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HiWe bought the house at 4.15 % interest rate for 30 years fixed on a $45000 house with 10% down.My mortgage broker called and said we can do zero cost refinancing for 3.125 for $15 years fixedor2.875% for $15 years fixed with closing cost which he says will be approximately $2000. We have about $395000 loan left.We are planning to stay in this house for atleast 10 years.
Please advice which is better no cost refinancing at higher rate or closing cost at lower rate. I am a complete newbie any advice from expers will help,

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What lender is doing this? Is this possible in Ohio

Johst231 (Sep. 19, 2017 @ 11:04p) |

Not if you can't read...

scripta (Sep. 19, 2017 @ 11:27p) |

So getting a no/low cost refi is possible with >80% LTV? How about >90% LTV?

jaytrader (Sep. 21, 2017 @ 8:48a) |

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rated:
You can compare break-even here: https://www.mtgprofessor.com/calculators/Calculator11a.html 
You can even enter opportunity costs like expected investments return (in the "interest on savings" field) and marginal tax rate .

Also you need to go over actual numbers for the loan from the broker.  You should receive something in writing (or email).  Is the broker quoting you lender fees or total costs (including third party charges)? A "zero cost" refinance means the lender credit covers all third party fees. A "zero lender cost" means you still have to payany third party fees.

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He said its zero point, zero cost so our out of pocket will be nothing except maybe around $200 to $300 if at all anything is needed. 

The comparison sheet says when I plug in 2.875 in low inter high point column and 3.125 in high inter low point column with zero points for both, as $5000 savings over the 10 years going with lower interest rate. 

Our mortgage lender was saying the rate is going go down further and we dont need to waste our money in closing. 

What do you guys think

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tamilgirl77 said:   The comparison sheet says when I plug in 2.875 in low inter high point column and 3.125 in high inter low point column with zero points for both, as $5000 savings over the 10 years going with lower interest rate.
  1 "point" is equal to 1% of the loan value.  You can easily convert the fees to points for the input to the break-even calculator.  It accepts fractional and negative points in the entry field.

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If I give 1 point to 2.875 and 0 point to 3.125 it says I will save $2300 over 10 years, is this good ? 

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I refinanced 2 years ago with the same 15 year interest rates you're being offered, but a much smaller mortgage. I went with the no closing costs because closing costs meant my break even was actually almost exactly 15 years (slightly past), so it didn't make sense to pay up front. This also means if a lower rate comes along, I can refinance any time because there were no closing costs on the refinance that I needed to break even on.

The break even point is at the bottom of that calculator and I think with your numbers it would take you about 4.5-5 years to break even, so the question becomes do you think you'd be likely to refinance before that break even point or shortly after. If you think you would probably refinance at a better rate in that time, then it makes more sense to take the no closing cost. If you think you'll keep the mortgage longer than the longer you hold it past the break even point, the more money you will have saved.

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Yeah he said the closing cost will be $2000, although the calculator is showing it as $4000 for closing cost, it should take about 4.5 years to break even, but the fact if interest rate will go lower than 2.875 is the question in debate, we would ideally want to stay in that house for at least 10 years before kids go to college. So is this a good rate to lock in for next years and pay the closing cost?

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Keep in mind you may have additional closing costs - have you gotten a Good Faith Estimate? The lender may not be charging any "points", but sometimes still have flat fees of their own (general bs fees, credit check). And then there are appraisal, title insurance, closing services and filing that need to be paid. Credit back for taking a higher rate can cover all of those too. I prefer getting just about all costs covered and taking a higher rate - just because you (probably) won't move doesn't mean you won't have reason to want to refinance at some point. Sinking a lot of money into the lowest rate you can get right now is more of a gamble than I like.

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no didnt get good faith estimate, but he sent an email showing our total out of pocket will be $2000, according to the spread he sent we will be saving $50 a month if we pay $2000 out of pocket.

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Best rates are via the lenders on Zillow Mortgage Marketplace, and you get an instant quote from hundreds of lenders at once (then sort by APR). Find one that has no fees for a refinance.

I've always been successful using this method to find lenders with the absolute best rates/fees (APR).

rated:
tamilgirl77 said:   HiWe bought the house at 4.15 % interest rate for 30 years fixed on a $45000 house with 10% down.My mortgage broker called and said we can do zero cost refinancing for 3.125 for $15 years fixedor2.875% for $15 years fixed with closing cost which he says will be approximately $2000. We have about $395000 loan left.We are planning to stay in this house for atleast 10 years.
Please advice which is better no cost refinancing at higher rate or closing cost at lower rate. I am a complete newbie any advice from expers will help,

  How many years are you into your current mortgage?
  Do you plan on refinancing again in a few years?
  Can you handle the increase in monthly payments?
  How long will it take to break even between the 3.125 vs. 2.875 + closing cost option?

