Edited to add - I decided against re-fi. Between all the expenses (taxes, appraisals, loan costs) it seemed like $4K or thereabouts was the going rate. I spoke to a few different brokers about this. I was not willing to spend $4K since the breakeven point would be about 4 years down the road and with concentrated effort I will have the house paid off before that. Also, add in the hassle factor of refinancing and I really wasn't willing to do it.


Original post -

Should I contact a broker to see about refinancing?

I have only taken out one mortgage in my life. My current rate is 4.25%.

About 18 months ago, I started paying extra. I am one full month ahead. And depending on my income that month, I pay between $500 / $2,000 extra towards the principle each month.

If I stay disciplined, paying the full $2K extra each month, I would have the mortgage paid off about 5 years from now.

I know I would obviously benefit from a lower rate if I was only paying the minimum payment each month. Quick math shows a payment savings of over $100 per month.

But since I am working to pay it off early, I am not sure where the break even point is between sticking with the current rate, or refinancing and paying points or fees or whatever it costs to get a new mortgage.

This message has been edited. Last edited by: holdem,

If you do not have any additional costs from the new mortgage then why not?
KUDOS to paying it off early, believe me being debt free is a nice feeling.

quote:

Originally posted by smschulz:
If you do not have any additional costs from the new mortgage then why not?
KUDOS to paying it off early, believe me being debt free is a nice feeling.

Boy isn't this the truth! We've been debt free for 12 years now.

We also paid extra on our mortgage and knocked off 8 years payments.

Jim

Some quick analysis will give you the answer. Need to find out the refinance fees, could be as little as 2k and as much as 4K. Figure out the difference in interest rate cost over the time frame (factoring in your accelerated payoff over and above the required) and you have your answer. Rates are ridiculously low right now, so could be worth the hassle. We will have ours paid off this year, otherwise I would do this myself.

Lots of quick calculators you can find in the internet to give you a back if the napkin idea. Avoid paying and points as rates are low and prepaid interest points are a wasted cost given your situation.

quote:

Originally posted by sig77:
Some quick analysis will give you the answer. Need to find out the refinance fees, could be as little as 2k and as much as 4K. Figure out the difference in interest rate cost over the time frame (factoring in your accelerated payoff over and above the required) and you have your answer.

I guess that was really my question that I did not ask, what are refinance fees?

Dropping my rate from 4.25% to 2.75% would save me about $125 per month. Over 60 months that would be $7,500. But I figured if the re-fi costs were $5K, then do I really want to go through the hassle? But if they are only $2K, then I suppose it makes perfect sense.

As long as you don’t fall for the trap of pulling money out or doing a 30 year loan because “you will pay extra” then find the actual costs to get this done and do the math.

If your bank is trying to gouge you with anything over $2000 to do this pull everything you have out of their bank because they are taking advantage.

quote:

Originally posted by holdem:

quote:

Originally posted by sig77:
Some quick analysis will give you the answer. Need to find out the refinance fees, could be as little as 2k and as much as 4K. Figure out the difference in interest rate cost over the time frame (factoring in your accelerated payoff over and above the required) and you have your answer.

I guess that was really my question that I did not ask, what are refinance fees?

Dropping my rate from 4.25% to 2.75% would save me about $125 per month. Over 60 months that would be $7,500. But I figured if the re-fi costs were $5K, then do I really want to go through the hassle? But if they are only $2K, then I suppose it makes perfect sense.

Refinance fees are whatever the lender thinks they can make you believe is normal.

I've had several refinances. All except for the first one involved zero refinance fees. A couple even gave me credit for the appraisal fee which was $300.

Don't buy points. Don't pay origination fees. Make sure the APR number in the boxes at the top of final document is what you agreed to.

But to answer your question: Let's say the proposed new rate is 3%. That's a 1.25% difference. If you multiply 1.25% and your current mortgage principal, (let's say $100,000 is your principal), this lets you know that you can pay $1,250 in refinancing costs and you'll break even in one year and start saving after that. I'm not saying you need to pay $1,250, I'm just giving you another way to look at the math.

