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Would you refinance?

post #1 of 27
1/15/09 at 5:01pm
Thread Starter 
Here's the situation, we currently pay a whopping $1165 a month on our $15-year mortgage at 5.5%, along with $150 month on a HELOC at a variable rate (currently 4.5%, but who knows for how long?). The housing payments are 1/2 our take-home income for the month, sometimes more (my job is intermittent). We've been doing it, but it's getting HARD. We can refinance both into a 30-year loan at 5.125% and have payments around $800/month. We would plan to pay more when we can, but not feel so strapped when it's a hard month (or season). Would you do it?
Also, our FICOs are around 705 and 750, and debt to income ratios for the new loan are 20% for the loan and 34% total. We have over 20-30% equity in the property as well. What are the odds of getting it approved in today's lending environment?
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post #2 of 27
1/15/09 at 5:19pm
That sounds great to me if you can lower your interest rate as well as your payment. In this economy you never know what may happen and it is great to have the flexibility of lower payments. You can always pay more towards the principal when you can.

I don't think you would have any problem getting approved. Some lenders want to see a score above 720 for the best rates, so you may have to shop around a little, but my husband's FICO score is a little under 700 and we are going through the process right now and have had no problems. Also, you really have three scores with the three different reporting agencies, and not all lenders use the same score, so some lenders may be looking at a better score than you think.

Do shop around for the best rates and lowest fees, rates are going down right now and you should be able to get a good rate! We are refinancing at 4.875% with no points.
post #3 of 27
1/15/09 at 6:53pm
OP, how many years do you have left on your 15-year mortgage?
post #4 of 27
1/15/09 at 8:39pm
How much would refinancing cost?
How much do you owe on the HELOC?
Can you refinance just the mortgage and not the HELOC at the new rate?
How long do you have left on the 15 year mortgage?
post #5 of 27
1/19/09 at 10:18am
Thread Starter 
We're about 4.5 years into our 15-year mortgage. We have about 15,000 on the HELOC and the new interest amount on the 30-year is less than what we're currently paying in interest/month--so when we can keep making the same payments we have been, we'll still be a little further ahead. This includes paying .625 points to get the rate--total fees around $2000, including the points. If we are approved, we're financing up to 75% of LTV at the new rate--so anything over what we currently owe, will go to pay off the HELOC. If the appraisal comes in lower than expected, less-to-none of the HELOC will get paid off with the new mortgage. We're hoping to be appraised around $140,000, since the house across the street with same floor plan, fewer updates than ours has--like windows, new flooring, remodeled bathroom--sold for $150,000 at the end of August. I know home values are dropping, but with this being the most recent and closest comp, I'm hoping we're still in that range!
post #6 of 27
1/19/09 at 12:23pm
My $0.02: no way would I refinance in that scenario. Your 1st mortgage payments are down to meat, now, really cutting into principal each month. Refinancing in your sitch is trading 10 years of payments, into THIRTY years - you're increasing the total amount to pay by a lot (I can't do math this early in the morning but I think you'd be DOUBLING what you owe).
post #7 of 27
1/19/09 at 12:36pm
Thread Starter 
Thank you, Seasons. We are still planning to put the same amount toward the payment when we can (winter is when it's hard for us--DH is in construction), the difference is an $800 have-to-pay payment instead of a nearly $1300 have-to-pay payment each month. We'd be putting more toward principal than we currently are with the lower rate, and having the option of only paying the $800ish when we have to stretch to pay more. By stretch, I mean, we have months where our living expenses (gas, groceries) go on credit card. I hate having to carry that balance, and am looking to avoid that, if possible. Once we can stop that bleeding, the plan is to get rid of other debt (said credit cards), but with high fixed expenses it just doesn't seem possible.
post #8 of 27
1/19/09 at 12:47pm
while i understand what seasons is saying, and it's good advice, i think the quality of life you will gain by stretching out your payments is worth it. yes, it's obnoxious to pay an additional x amount of interest on a home loan, but, isn't having the stress of the large payment looming over you gone worth it?

however - i would only advise you do this if you plan on staying in the house. if you know you are going to sell/move in the next few years, don't do it - keep making the big payments and building up equity.
post #9 of 27
1/19/09 at 1:18pm
Seasons is correct, but we made a similar decision to refinance, and I have no regrets. We ended up deciding that, yes, we're increasing the amount we're paying back over the life of the loan, but having that extra breathing room every month is SOOOO worth it. With a few extra hundred dollars a month, we have options, and with that comes my peace of mind.
post #10 of 27
1/19/09 at 1:54pm
Quote:
Originally Posted by Seasons View Post
My $0.02: no way would I refinance in that scenario. Your 1st mortgage payments are down to meat, now, really cutting into principal each month. Refinancing in your sitch is trading 10 years of payments, into THIRTY years - you're increasing the total amount to pay by a lot (I can't do math this early in the morning but I think you'd be DOUBLING what you owe).
Yeah That....
post #11 of 27
1/19/09 at 2:03pm
Thread Starter 
I understand that in making the minimum payments, it would knock us back to 30 years to pay off the balance, but if we make the $500 prepayments to the principal most months, the lower interest would actually help us, right? It's largely a matter of eliminating stress and not growing a credit card balance when we have a hard month. Is it still a bad idea?
post #12 of 27
1/19/09 at 2:25pm
If you feel like you and your DH have enough discipline to keep making payments towards principal when you have the extra funds, I would do it.
post #13 of 27
1/19/09 at 2:32pm
That is a tough call.