These are all questions you need to ask your lender.  Better yet, ask multiple lenders and see which one is honest and which is just in it for quick buck.

Saving $50/mth by paying $2000 will set your break even point at 40 months - the big question is if you plan on refinancing before that.

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We are about 4 months now since we closed our first home. The big question is if the mortgage will go lower than 2.875 for 15 year fixed. We wont refinance unless it drops way below this rate. As of now we can afford to pay 15 years mortgage as i got a job.

rated:
You might also be interested in refinancing:
To get cash out
To lower payments (with a longer term even if rates are same or higher)
To change ownership (a divorce is never planned very far in advance)

40 months is a lot longer than I'd take for payoff. 12 was about my max, and I've had plenty that were at 0 or paid cash right at the start. In my case, that worked well because rates kept dropping. I agree that scenario seems very unlikely for the next 20 years, but that's a long time to put any money down on my guess.

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Wow, that is a great rate...

I didn't think 15 year would drop below 3.25% again any time soon.
 

rated:
tamilgirl77 said:   HiWe bought the house at 4.15 % interest rate for 30 years fixed on a $45000 house with 10% down.My mortgage broker called and said we can do zero cost refinancing for 3.125 for $15 years fixedor2.875% for $15 years fixed with closing cost which he says will be approximately $2000. We have about $395000 loan left.We are planning to stay in this house for atleast 10 years.
Please advice which is better no cost refinancing at higher rate or closing cost at lower rate. I am a complete newbie any advice from expers will help,

  
What mortgage company is this with?  I might have to get your brokers info, as it is my understanding it is really difficult to get an under $50k mortgage.

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David2k8, I think that was a typo - she later says the balance is $395k

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ArmchairArchitect said:   Best rates are via the lenders on Zillow Mortgage Marketplace, and you get an instant quote from hundreds of lenders at once (then sort by APR). Find one that has no fees for a refinance.

I've always been successful using this method to find lenders with the absolute best rates/fees (APR).
Exactly this -- OP should check Zillow before talking to "his mortgage broker", because in all likelihood he'll save a few grand.

I also believe that (1) one should never pay anything out of pocket for a mortgage (I prefer to get paid instead), and (2) while the rates are so low, a 30-yr mortgage is the way to go, with the difference invested or just saved for a rainy day. The spread between 15- and 30-year mortgage rates isn't that high right now, only 0.50-0.75%.

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BTW a quick search gave me 15-yr at 2.9% with ~$100 lender credit.

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Yes you are right, sorry its a typo, we have about $395000 left in our mortgage

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Never used any online mortgage lender, how safe it is to use the lender listed in zillow market place ?? 

Should I be looking at the interest rate or APR ? 
 

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scripta said:   
ArmchairArchitect said:   Best rates are via the lenders on Zillow Mortgage Marketplace, and you get an instant quote from hundreds of lenders at once (then sort by APR). Find one that has no fees for a refinance.

I've always been successful using this method to find lenders with the absolute best rates/fees (APR).

Exactly this -- OP should check Zillow before talking to "his mortgage broker", because in all likelihood he'll save a few grand.

I also believe that (1) one should never pay anything out of pocket for a mortgage (I prefer to get paid instead), and (2) while the rates are so low, a 30-yr mortgage is the way to go, with the difference invested or just saved for a rainy day. The spread between 15- and 30-year mortgage rates isn't that high right now, only 0.50-0.75%.

  We will be saving by going with 15 year mortgage right? The interest paid for 30 year mortgage is more, correct me if i am wrong,

rated:
You'd "save" even more by paying the whole thing off in cash, but I wouldn't do that either. A mortgage is the biggest, cheapest pile of money available for most people. And it's VERY cheap, even at the 30 year rates. There's a lot of value in locking in these low rates for 30 whole years - and you still get the option of paying it off sooner if you like. You'll get to hold on to a lot of extra cash during that first 15 years too, and that's also worth a lot, assuming you use it wisely. Emergency fund, retirement savings, other investments - lots of ways to put it to work that will easily be worth much more than the interest cost.

The math is clear - borrowing as much as you can for as long as you can is best. Many people are uncomfortable with the idea of a large "debt" like this or don't trust themselves not to blow the available cash on worthless stuff. Aggressively paying off mortgages is not a bad move, but it is objectively worse than stretching them out. At least at the rate differentials that have been available on them for the last 20 years or so.

