgage are you and what’s your monthly split of interest/principal on your payment?
What I’d do is plug into your excel spreadsheet the closing costs and PMI you’d pay if you refinanced as a prepayment and see how much in interest you’d save over the life of the loan. If you’re early on, say first few to 10 years I’d think that prepaying the amount of the closing costs would make more sense. It’s unlikely you’ll hold the loan to maturity anyway since you’ll probably move.
pretty early on… I’d say 3 years and obviously bulk goes to interest. I am concerned that i shell out 3 grand for closing costs for a 4% refinance and a few months down the lane rates go down and i miss out on a better opportunity to refinance.
Rates are nowhere close to 4%. The only reason you would be getting stuck with that is a) you have sh!tty credit, b) you don’t make sh!t for income, or c) you’re getting scammed.
Depends on how many payments you have left, etc. Average mortgage now is about 3.8%. Normally, it’s a bit higher for refinance. So, if you’re close to 4%, I wouldn’t say it’s a terrible deal. Though probably not a steal either, given that they charge you to refinance.
Rates have definitely ticked up to around 4% in the last week or so.
@the OP - hindsight certainly suggests you’re late to this ballgame, esp since rates have been <4% for quite a while. why didn’t you locked in earlier? also, you should compare your expected payback period to the length of time you expect to remain in the home. finally, if can you swing a 15 yr mortgage, that is really where the savings can be realized in the long term, and rates still close to 3% (higher payment though).
If you have 20% equity, you shouldn’t have to pay PMI anyway. You should check with your servicer/lender and see about getting it removed.
According to Bankrate.com the 30 year rate is 4.2% today. And, that’s generally if you have at least 20% equity in the house.
Anyway, the $3,000 should be able to be rolled up into the loan so it’s not out-of-pocket. Still, the best way to figure out if it’s worth it is to find the breakeven number of months to make your closing costs up. If you’re saving $100 a month and costs are $3,000 then your BE is 30 months. That’s pretty high. Under 12 months is a no-brainer and 12-24 is on the fence. Over 24 months, I’d say no way.
Also, keep in mind when you refi you get to skip a mortgage payment. From a cash flow standpoint if the closing costs are rolling into the loan and you skip a mortgage payment, that’s pretty nice.
We bought in 2011 at 4.5% and refi’d down to 3.875% and then down to 3.375% for 30-year fixed over the next eighteen months. Both moves had minimal closing costs and quick break-even periods (<1 year). After the second refi, I knew that would be pretty much it for me since I couldn’t see many scenarios where the 30Y FRM would drop below 3% unless something really bad was happening.
Although rates have been ticking up, in the historical context and from a risk standpoint, 4% is still a very awesome rate. Let’s not forget our parents (or at least mine) were buying houses with double-digit mortgage rates in the 1980s.
Sweep the Leg best encapsulates the quick thinking that needs to go into this. Break-even and cash flow analysis. I found that reducing at least 50 bps on my rate with low-to-no closing costs was the key,
I just did at refi 30 year fixed at 3.625% from 4.75%. Market rates at the time were ~3.5% but I elected to pay a little higher rate with a no closing cost loan (so the lender paid all the closing costs). I was breakeven on day one.
That’s a great rate reduction; you just cut your interest costs by almost 25% per year.
Choosing the slightly higher rate was a good move. I did the same thing both times.
“If rates continue their upward march, mortgages will become more expensive.”
Wait… what? I don’t understand.
Could someone please explain this to me like I’m straight out of the Game of Thrones world?
Does it just mean the same loan buys less house?