Refi into a 30yr fixed when 8 years in. Adv needed

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wiredinoc_IHB

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Hi IHB Brethren--



Question for you finance guru's - I purchased a home in Costa Mesa in 2001, and refi'd into a 5.75 30 year fixed loan in 2002. I am currently 7 years into my payments, and interest rates are intriguing. I've been offered a 4.75 30 year fixed by a broker, and I'm totally confused on if this makes sense or not. My goal is to keep this home until I retire either as a primary residence, or a rental.



My current loan amount is $245k with a 1500/mo payment. Refi will drop the payment about $250/month. BUT this resets my payments back to 30 years. I found a calculator somewhere that says this will actually end up costing me an additional $50k over the life of the loan due to the additional payments. Seems to me this is not logical and might amount to a wash when all is said and done. I'm a computer guy, not a bean counter, so please don't hammer me too hard ;-)



Does it make sense to refi, or possibly go with a 20 year fixed? I'm lost. Please help!



Thanks
 
We can probably give you a few scenarios with a recommendation or two, but something's not adding up. $245k principal and $1500/month payment @ 5.75% means you've only paid off about 40 months so far, kind of far from 7 years. Verify the numbers.
 
Another option would be to refinance at 4.75 30 year fixed, but keep paying the same amount as your are today. You will come up ahead.
 
[quote author="Roo" date=1239229526]Another option would be to refinance at 4.75 30 year fixed, but keep paying the same amount as your are today. You will come up ahead.</blockquote>


I think this is the best recommendation especially in times of uncertainty about job security. If you get the 30 year loan you have more flexibility. You will have a lower monthly payment but you can treat it as a 15 year loan by making additional payments towards principle(just make sure the loan agreement allows this without penalty) But if you go with the 15 year loan you are stuck with a higher payment. Right now 15yr and 30yr rates are about the same so the 30 yr is the safer option.
 
[quote author="wiredinoc" date=1239196542]Hi IHB Brethren--



Question for you finance guru's - I purchased a home in Costa Mesa in 2001, and refi'd into a 5.75 30 year fixed loan in 2002. I am currently 7 years into my payments, and interest rates are intriguing. I've been offered a 4.75 30 year fixed by a broker, and I'm totally confused on if this makes sense or not. My goal is to keep this home until I retire either as a primary residence, or a rental.



My current loan amount is $245k with a 1500/mo payment. Refi will drop the payment about $250/month. BUT this resets my payments back to 30 years. I found a calculator somewhere that says this will actually end up costing me an additional $50k over the life of the loan due to the additional payments. Seems to me this is not logical and might amount to a wash when all is said and done. I'm a computer guy, not a bean counter, so please don't hammer me too hard ;-)



Does it make sense to refi, or possibly go with a 20 year fixed? I'm lost. Please help!



Thanks</blockquote>


Is the 4.75% rate with no points? What is the total cost of the refi? I assume you have been given a GFE.



Actually, if you are keeping the home for the long-term, the refi totally make sense. It will save you approximately $1700 per year on an after-tax basis. A lower rate is always better if you break-even on the cost of the refi in a fairly short amount of time. You can add'l principal, like others suggested, to counter the longer amortization period.



With stock market at relative lows, I'd take that extra $150 per month free cash after the refi and slam it into equities via more retirement savings for the next few years at least.
 
Refi for 30. Put a 13th payment in per year which cuts about 8 years off the loan. You can always throttle back some if the economy or your renters don't work out as anticipated. I also concur with IP above. If you have a 401k with a match from your employer, take your rate differential and supersize your 401k / Pension contributions. Where else might you get $ for $ return on your money in this market?



It's rare for any one to pay off a loan. That goal shouldn't always be the first focus - IE what happens in 20+ yrs or so impacting what you do today. That said, it's OK to think long term if you're 50yrs or older. Play a bit today with your capital (reasonably.... of course) if you're under 40.



My .02



Soylent Green Is People.
 
my opinion: just pay off the existing mortgage. Sure you can get 1% but what about the new fees and surprises with the refi? Brokers aint free.



I dont see why you would refi 1 year into your original mortgage.



Pay off the mortgage as fast as possible. You can willingly make higher payments to speed up the payoff date. Dont borrow against your house.



Worst case scenario interest rates sky rocket and you lost a 1% a year opportunity. Boo hoo. Best case scenario, people start realizing that subprime is the tip of the iceberg, and interest rates are forced down. Think about it, we are already doing quantitative easing, the next logical remedial action will be negative interest rates, they are nearly the same thing but with different assets.



Just because interest rates are at historical lows doesnt mean it wont go lower. there is at least .25% to go.



Not worth your time, if you want to save money over the long term make higher payments on the mortgage.
 
The question you need to ask yourself is do you want leverage or not? You can always pay off the loan early so extra payments "over the life of the loan" is a moot point. If you don't have enough money to pay off the loan early then it is also a moot point since you are saving additional $250 every month.
 
[quote author="ipoplaya" date=1239235790][quote author="wiredinoc" date=1239196542]Hi IHB Brethren--



Question for you finance guru's - I purchased a home in Costa Mesa in 2001, and refi'd into a 5.75 30 year fixed loan in 2002. I am currently 7 years into my payments, and interest rates are intriguing. I've been offered a 4.75 30 year fixed by a broker, and I'm totally confused on if this makes sense or not. My goal is to keep this home until I retire either as a primary residence, or a rental.



My current loan amount is $245k with a 1500/mo payment. Refi will drop the payment about $250/month. BUT this resets my payments back to 30 years. I found a calculator somewhere that says this will actually end up costing me an additional $50k over the life of the loan due to the additional payments. Seems to me this is not logical and might amount to a wash when all is said and done. I'm a computer guy, not a bean counter, so please don't hammer me too hard ;-)



Does it make sense to refi, or possibly go with a 20 year fixed? I'm lost. Please help!



Thanks</blockquote>


Is the 4.75% rate with no points? What is the total cost of the refi? I assume you have been given a GFE.



Actually, if you are keeping the home for the long-term, the refi totally make sense. It will save you approximately $1700 per year on an after-tax basis. A lower rate is always better if you break-even on the cost of the refi in a fairly short amount of time. You can add'l principal, like others suggested, to counter the longer amortization period.



With stock market at relative lows, I'd take that extra $150 per month free cash after the refi and slam it into equities via more retirement savings for the next few years at least.</blockquote>


What if your tax deferred retirement accounts are already maxed? Would you put into a Roth even if you expect to have a much lower income at retirement? Our lender finally got the details of the refi at 105% of current value and it looks like we'll be saving about $300/mo. It doesn't make sense to buy equities with only $300 at a clip, but some of the funds have lower amounts if it's in an IRA.



My gut says to put the extra money at the mortgage, but I know that's not the smartest thing to do. Would you still invest it if you had 42 more months on a car loan at 6.25%? I was thinking that it might be best to pay the extra towards the auto loan.
 
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