Author Topic: Refi worth it?  (Read 3241 times)

Offline Burton

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Refi worth it?
« on: March 06, 2013, 10:53:31 AM »
I am sure this question probably gets thrown around here a lot so I will be quick.

The short question, when does it make sense to refinance?


The long details:
1746 is my current mortgage, 1559 is the proposed new mortgage with an interest rate drop of 1.5% on a 30yr note. An apparent 'savings' of 200 a month but it doesn't take into account the closing cost >_<

Originally I had planned to save for a year and buy land, I figured I could buy up to a 25k property at the end of the year with cash then save over an additional 4 years to build on it while living where I am now.

Then I started to look at property with houses and realized how 'cheap' they could be in a region nearby called spotsylvania in VA. It is not uncommon to find a 10+ acre property with a manufactured home on it for 90k or a 5 acre property with a home for 45-60k and it got me thinking about moving earlier and assuming another mortgage instead.

Closing cost, which I think is being rolled into the loan, is 4,767. Without interest if I stayed here another year that is 400 a month lost with refinancing, two years 200 lost etc.

The good news is my property, or lack there of since it is a condo, is worth more than I owe by about 23k right now (rather not bet on inflation however). I would be happy to break even however as I would rather just pay for a new place outright. Looking at the new loan papers has reminded me why I don't want a large mortgage like this as paying it off 'on time' would mean I have created nearly 500k in new money for the bank >_<

My current savings is about 7k or 2 to 3 months cash reserve.  As stated I can save about 23k a year in cash.

Thoughts? Ideas? Suggestions?

Offline Morning Sunshine

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Re: Refi worth it?
« Reply #1 on: March 06, 2013, 10:56:04 AM »
can you sell the condo now and rent somewhere until you are ready to buy your homestead property?

Offline Burton

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Re: Refi worth it?
« Reply #2 on: March 06, 2013, 11:09:22 AM »
can you sell the condo now and rent somewhere until you are ready to buy your homestead property?

Renting around here is nearly as much as it costs to own after you take into account energy use. I haven't considered this though and it would be worth looking into maybe renting some place farther south of DC. I would have to seriously downsize my current belongings however. And the place I rent must have a garage as I ride a motorcycle every day and I work on it / store it in the garage.

I will dig around and see if such a rental property exists. I could always clean up the house and stage it then take pictures and list a 'make me move' price to see if anyone would bite. There is two office buildings, two hotels, a new parking deck, and possibly a minor league stadium going in within a mile of me soon so that is bound to raise the acceptable asking price :)

Offline Saint

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Re: Refi worth it?
« Reply #3 on: March 06, 2013, 11:56:56 AM »
Hey Burt,
I'm going through a refi right now. Standard rules are: if you're going to be there 5 years or more and if you can drop your rate by 1 point of more do it. Closing costs suck (I'm in NY - so magnify your ass-pain by 2), but its part of doing business.
One way to "rationalize" the up front costs, is if you can make them up within 30 months (another rule of thumb).
So, if you're closing is $4,767 and you're going to save$ 200/month that's 23+ months - so ROT says do it.
The other half of that equation is the interest you "wont" be paying with the new rate (that's higher math and my noggin already hurts).
So, for what its worth, I'm in a similar situation - and my company just announced they're moving our business unit to Florida - which would be awesome - except that I can't move for legal reasons (step daughter); so I'm still going through with my refi based on the math of being here 5 more years, getting a reduced rate, paying les per month, making up the closing costs in under 3 years and making a plan to "walk to freedom" and move to Florida in about 5-6 years.
Hope that helps.
Saint

Offline ncjeeper

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Re: Refi worth it?
« Reply #4 on: March 06, 2013, 11:58:15 AM »
I would refi. I did last year and the bank didnt charge me any closing fees. They absorbed the costs because they were hungry for loans so it didnt cost me a thing. Dropped from 5.5% to 3.24.  Maybe shop around.

Offline EagleSteel

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Re: Refi worth it?
« Reply #5 on: March 07, 2013, 07:09:11 AM »
Hey Burton,

Just make sure that there is no pre-payoff penalty attached to the refi if you plan on moving in the next few years. Some banks get people on that saying they owe 3% or so on the original loan amount as a pre-payoff penalty. Also for anyone else looking to refi, please don't roll revolving debt into your new house payment. You don't want to be paying back a cheeseburger for 20 or 30 years do you?

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Re: Refi worth it?
« Reply #6 on: March 07, 2013, 07:46:47 AM »
As others have said, it depends on how long you're going to be staying at your place... and it depends on how badly you need the $200/month.

At the math you just gave... if you know for sure that you're going to be staying at your home for more than 2 years, it makes sense to re-fi.

NOTE: This doesn't include any pre-payment penalities, balloon payments or other conditions that the bank might try to throw your way... before you sign anything, READ your contract/paperwork and make sure you understand what you're signing.



I just went through a re-finance... dropped my rate from 6.5 down to 3.75. I'm saving around $180 a month and if I stay in my place for more than 13 months, I'm in the black (closing costs were around $2,000).

My wife and I plan on staying in our place for at least 2 more years, probably closer to 3-4 so it made sense for us to re-finance.



Do your homework, there are a ton of calculators out there that will tell you if it makes sense to re-finance or not. Google "re-finance calculator" and use one and see if the math works out in your favor.

