To refi or not to refi, that is the question...

[cristeen]

So I just finished making all the phone calls to get the details. I crunched the numbers, and this is what we're looking at:

Option A - Not to refi:
Paying the regular payment on our current 1st
Paid off: 310 months.

Option B - Refi 1st, keep existing 2nd:
Payment: same as Option A
Principal: +$5K (closing costs)
Interest: -0.75%
Paid off: 280 months
Saved over life of loan: $83,300

Option C - Refi 1st and 2nd into new 1st:
Payment: same as Option A
Principal: +$17K
Interest: -0.75% on the 1st, +1.875% from current on the HELOC
Paid off: 310 months
Saved over life of loan (compared to Option A): $43,700

The details: Option B is obviously looking the best for numbers to me. But, the problem is that the bank holding our 2nd is currently taking 35 business days to process paperwork - that's 7 weeks. That makes Option B difficult, at best. But I'm not sure Option C is really worth it, just because of the large increase in principal, and we'd be giving up the HELOC, which is essentially a stash of emergency money. I have no idea if we'll be able to get another HELOC down the road.

Any input?

ETA: I guess I should point out that Options B & C do actually have lower minimum payments than A, but these numbers were crunched purely on the basis of keeping the same payment. The lower minimums though do make it a little easier on the budget, should a crisis arise. Option B's minimum is $147 less than Option A. Option C's is $121 less than Option A.

[suburbmom]

I would refi if possible but try to refi without closing costs. We are in the process and have refi it to 4.99 for a 30 year loan. There is no closing costs for us so any savings is complete savings. HTH

[mightymoo]

We also refinance with no closing costs. Because we do it this way, if the rates lower, we just refinance again. (As frequently as every 3 months). I think the only time to pay closing costs is if you really believe the rates will never ever ever go lower than you would get with the closing costs. We bought our current house in May and are currently on our third mortgage, dropping us 0.75% and it hasn't cost us anything at all.

[sunflower.mama]

Another vote for finding a no closing costs loan. We just did one ourselves. I can't believe that you would have to pay $17,000 for closing costs!

[choli]

Originally Posted by sunflower.mama

Another vote for finding a no closing costs loan. We just did one ourselves. I can't believe that you would have to pay $17,000 for closing costs!

Is the $17K closing costs, or the principle owed on the HELOC, though? And how much of a payment on the HELOC would no longer need to be repayed under Option B?

[cristeen]

Where on earth are you ladies find no closing cost loans in this economy?

Originally Posted by choli

Is the $17K closing costs, or the principle owed on the HELOC, though? And how much of a payment on the HELOC would no longer need to be repayed under Option B?

The $17 is the same $5K in closing costs + the $12K principal of the HELOC.

The HELOC would still need to be repayed under B, but right now the payments are less than $30/month because the interest rate is so low, so I've been paying triple, trying to knock it down.

[mightymoo]

Originally Posted by cristeen

Where on earth are you ladies find no closing cost loans in this economy?

No closing costs aren't a function of the economy - my broker who does them is as busy as ever since interest rates are so low. They work like this - lets say I could get a 5% mortgage with $5K in closing costs. I can get something like a 5.25% mortgage with no closing costs. Since, everything being equal since other loans are going for 5% my broker can sell the 5.25% loan to the mortgage company for more than he could sell the 5% loan. He takes the extra money he receives and pays my closing costs. So, there is a downside, the rate is not as low. The guy I use though gets it very close. You do need to be careful, some brokers will abuse this - where my guy would sell me a loan about .25% more than the average closing cost loan, a shady broker might try to give you one that was .75% higher, he'll get a lot more money for that loan.

The thing is, since I didn't pay anything for my 5.25% loan, when the rates drop again, I just refi again. Whereas the person who paid for their 5% loan would also benefit from refinancing, but they paid $5K to have that lower interest rate to begin with, so when we both refi to lower rates, I didn't pay anything for my first loan, so I'm not throwing that away when I refi.

[cristeen]

Originally Posted by mightymoo

No closing costs aren't a function of the economy - my broker who does them is as busy as ever since interest rates are so low.

I actually know how they work, but the mortgage brokers around here don't seem to be offering them. That may in part be a function of the number of foreclosures in our area, though - there's not a whole lot of business in the mortgage industry at the moment around here.

And the refi is only worth it because of the interest rate we were offered. It wouldn't really be worth it for less, we have a great rate as it is. The only reason we're even considering it is that rates are pretty much at their lowest in decades. The difference between our existing and what we were offered is only 0.75%