Refinancing my house questions

[DADI03]

We refinance from a 30 to a 20 at 8 years in. This was about 10 years ago, rates were a little higher then. But we are at the point where it would cost us more in the long run to refi again. We have a guy that helps us with our investing. We had been paying extra every month. He suggested that if you are good at putting money aside, which my wife is very good at, to do that and save it up till you have enough to pay it all in once. If you are paying an extra 100 a month which is 1200 per year to stick that in a separate savings account and it will gain interest, not much but some. Continue to make your normal payments and when your money that is set aside reaches what you owe pay it off at once. Houses are simple interest loans. The sooner its paid off the less interest you pay, it doesn't matter if you do it all at once or a little each month. This also gives you some more cushion in hard times. As far as to your original question they are probably just starting your term a month later, so it's not really saving money. You will still have to make the 240 payments it's just starting a month later than you sign the papers. Buying a house is a long run game. Look at what you are paying per month with each loan and go from there. You'll knock off a lot by taking the 2 years off so I'd say it's a good idea to refi now while the rates are low, without knowing . Kinda like buying a car there are fees involved, i wouldn't worry as much about where they put them so long as you know the total amount you borrow, what the terms are, and new payment. I'd let them take care of where all of the money is placed.

 

[Horsehat]

Hate to sound like a broken record but shop around and finance for 15 years. There is no better feeling, well, there are few better feelings, than being debt free.

 

[Trailrider]

Usually those "free months" where you don't have to pay are just rolled up in to the loan. You're actually paying them, but over 25 years it only adds a small amount to the monthly payment over the term. Also, careful with anyone offering free closing. It's again, just rolled in to the loan. I was getting some quotes from a few lenders myself and noticed that's what most of them were doing. 60-90 days of no payment, or no closing costs. When I broke it down, they just rolled in to the new loan.

 

[bigt61]

Costco has a mortgage program with fixed low cost fees and no hidden junk

give them a call to compare

Also as far as lenders saying “we’re eating the fees”.......they’re usually rolling your fees into the principal balance on your new refinance loan

you have to compare line items and what your before and after final loan balance are

 

[Churchill]

So, like the title says, I am thinking of refinancing my house. My current interest rate is 4% and my credit score is right around 800. The mortgage broker gave me a quote of 3% on a 25 year loan and an origination fee of $1,560 on the approximate $105,000 left on my current mortgage.

The broker said that the first two months would not have a payment due, but that one of those months' payments would be moved to the end of the loan. She made it sound like the other payment essentially seems to disappear and that my net cost of the refinance would be around $800. But I know that money does not just disappear, nor is it free. Can anyone help me figure out what is really going on?

Also, for any of you that have refinanced recently, what type of rate were you able to receive?

Thanks.

The real issue (apart from interest/APR) is the length of the loan. If you only have 20 years on your current mortgage and you are extending by another five years, that's going to cost you a lot more - they always try to sell these these things by showing you how painless it is at the front end. Instead you should be looking for 15 years at around 2.25% or less.

 

[GeauxLSU]

We have a guy that helps us with our investing. We had been paying extra every month. He suggested that if you are good at putting money aside, which my wife is very good at, to do that and save it up till you have enough to pay it all in once. If you are paying an extra 100 a month which is 1200 per year to stick that in a separate savings account and it will gain interest, not much but some. Continue to make your normal payments and when your money that is set aside reaches what you owe pay it off at once. Houses are simple interest loans. The sooner its paid off the less interest you pay, it doesn't matter if you do it all at once or a little each month. This also gives you some more cushion in hard times.

