To Refi or Not Refi - That is the question.

Your refinance seems a little expensive... where did you get this quote? Did you try running a quote check on some of the online search engines like interest.com?

It could be regional, but running a refinance in my area comes up with a 4.25 with 600 closing and no points.

You are going to spend over $3000 to save $250 a month. Should you not preserve your cash since you are worried about a downturn? That $3,000 is a month's mortgage payment or a lot of groceries....

SoSiouxme said: I can get a fixed rate 15 year loan at 4.25% with a 1.25 origination fee plus usual closing costs. I figure that with the fees and costs wrapped into a new loan of 280K at 4.25% for 15 years, my new P & I payment will be $2107. This will give me approx $250 extra a month.

Common rule of thumb is points (origination fee) are roughly worth about 0.25% rate discount. So new rate vs your current mortgage is about the same. You save a bit more rolling the HEL in. Not a bad thing to get out of the HEL especially if variable rate.

But still, assuming low closing costs, you're looking at a $5k expense right now (1.25% of $280k + regular closing costs). Break even point would thus be in 20 months, more if closing costs are higher than $1500 (outside of points). Factor that in as well if you're not sure to stay in the house for 2 years or more.

SoSiouxme said: Counterbalancing the above concerns, my long-term financial plan is retire at age 55 with no debt. I am 40 years old and I have a 15 year mortgage that will be paid off in March of 2023.

Here is my current scenario: I have a 15 year fixed rate mortgage at 4.625% that I am almost 2 years into. My current balance is $255,000. My P & I monthly payment is $2161. I have a 10 year fixed home equity loan from Ped Fed at 4.99% with a current balance of $17505 and a monthly payment of $213.00.

I can get a fixed rate 15 year loan at 4.25% with a 1.25 origination fee plus usual closing costs. I figure that with the fees and costs wrapped into a new loan of 280K at 4.25% for 15 years, my new P & I payment will be $2107. This will give me approx $250 extra a month.

I have enough equity in my house to do this and my credit score is very good, so no problems there.

Any thoughts?Have you considered refinancing both loans with Penfed's 5/5 that's been around 3.875% at par (meaning no discount points), no origination or any other lender fees and with Penfed paying a number of your third party fees, such as the settlement charge, appraisal fee, etc... It is amortized over 30 years, which gives you the flexibility to potentially reduce your overhead if the times get tough but you can certainly make extra payments to pay the loan off on your time table.

A 5/5 obviously introduces additional interest rate risk into the equation, but even in the worst case scenario for the 5/5 your breakeven period would be about 10 years, at which point your loan would be quite close to being paid off anyway. Your interest rate (especially if it drops back down to 3.875%) and your closing costs would also be considerably lower than what you can get on the 15 year fixed.

dcg9381 said: Might make sense long term (you do the math). No objection if it makes sense long term and the math works.


Short term, if the idea is to increase cash until CA can pay bills it makes no sense to me - you're fronting too much money.

There are two ideas at work here -- one is short term liquidity. If that were the only reason, I agree -- I'd be better just keeping the money in savings.

The other competing interest is the quality of life issue. If I have my pay cut along 10-15% which is the current proposal with no raise on the horizon, I would love to see an additional 200-300 a month to enhance my quality of life. That money would enable me to hire a yard guy and eat out a couple of times a month.

I was always under the impression that the rate drop has to be significant to see a return on a re-fi. Am I trying too hard to justify this?

OTHsnoozer said: This is a perfect scenario for applying the following financial strategy which I have just used. I refinanced my existing 5.25% mortgage balance (no cash out) with a 10 year Interest Only (10/1) ARM and I included all mortgage closing costs, fees and points (it added approximately $3.50 per thousand to my monthly payment to do this.) Be sure to select the lowest rate you can find for 2 points or less (Since Oct 2009, the market has been ranging from 3.875% to 4.125% for 2 points and I got in at 3.875%)

If you use this strategy, you should lower your mortgage payment by about $675 a month during the next 10 years (assuming you refinance both the first and 2nd for $272,500 ). After 10 years, your remaining 20 years of payments will jump up to the equivalent of a fully amortized 20 years mortgage on the existing balance most likely at a HIGHER RATE OF INTEREST (the same balance will be the same that you refinanced 10 years earlier) The beauty of this whole strategy though, is that your mortgage interest rate will be reset at the end of the 10th year and each successive year but no reset can exceed 2.0% and the maximum lifetime rate of interest that can be charged on the loan would be 8.875%. With all of the massive debt this country has incurred, do you want to take a guess at what interest rates will be in 2020? If I’m wrong and the rates aren’t that high, (let’s say they’re 6%) you still have the option to refinance the total amount of principal into a new 30 or 40 year loan at the lower rate. Now ask yourself this question: Will I be able to handle a known fixed amount mortgage payment 10 years from now (with the option to refinance the existing balance for 30 years should the then current market rate be below 8.875%) when factoring in the impact of 10 years of inflation plus your projected income and investment portfolio in 10 years? I'm assuming that you can qualify for such a loan, but be aware that there are a limited number of companies that offer the 10 yr IO ARM's. (a few even have 30 year IO ARM's). http://www.amerisave.com/refinance-mortgage-loans

I'm a numbers guy and have been in the financial business (retired now) for more years than I want to admit. If you want to test my theory, put it on a spreadsheet and see what you get. Of course the larger the amount financed, the higher your current interest rate and the bigger your monthly payment is, will provide an even greater savings. On the negative side, if you take cash out, you’ll reduce the benefits of this strategy. Also, if you need the income tax write off for mortgage interest, you’ll have to evaluate the impact, if any, of interest only payments because this might come into play if you’ve had your existing mortgage for only a few years. If you have good credit and can qualify for this type of loan, there’s numerous reasons for doing so. Whether you’re are projecting a financial disaster down the road (reduced income, loss of job etc.) or you just want some liquidity to invest, this strategy is in full play all the way, even if you do cash out all the equity that you can muster.

expect my monthly salary to be going south. I also am realistically facing a point this summer where I will not receive my salary for a few months at all (I will be paid eventually, but it will be months later). So, I'm trying to get my non-discretionary income payments down for quality of life reasons as well as liquidity issues. That is why I'm recommending this approach. You have the option to make principle payments at any time; but why would you if your 10 year fixed interest rate is for the entire mortgage balance and no interest adjustments are made for pre paid principal? Any pre payments of principal will come off the balance owed. If you want the flexability of paying off your mortgage in 15 years, then deposit the amount you can afford monthly into an interest bearing insured Money Market or CD. At the end of the 10 years, apply the amount you have saved (plus interest earnings) towards the balance prior to your first interest rate reset. That way you've still reduced you monthly obligation while retaing the option of paying off the loan in 15 years. On the other hand if your have a dramatic drop in income, you don't have to worry about coming up with a large mortgage payment each month