Someone talk me down from a Refi

[AndtheStars]

Here's the backstory:

DH and I moved in June.  Sold our house, bought a new house and currently have about $60,000 equity in the new house.  30 yr fixed rate mortgage at 5%.  Payment per month equals about one paycheck.  We both work and our paychecks (bi weekly, so 4 checks) are about the same amount because of health care and retirement deductions from DH's check.  We have more cc debt than I want to publically admit but we're working on paying it off and should have it paid off in about 12 months.  We have an emergency fund. 

I opened the paper today and for the first time realized how ridiculously low refi rates really are.  I know that we have a good rate on our current mortgage but I did the refi calculator thing and if we do a 15 year refi, our payments will increase by $250 a month which I think we could swing with some really tight budgeting and we save $84,000 in interest.  If we do a 20 year refi, payment will only go up about $100 which we can definately swing with tighter budgeting.  I know it sounds crazy to refi 6 months after you get a loan but I'm so in love with the thought of taking 10 to 15 years off the mortgage in one swoop.  The costs of the refi are only about one month's payment and I'm thinking that since we had all the reports/appraisal/credit checks etc. done 6 months ago, they might still be applicable.  Please tell me I'm nuts so I can stop thinking about not paying $84,000 in interest and being able to have the house paid off before DS gets to college.      

[diana_of_the_dunes]

Well...  Unless your closing costs would be extremely high for some reason, I think it's probably a good idea.  I know, not quite what you were asking for...     But considering how much money you would save, and you almost certainly wouldn't need a new appraisal (here they're good for 3 years), I can't really think of any reason not to.   They will run a new credit check, so if the new payment would result in an unfavorable debt-to-income ratio, you might have problems.  But if that's all good...  I say go for it.

[painefaria]

I would look at the snowball caculator first before comitting to a larger payment.  My fear in this market that overextending yourself might be a bad idea.  You can always increase the payment on the mortgage that you have adding the amount that you have on hand, which will do the same thing, but you have the flexability to pay a mortgage amount that you can comfortably pay right now.  You don't want to lock youselves into something that you may not be able to do if something big comes up.

[laohaire]

I might have missed something but - why not just make those extra payments without refi-ing? Pay it off in 15 or 20 years, don't pay the fees for the refi.

I am all for paying off a mortgage as quickly as possible, but if you keep the 30 year mortgage you have the advantage of a little more leeway if you come on hard times. You CAN pay an extra $100 or $250 a month if you choose. But if you have a big bill or a job loss, you're not on the hook for it.

Without more information, I would definitely keep what you've got and simply increase your payments.

[Carson]

I'm not going to talk you down, but suggest a combo of what ppl above are suggesting. It's also what I am doing and therefore the best advice.  ;)   (kidding)

I would explore refi with your current lender to see what kind of interest rate you could get on a 30 year loan, and then use a principal payment calculator to determine what happens if you just make additional principal payments.  You can't get the lower rate without refinancing, I don't think.

We could swing a refi under 15 year loan, but want to be protected in case I take early retirement with the next baby.  I don't feel comfortable committing to the 15 year loan for reasons others posted.

[heatherdeg]

Originally Posted by laohaire 

I might have missed something but - why not just make those extra payments without refi-ing? Pay it off in 15 or 20 years, don't pay the fees for the refi.

I am all for paying off a mortgage as quickly as possible, but if you keep the 30 year mortgage you have the advantage of a little more leeway if you come on hard times. You CAN pay an extra $100 or $250 a month if you choose. But if you have a big bill or a job loss, you're not on the hook for it.

Without more information, I would definitely keep what you've got and simply increase your payments.

:yeah  THIS! THIS! THIS!  And I say this having been in the position of buying a house that was WELL below our means on a 30yr mortgage just 8 months before losing 2/3 of our income.  NOBODY saw THAT coming--I can assure you!

Although you won't save the exact same amount if you just make the extra payments, it's darned close.  Certainly close enough that it's not worth the risk of pulling the 15 or 20 yr mortgage commitment.  

This is a good calculator for seeing how the different payments affect your overall interest:  http://www.drcalculator.com/mortgage/

[sunnysandiegan]

I concur with laohaire and heatherdeg.