DAD, this is incorrect. Maybe I'm misunderstanding what you are saying since the bolded part seems to contradict itself, but the only way "saving to pay it off all at once" makes any sense at all is if the money you are putting in a savings account is earning interest high enough above the rate you are paying on your loan, that you can cover the income tax and still be better off saving. That obviously will never be the case with traditional savings. You are ALWAYS better off lowering your principle as quickly as you can (assuming there is no pre-payment penalty.) because your are paying interest on the outstanding balance.
A simple example on 100k 30 year mortgage at 3%.
Not counting taxes and insurance your monthly payment would be $421.60. If you did not pay any extra you'd wind up paying almost $52k in interest over the 30 years.
Now if you'd pay just $100 extra each month, you'd shorten the loan from 30 years to under 22 years and you'd only pay just over $36k in interest.
Now let's say instead you saved that $100 month in an account until you had enough to pay off the loan, depending on interest rate earned, that would happen around the 280th month (during year 23). If you paid it off all then, you'd have paid over $48k in interest. There is no combination of saving each month in a savings account and making bulk payments that will ever result in that same interest savings as making extra payments each month or even come close. Again, perhaps I'm misunderstanding what you are saying.

 

[DADI03]

DAD, this is incorrect. Maybe I'm misunderstanding what you are saying since the bolded part seems to contradict itself, but the only way "saving to pay it off all at once" makes any sense at all is if the money you are putting in a savings account is earning interest high enough above the rate you are paying on your loan, that you can cover the income tax and still be better off saving. That obviously will never be the case with traditional savings. You are ALWAYS better off lowering your principle as quickly as you can (assuming there is no pre-payment penalty.) because your are paying interest on the outstanding balance.
A simple example on 100k 30 year mortgage at 3%.
Not counting taxes and insurance your monthly payment would be $421.60. If you did not pay any extra you'd wind up paying almost $52k in interest over the 30 years.
Now if you'd pay just $100 extra each month, you'd shorten the loan from 30 years to under 22 years and you'd only pay just over $36k in interest.
Now let's say instead you saved that $100 month in an account until you had enough to pay off the loan, depending on interest rate earned, that would happen around the 280th month (during year 23). If you paid it off all then, you'd have paid over $48k in interest. There is no combination of saving each month in a savings account and making bulk payments that will ever result in that same interest savings as making extra payments each month or even come close. Again, perhaps I'm misunderstanding what you are saying.

I could be wrong. It's happened before.
I see what you're saying. Honestly asking not trying to sound off. What's the difference in paying $100 each month for 22 years (I'm just using that as to say that's when it's paid in full) or saving that money $26,400 and giving that to them in on check at the 22 year mark to pay it in full? Is the interest is per month based off of the full loan amount, or is the interest based off of the amount owed after each payment? Maybe that's where I am getting it wrong. I was thinking the interest was based off of the full loan amount for the duration but they graduated the scale of it in order to get most of their money up front.

 

[GeauxLSU]

I could be wrong. It's happened before.
I see what you're saying. Honestly asking not trying to sound off. What's the difference in paying $100 each month for 22 years (I'm just using that as to say that's when it's paid in full) or saving that money $26,400 and giving that to them in on check at the 22 year mark to pay it in full? Is the interest is per month based off of the full loan amount, or is the interest based off of the amount owed after each payment? Maybe that's where I am getting it wrong. I was thinking the interest was based off of the full loan amount for the duration but they graduated the scale of it in order to get most of their money up front.

Correct, the interest is calculated on the outstanding balance each month. So the quicker you lower the balance, the lower total interest you have to pay. As you can see in the example, a little extra each months goes a LONG way in both reduction of interest payments and duration of loan.

 

[The Skulls]

Recently refinanced our home (signed the ppwk about a month ago), not an expert so I'll just tell you our experience. We were 8 years in to a 30 year mortgage, refinanced at 2.5% & went down to a 15 year one. Payment is within a couple of dollars of the monthly payment before, but we'll save around $50k in interest.

Definitely shop around, but get all of the quotes as close together as possible so it doesn't effect your credit score too much. We went with a credit union from a former employer as they had the best rate, as well as the lowest fees on the closing costs.

 

[DADI03]

Correct, the interest is calculated on the outstanding balance each month. So the quicker you lower the balance, the lower total interest you have to pay. As you can see in the example, a little extra each months goes a LONG way in both reduction of interest payments and duration of loan.

I see what you're saying now.
We aren't currently putting any extra aside but will keep that in mind for the future. We owe less on it than what a new car cost so we have started investing in other areas. Almost all of our payments go to the principal at this point so we have decided to spread the money around some for the future.