Offline Duc1

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Re: Refi worth it?
« Reply #7 on: March 11, 2013, 08:32:05 PM »
Closing fees seem a little high.  As a rule of thumb, if the new rate is 1.5% lower and the refi. fees are more in line, and you plan to stay in your current digs for several years,  I'd do it.  Think about getting a mortgage for 10 or 15 yrs instead of another 30 year prison sentence.  I've seen too many people refi into 30 yr loans, continuously stretching out their debt. time line.  Even if the payment stays the same it may be worth doing if you can use it to get out of debt sooner.  Do you have a substantial emergency fund other that the 7k?  If you can save 23k a year, why don't you have at least 23k.  I'm not trying to be flippant, but impossible to give a good answer to the question you asked without filling in a lot of the blanks.i

Offline Burton

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Re: Refi worth it?
« Reply #8 on: March 12, 2013, 07:06:58 AM »
Closing fees seem a little high.  As a rule of thumb, if the new rate is 1.5% lower and the refi. fees are more in line, and you plan to stay in your current digs for several years,  I'd do it.  Think about getting a mortgage for 10 or 15 yrs instead of another 30 year prison sentence.  I've seen too many people refi into 30 yr loans, continuously stretching out their debt. time line.  Even if the payment stays the same it may be worth doing if you can use it to get out of debt sooner.  Do you have a substantial emergency fund other that the 7k?  If you can save 23k a year, why don't you have at least 23k.  I'm not trying to be flippant, but impossible to give a good answer to the question you asked without filling in a lot of the blanks.i

I only have 7k as I only started to prep recently, 7k is about 4 or 5 months worth of savings outside what I have been 'investing' into my preps and some PMs (about 3k right now). Trust me if I had known about this show 2 years ago when I had 40k saved up to buy this place I wouldn't have bought this place, I would have bought a place with land :) The reason i can save 23k a year is because I now have no debt outside my mortgage which is rather large, hence the desire to refi.

If I did 15yr note it would cost 2k a month just for the house payment which is nearly half of what I bring home a month. The plan was to stay in this place for at least 3 years to save up hard cash to pay for a place with land farther away from the city that way I wont have a mortgage to worry about.

I think I am going to pretty the place up and put it up as a 'make me move' listing just to cover my basis but I see myself staying here another 3 years to save up enough capital. If I see the housing market locally start to take off again I will probably sell early and get out while I can.

Offline by

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Re: Refi worth it?
« Reply #9 on: March 13, 2013, 08:57:51 PM »
I've got a spreadsheet I worked up that graphs out the 2 loans.  If you know your current loan and have a good faith estimate from your new loan, this just figured the amortization on the 2 loans and graphs the balance of the 2 loans over time.  The point where the 2 lines cross is the break even if you roll the closing costs into the loan.

I'm doing mine right now... Moving down almost 2.5 pts and break even is under 9 months, pays off a year earlier and about $150 less a month.  A word of caution though, appraisers are tough these days.  If you feel your property would appraise for 1.2 times your loan amount, go for it.

Offline Burton

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Re: Refi worth it?
« Reply #10 on: March 14, 2013, 09:00:02 AM »
neat idea there Bryanyoung, the FHA loan I am getting requires no appraisers since I bought the place 2 years ago with another FHA loan. They aren't even verifying my income since I have the loan already and am paying it.

Offline by

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Re: Refi worth it?
« Reply #11 on: March 14, 2013, 10:24:24 AM »
This is the first time I've had to completely document everything.   Which is good.  This house hadn't seen an appraiser in 11 years, so it was reasonable to expect it.  I was just really nervous, but the appraised value came out better than I expected.  Short sales and foreclosures in this area are way down due to a major manufacturing plant reopening last year, so I figured this was the time.  Every market is different.

And I stole that spreadsheet idea from a coworker.  If you plan to stay longer (or think it will take longer to sell) than the breakeven timeframe, you're in the black.  Assuming stable money of course.  8)

Also, press your lender on your closing costs.  I got a couple of GFEs.  The one I wanted was high so I pressed them and they ended up dropping them.  Also, don't pay much attention to prepaids estimates for insurance and taxes.  As long as they don't require more reserves, that's going to be pretty much a wash out in escrow. The attorneys fees, app fee, origination fee, paperwork fees, etc. are where you really need to pay attention.  Those fees seem high to me, but probably in line if they include prepaids.

As far as whether to sell or not, that's a personal discussion.  Just where do you want to be? 

I'm sitting in a decent house with 16 acres in a rural area, so I want to stay here and hence why I refi'ed.


Offline Burton

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Re: Refi worth it?
« Reply #12 on: March 14, 2013, 04:13:02 PM »
I love some things about this place, I really do, or I wouldn't have bought it. But it will not work out in the future as I want land.

The places I am looking at are  30 minutes or more south of my current location where land is cheaper and you can still find highspeed internet access. 10 acres, + house 100k type cheap (keeping in mind my place is worth over a quarter million it is 'cheap'). I saw several 5 acre + prefab for 45-65k.

I would love to be more rural and live closer to the mountains, like down in far SW VA, but I work in DC and make good money doing what I like to do. Yes I could work remotely but not on anything less than broadband and I would probably have to renegotiate a lower salary to do it. I already told the business owner I was thinking about doing just that in a couple years and he seemed interested in buying near the former mentioned locations as well given the cost to value.

If I recall the lawyer fee was a little over 1k >_<

If I took my full 'savings' a year and applied it to the principle I would pay it off in just under 8 years assuming nothing changes, and we all know everything changes time to time.

Offline Burton

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Re: Refi worth it?
« Reply #13 on: April 17, 2013, 12:22:24 PM »
Obtained my refi yesterday. I ended up paying 1k to go from 5% to 3.25%, meaning it will take about 5 months to pay it off. Total monthly savings was a bit over 200 and it will be over 500 when 20% of the new loan amount is paid down but I probably won't have the place that long.