Personally, I would keep searching for better rates and points and fees. Check credit unions, especially. Join one, if necessary.

Going from 10 years to 30 years of repaying a mortgage is a mighty big financial jump for peace of mind. I personally would not do it without first trying other alternatives, such as tightening the belt another notch in all expense areas and increasing income sources, even if just during the winter. Think about where you will be in 10 years. Having a paid off house in that timeframe will really open financial doors. Thirty years is such a long time to wait for such financial freedom, even if you plan to pay more than the minimum payment. You'll knock off years, but it'll be sporadic and will you ABSOLUTELY pay extra every month during the "good" seasons? Only you know yourself and your DH, though.

Have you considered refinancing a new 15 year mortgage? Can you find a better rate than your current one that has low/no points? Fees are often much lower at credit unions.
post #14 of 27
1/19/09 at 2:35pm

Suggestion

Can you do another 15 as a compromise to most of the postings?

If not, I would agree with Seasons

Good luck deciding.
post #15 of 27
1/19/09 at 2:38pm
Have you compared amoritization tables? Plug the actual numbers into a calculator, and see where you end up. I think that, even with the lower interest rate, and paying extra principal, you'll still end up paying quite a bit more over the life of the loan if you refinance. Seasons already explained why. At the beginning of ANY loan, the majority of your payment is going to pay interest. The further into the loan term you are, the less interest and more principal you're paying. So if you start all over with a new 30 year mortgage, you're going to start all over again with paying interest. The first couple of years of your new 30 year mortgage, you're probably going to be paying $700+ in interest and less than $100 towards principal each month.

I don't know the actual loan amounts, so I can't crunch the exact numbers for you, but try something like this http://www.bankrate.com/brm/mortgage-calculator.asp to figure out the numbers for yourself. If you have the amoritization table for your current 15 year mortgage available online on the lender's website, compare the actual numbers to the proposed numbers for the new 30 year mortgage from the calculator. That way, at least you'll be making an informed decision. You may decide that you prefer the monthly comfort of a lower mortgage payment that comes with the 30 year loan, or you may decide that it's worth it to struggle through for the next 10 years so can save $100K+ over the life of the loan and have the house paid off before your kids go to college.
post #16 of 27
1/19/09 at 2:52pm
Thread Starter 
Thank you for the amortization table link! The difference (including rolling in our $2000 in fees/points) if we pay the extra $500/month every month--which is the goal, but if we have to pay lesser on rare occasion to keep from growing other debts--is a payoff in December 2019 instead of the current payoff in October 2019. We are very disciplined to keep making those payments--part of why carrying those credit card balances is so bothersome to us. We also have cut just about every other expense possible, and would rather not have either of us take on another job. I do in-home childcare and intermittent work for the federal government along with having 3 kids 3 and under. DH is an electrician, and aside from the winter, he has side jobs come up and fairly consistent overtime--we'd hate for a second job at a lower rate to cut into that.
post #17 of 27
1/19/09 at 2:58pm
It is a tough call, but I wonder if you would be able to make the payments on the loan as it is now, even if this means to periodically pay for bills with credit cards (maybe also tightening the belt a notch or two...) My only concern for the 30 year loan is this: what if things stay tough for a while and you really can not make many extra payments and end up paying the house over (close to) 30 years. Where do you see yourself then? Will you have to pay for college, will you be near retirement? I think it is very difficult to make mortgage payments during retirement. Anyway, money is money and if you think that your anxiety and quality of life would improve drastically if you had another $500/month to spend, then I think you should go ahead and do it.
post #18 of 27
1/19/09 at 3:13pm
my personal opinion -

do the refinance, cut up the credit cards, then take the money you would put toward the extra mortgage payments and pay the hell out of your credit card debt and get rid of it.

then, start living on a cash basis. put $100 per month (or whatever) into an emergency savings account and take all the extra money you have and pay extra on the principal.

i'd much rather have some wiggle room in my budget. i know someone who was trying to be very aggressive in paying off her home and one seemingly simple car accident had it all blow up in her face.
post #19 of 27
1/19/09 at 3:26pm
Thread Starter 
Catuboda, that's totally the plan! Between our tax refund (nearly $6,000, all of it child tax credit, EITC, and Stimulus payment for DS born in Nov.--we have our withholdings at $0), and a few rounds of my job (I make about $500 every 6 weeks or so), we'll have credit cards nearly paid in full. I want to keep it that way once we get there though! We have had one major expense after another for nearly 2 1/2 years--to the tune of $500-$2500 at a time and I hate seeing things go on credit, even though we're building good equity in our home. My other fear is the "what if" we CAN only pay the $800ish for the long term? Yes, it will take forever to pay off the house, but we'll still have our house, right? I'm afraid if the s--- keeps hitting the fan, we could be in very real danger of going deep in debt just to pay the mortgage, or having to choose to lose the house altogether. That's not at all in our planning, but as the economy continues to tank, it's definitely a thought that crosses my mind. If DH were to be laid off, unemployment would just barely cover the mortgage and nothing else!
post #20 of 27
1/19/09 at 3:58pm
Quote:
Originally Posted by Mama2CarolineLydia View Post
I understand that in making the minimum payments, it would knock us back to 30 years to pay off the balance, but if we make the $500 prepayments to the principal most months, the lower interest would actually help us, right? It's largely a matter of eliminating stress and not growing a credit card balance when we have a hard month. Is it still a bad idea?
Have you run the numbers on a 20 year loan? Or refinancing to another 15 year?