Being that you're only 5 years to paying off your mortgage, there's be a big push for you to take money out. You don't have to. Good luck.


Good luck.

Make sure your extra payment is being applied to principal not just a future regular payment.

When we send extra money to our lender we have to note on the check that it is to be applied to the principal.

He last two lenders did the same...they will f you any way they can.

quote:

Originally posted by 1s1k:
As long as you don’t fall for the trap of pulling money out or doing a 30 year loan because “you will pay extra” then find the actual costs to get this done and do the math.

Oh no, no intention of pulling out money. And I'll re-fi for 10 or 15 years, whichever gets me the better rate.

quote:

Originally posted by MikeinNC:
Make sure your extra payment is being applied to principal not just a future regular payment.

Yes, took me a few payments to catch on to that, but now I do it online. There are certain "boxes" to check; regular mortgage payment, apply only to principle, etc.

this guy is on WGN radio in Chicago every Saturday morning - give him a try- I have no relation or interest except I like his show intertaining

https://56david.com/

I do not think I would. Keep paying it down best you can. You can even make a payment every two weeks which will help pay down a little sooner. Less interest. You are on the right track. Mtcw.

This is really a math problem and you should treat it as such. What's the monthly savings, what's the cost to refi and whats the term before you are done. I would absolutely get the numbers from at least 2-3 lendors. And as an added benefit if your circumstances change and the extra suddenly becomes a difficulty then having locked in a lower rate is a huge plus. These rates won't last. They simply won't.

quote:

Originally posted by bigeinkcmo:
I would probably refi based on what I've read so far. 15 year rates are now going below 2%. You wouldn't be saving as much as someone who isn't prepaying $500-2000 per month but you will come out ahead if you're currently in a 15 year at 4.25%. Not sure how many years you have left on the current loan. Assuming no crazy hidden fees for closing out your existing loan. I doubt a 10 year refi will net much better rates. Seems to be 15 years is the sweet spot in my research.

Good luck whatever you decide.

As much as I hate to be Johnny Raincloud, also consider the possibility that you may not always be able to pay as much extra as you are currently paying. If you lower your rate you’d still be paying down principal even if all you paid is your current minimum.

quote:

Originally posted by DaveL:

As much as I hate to be Johnny Raincloud, also consider the possibility that you may not always be able to pay as much extra as you are currently paying. If you lower your rate you’d still be paying down principal even if all you paid is your current minimum.

No raincloud at all, that is a very good point to take into consideration.

The lender does not control much of the closing costs. It's not their fault your county and state charge transfer taxes on a refi or that a new deed has to be recorded or that the lender may need an appraisal, if they're not your current lender and on and on. Lenders control the rates and underwriting or doc fees, not really anything else.

Figure out your total closing costs and divide that by your monthly savings in payment. That's the number of months you need to stay in the house to break even. If you break even in two years or less and plan to stay there a while, it's a no brainer. If you think you may move and your break even point is five years, hell to the no.

I have a friend in Florida that does mortgages. Actually he's licensed in both Michigan and Florida. Maybe call him for an opinion.

He did a re-fi, an equity loan and a mortgage when we bought this house. Also referred others including one of my daughters to him also.

Email me if you want contact information, he's in the West Palm Beach area.

If you could get a ~2% reduction, it might be worth considering.

But if you're going to have it paid off in 5 years, might not be worth the hassle.

$.02 worth,
Boss

Its all about the costs to refinance up front.

If you save $100 a month on the payment, then when you make your $2000 a month extra, $100 more is going to principle, as long as you don't short your overpayment by the same amount your payment drops you will accelerate your payoff.

Remember you are increasing the total paid on the home by the up front fee. The lower the closing costs and fees the better.

A $100 a month lower payment with $4800 in closing cost and fees would take 4 years to break even.

Holdem, shoot me an email and I will get you in touch with the guy to answer this, if you go through with it Ill give you a SF discount on closing costs as well