One way I compare 15 vs 30 year options is to use an amortization calculator to see what it would look like if I took the 30 year option but made payments at the higher rate the 15 year loan would need. It's generally meant that it would take something like 16 years to pay off instead of 15. The extra flexibility is well worth an extra year of payments *IN 2033* to me. And of course I haven't actually made extra mortgage payments, but I've been able to max out retirement savings, add to other investments, and generally have no stress about having cash on hand for the rest of life too.

rated:
tamilgirl77 said:   
scripta said:   
ArmchairArchitect said:   Best rates are via the lenders on Zillow Mortgage Marketplace, and you get an instant quote from hundreds of lenders at once (then sort by APR). Find one that has no fees for a refinance.

I've always been successful using this method to find lenders with the absolute best rates/fees (APR).

Exactly this -- OP should check Zillow before talking to "his mortgage broker", because in all likelihood he'll save a few grand.

I also believe that (1) one should never pay anything out of pocket for a mortgage (I prefer to get paid instead), and (2) while the rates are so low, a 30-yr mortgage is the way to go, with the difference invested or just saved for a rainy day. The spread between 15- and 30-year mortgage rates isn't that high right now, only 0.50-0.75%.

  We will be saving by going with 15 year mortgage right? The interest paid for 30 year mortgage is more, correct me if i am wrong,

  This depends what you would otherwise do with the money rather than paying it off.  This is referred to as "opportunity cost".

For example, long term historical annual growth rate from the S&P500 are around 7%+inflation.  If you dump the excess money into an S&P index fund (for example) over those 30 years rather than aggressively paying the mortgage, then you will be highly likely to end up with much more assets at the end of the 30yrs.  Basically, borrowing at 4% to earn ~8%.  The SHORT TERM market returns are more volatile (the value might drop 50% in one year, but you must leave the investments alone.  It's the long term returns you're after - they will recover but if you withdraw/sell you will likely miss out on the recovery), but a 30yr mortgage generally means you're taking a 30yr view and the long term risks are lower and 7%+ is a more reasonable expectation.

If you would instead stock the money in a 1% savings account, then obviously the shorter term and more aggressive payoff makes more sense.  It makes no sense to borrow at 4% to "earn" 1%.  Or if you'd simply spendthe money rather than divert to investments/retirement funds.

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tamilgirl77 said:   Never used any online mortgage lender, how safe it is to use the lender listed in zillow market place ??Don't be a Luddite. Zillow marketplace has reviews.

tamilgirl77 said:   Should I be looking at the interest rate or APR ? APR includes closing costs. If closing costs are $0 or less (as they should be on a "no fees, no points" loan), APR equals interest rate. If APR is higher than interest rate, it means that closing costs are > $0. Use the Filter on the Zillow results page for the "no fees, no points" options. Sort the results by APR (this is the default sort order if you select "no fees, no points").

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scripta said:   
tamilgirl77 said:   Should I be looking at the interest rate or APR ? 
APR includes closing costs. If closing costs are $0 or less (as they should be on a "no fees, no points" loan), APR equals interest rate. If APR is higher, then closing costs are > $0. Use the Filter on the Zillow results page for the "no fees, no points" options.

  Note that zillow search's closing costs specifically exclude third party costs (which may make up nearly all of closing costs).  APR from some lenders elsewhere may include third party estimates while others do not.  Have to compare net lender fees to equally weight quotes from multiple sources.

Ideally the APR is meant to alllow direct comparison of total loan costs over term, but when some quotes exclude things from it it is not quite that simple.

rated:
We negotiated the rates to 2.875 with zero closing cost for 15 years fixed, is this a good rate?

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tamilgirl77 said:   We negotiated the rates to 2.875 with zero closing cost for 15 years fixed, is this a good rate?how does it compare with what you see on zillow?

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its pretty close to zillow, this is the lowest rate in zillow


Interest rate 2.750 %
APR 2.937 %
$66 in fees

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The numbers you've provided cannot be compared to each other, as both are incomplete. Also I'm pretty sure you're not looking at the right quotes on zillow because you didn't follow my earlier instructions.

2.75% and 2.875% are pretty close in absolutes, but it's a difference of > $450/yr in interest on a $390K loan.

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Hi all,

thank you all for the replies, we decided to lock 2.75% for 15 years with zero out of pocket. Appreciate all the replies

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What lender is doing this? Is this possible in Ohio

rated:
Johst231 said:   What lender is doing this? Is this possible in OhioNot if you can't read...

rated:
So getting a no/low cost refi is possible with >80% LTV? How about >90% LTV?

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