I'm not sure what rates you are looking at, but what I've seen lately is barely half a point below your current mortgage rate. Definitely not worth the fees nor the higher monthly commitment when you still have other debt to pay off. It is very likely you haven't even broke even on the fees you paid for your first mortgage. Adding to them is really increasing the total cost of your mortgage. Unless you go with the same lender, you'll still have most of the same expenses all over again (except the appraisal possibly).

You can totally achieve the same basic effect by paying extra to principal on your own without refinancing to a shorter term. Just check your mortgage terms to be sure you don't have any prepayment penalties and to see how your lender applies payments. Your current rate and the new rate are just not that much different. The money savings comes from the higher payments due to the shorter time frame.

Meanwhile, I would recommend NOT paying more towards the mortgage until you have other higher cost debt paid off first. Pay off the smallest debt or highest rate debt first. There are proponents of both ways: one is a psychological boost which can often spur on faster debt repayment (and it frees up some monthly cash faster for more debt repayment) and the other is financially savvy but can sometimes take too long to reap the "good feelings" and visual rewards and people lose momentum. Take this time to get a firm handle on your finances and work hard to ditch the consumer debt noose. Then, you can focus on the mortgage.

[Mulvah]

I would find a good mortgage calculator, compare the loans, determine the actual costs of the refinance, and the actual (well, near actual) cost of your new payment.  As someone else suggested, I would check with the bank that owns your loan to see what rates you could get and also check with other local mortgage companies to see what rates you could get.

I can tell you what I did - I refinanced to a 20-year mortgage.  I desired a 15-year mortgage, but with the economy and the unknowns, I felt it was best to go with the middle ground.  It has worked out really well for us.  We pay $20-30 more each month and I am still able to pay extra on the mortgage each month.  Even if that won't be the case for you, I don't think $100 more is a lot to ask to cut ten years off the life of your loan.  Now, if you can't do it, you can't do it.  But, it sounds like you can, especially since you are able to pay off your debt in 12 months and have an ER fund.  All that said, I take risks with money, so my opinion is based on what I did do and would do with my personality. 
 

Originally Posted by laohaire 

I might have missed something but - why not just make those extra payments without refi-ing? Pay it off in 15 or 20 years, don't pay the fees for the refi....

This doesn't exactly equal the same thing and it will highly depend on the actual numbers. 

[heatherdeg]

Originally Posted by Mulvah 

Originally Posted by laohaire 

I might have missed something but - why not just make those extra payments without refi-ing? Pay it off in 15 or 20 years, don't pay the fees for the refi....

This doesn't exactly equal the same thing and it will highly depend on the actual numbers. 

You know, I knew it didn't equal exactly the same (although it is close) BUT when you factor in the costs to close on the refi, it may be the same if the rates are close.

[Poddi]

Is it likely that either of you might lose your job?  Because if one of you do, then your mortgage will suddenly become more than 50% of your take home pay, which will be very difficult to manage.  I personally would not try to make it higher.  I agree with the additional payment thing.  You can simply arrange to increase your monthly payment by a certain amount (my bank allow up to 100%) without refinancing.  That's what we did with ours.  BTW our mortgage is 5.5%, so not exactly low.  But after calculating the penalty we found it's not worth it to refinance.  We'd just pay it off sooner to save money.

[mattemma04]

We did a refi in the summer and I would not recommend it.They charged for every little thing(mortgage survey,apprasial,checking this and that) no slack at all by using previous info. The closing costs were higher than what they estimated. I would pay extra on the principal instead of doing a refi. We dislike our current lender and plan to pay our 15 mortgage off in 10 or less.

[mirlee]

We have refinanced twice.  Our rate is now way below 5%. We are at 4 1/8th.  I would suggest shopping around with the lenders.  If you have a good Fico score, you might be able to get a darned good rate. We did our refi with NO closing costs or appraisal fee.  My boss refinanced his house about three months after he moved into it and has done it twice since.  Weigh your options, look at the what the offers are,  and talk to the lenders.  

[ChristyMarie]

We refinanced this house about 5 months after we bought it.  There was a huge drop in rates.  There was a small fee but the lower rate more than made up for it.

Look at all the calculators - run the numbers - and consider refinancing at 30 years and paying extra when you can instead of locking into a larger payment.  You can always pay extra to get it paid off sooner - but if you lock into a higher payment and something comes up, it isn't possible to pay less, ya know?

[3 little birds]

Wow, refi costs in your state must be low.  I used to be a mortgage broker and in my state they were never under 5K.  IME, even if they say there are no costs, the costs have been worked into the rate (meaning you would pay a lower rate if you paid the costs up front).  If it were me, I would probably pay my current mortgage as if it were a 10 or 15 year mortgage so I could avoid the costs and hassle of a refi, and have my 30 year mortgage to fall back on in case of an emergency.

[Poddi]

Maybe banks in US have better refinancing policy?  Our penalty would have been 8 - 10 k, because they were based on "interest difference" for the rest of our mortgage, so the lower the current interest is the more the penalty is.  Plus they use standard book interest for the original interest, not the 5.5% we got which was a "special", so the difference would be even bigger.  This apparently is a common practice in banks here to guarantee they'd get their interest no matter what.  As far as I know almost nobody bother to pay the penalty and refinance here.  But then most mortgage terms are only 5 years in Canada, so they're not locked down for long. 

[cschick]

Run the numbers with you paying already paying the extra a month.

We're one year into a 20 year mortgage at 5%, and pay an extra $300 a month to principal. While we could currently refinance into a 15 year at say, 3.5%, and have the "same" payment (our current payment + the $300 extra we put in per month) it doesn't gain us anything at all and loses us flexibility. With our current repayment schedule and our extra to principal, we are on track to pay off our mortgage in just over 15 years. But if we desperately need to at some point, we can pull back from paying that extra $300/month . . . while if we refinanced, we'd be locked into having to pay it.

[AndtheStars]

Thanks so much for the replies!  Heatherdeg...that's an awesome mortgage calculator.  I totally see the wisdom in just keeping our mortgage the way it is now and adding on extra payments in case something happened.  It's just seeing that huge savings in interest number and taking off 10-15 years of the mortgage in one fell swoop that is so tantilizing to me.  I also tend to be a little cavalier with money so the risk is part of the reward for me.  I have a call into my lender, whose a local bank, to see what they could do for me.  I definately am a little less enthusiastic than I was when I posted.  I'll keep updating. 

[AllyRae]

We built a house and moved into it in March of this year, but we are in the process of refinancing right now because rates went really really low.  Closing costs are being rolled into the loan (and aren't that much anyhow) and it would save a ton on interest.  I'd definitely encourage you to do it if you can...there's no reason to pay extra on a loan if you don't have to, even if you just got the loan.

Originally Posted by diana_of_the_dunes 

Well...  Unless your closing costs would be extremely high for some reason, I think it's probably a good idea.  I know, not quite what you were asking for...     But considering how much money you would save, and you almost certainly wouldn't need a new appraisal (here they're good for 3 years), I can't really think of any reason not to.   They will run a new credit check, so if the new payment would result in an unfavorable debt-to-income ratio, you might have problems.  But if that's all good...  I say go for it.

We needed an appraisal to do our refi, and we only have lived here since March.  But even that wasn't that expensive.
 

[sunflower.mama]

We always do no closing cost loans.  Yes the interest rate is a bit higher to take the closing costs into account, but you're then able to refi as many times as you want without any financial penalty.  So if the interest rate has dropped on a 30 year fixed, I'd do a no closing costs loan on the 30 year, and then pay extra to principle.  That way you get the lower interest rate, quicker payoff, and no additional committment.

And yes Poddi - mortgages here in the US are different.  Prepayment penalties such as you are describing are rare. 

Originally Posted by 3 little birds 

Wow, refi costs in your state must be low.  I used to be a mortgage broker and in my state they were never under 5K.  IME, even if they say there are no costs, the costs have been worked into the rate (meaning you would pay a lower rate if you paid the costs up front).  If it were me, I would probably pay my current mortgage as if it were a 10 or 15 year mortgage so I could avoid the costs and hassle of a refi, and have my 30 year mortgage to fall back on in case of an emergency.

[shoes]

where do I find a no closing cost refi?  Any major banks out there that regularly do them?