[Oneill474]

I have a 10.5% fixed mortgage. But to refinace it to a 6.5% rate
Would not be worth it. With various fees, sometime they called them lenders fees, closing cost, points. And then you have the interest rate
Which depends of your credit rating.

The mortgage payment is only $474.00 a month. It's the taxes and insurance that are the main expense of the mortgage payment.

Even for senior citizens and the reverse mortgage program, there again
The taxes and insurance are more than the mortgage payment itself.

Do you agree you must factor in the expense of refinancing before you commit yourself

[Fr_Chuck]

On any loan, and esp in home finacing, the lender is reqjired to supply you the true cost of the loan, which includes all points, fees and closing costs.

There are lenders who do not charge points and for refinance don't have lending fees, Points come in normally if a lender is considering selling the loan on the market and now are added by many just as a way to earn more money.

When you are looking at borrowing money the better your credit the better deal you can get. With a local lender, everything is able to be in a deal, you tell them what you want, and shop around.

I did a refinance this year from my ARM and I did it with the current lender I had, basically I got it pre approved somewhere else, went to them showed them, told them I would move it, and they begged me with a great offer to keep the loan. I had to pay a 100 dollars for a new appraisal, which was refunded when I did the refinance. And no closing costs at all, they did all the paperwork so we did not even need a closing agent

[KMSRyana]

Also, consider your ability pay over the $474.00. If you are able to do so, you may consider a shorter loan. Most lenders will only tell you about their 30 year mortgages, when they also offer 20 and 15 year terms at lower interest rates than their 30 year loans. By doing so, you change the amortization of the loan and more of your payment goes towards principal and less to the interest. Carefully consider your budget and be sure that you are able to do so. And what FR_Chuck said about leveraging your existing lender is great advice, it can usually save you a bundle in fees and costs. They usually will not budge until you tell them about the great deal you are about to get somewhere else. Once they find that out, they'll bend over backwards to keep your loan.

Best of luck !

[realestatebuyer]

If you want to figure out what you would save by getting a lower rate, you can calculate your payment (also the amount of interest you would pay over the life of your loan) using just about any online mortgage calculator. I like HSH's.

Or if you are away from any calculation device here is a quick and dirty way to figure it out: you can take the rate, multiply that by the amount you will borrow, and divide by 12 and that will be the interest you pay per month. Compare that for both rates, then take around 5% of the amount you would borrow and see how long the difference between the 2 amounts of interest per month would take to make up that 5%. I am saying 5% because you have a low loan balance, so the closing costs will probably be up around 5%. If you plan to keep your loan longer than it would take to make up 5% then it's worth it.

One thing to consider besides just how long it would take to recoup closing costs is what you can do with the monthly savings: if you lower your monthly payment you can take that difference and overpay your mortgage and get the principal down, or you can take that amount of money and pay off a credit card faster, or invest it, or whatever.

The lenders who advertise no closing costs or very low closing costs make up for it by charging you a slightly higher rate (usually 1/4% higher) than you might get in a place with more closing costs. The exception would be one of those online brokers, where they make up for their cheap prices with volume and automation. Like with anything, essentially you pay now or you pay later.

Whatever you do, if you're in an ARM do yourself a favor and get a fixed rate loan unless you know you are going to sell your house in a certain period. If you know you're going to sell in 2 or 3 years, then you get a slightly better rate to get a hybrid ARM, the kind that is fixed for 2 or 3 years. Watch the prepay penalties though.

Finally, here is a trick some mortgage brokers play that you can avoid. Don't let them see your prior settlement statement if you paid a lot of closing costs on it. The less scrupulous brokers will try to charge you a lot of closing costs if they know you paid a lot last time.

On the other hand, you will want to show this document to the title company that will do your closing, so you can get a reissue rate on your title insurance. You can save yourself a hundred or a couple hundred bucks maybe that way on your closing costs.

I am a loan officer in Ohio, that's why I know this stuff. Good luck to you.

[ScottGem]

do you agree you must factor in the expense of refinancing before you commit yourself

Of course. That and other things go into the mix. But its not hard to come up with the bottom line. Take me for example. About three years ago, I refinanced an ARM that was at about 8% for a fixed at 5.25%. At the time, I had 15.5 years left and the new loan was for 15 years. The prinicpal on the new loan was enough to pay off the old one and cover all the closing costs. So, I wound up cutting only about $50 off my mortgage payment, but I also cut 6 months off the when the load would be paid off. And I took the uncertainty of interest rates out of the mix.

P.S. I see your other note was a continuation of this one. In the future, its not a good idea to start a new thread, just add a reply.

[carolyncrowe]

There is a strategy or two before committing to a refinance. First, you must look at the type of mortgage you have. For example if you are in a 15 year fixed, then going to a 30 year fixed will ultimately cost more because you are adding more years and thus more interest. However if one needs a lower payment and needs to reduce their payments, then that immediate benefit may supercede the long term interest costs.

2nd- do you plan to keep the home for the next 2- 5 years. If so, great-do the refinance. IF not it isn't worth pay paying $2000 in closing costs unless you are saving big bucks every month.

Finally, apply this formula. How much is your payment now before taxes and insurance? Then find out how much your payment will be if your refinance with a new interest rate. Subtract the amounts to see your monthly savings. (For example your payment is now $500 but your new payment will be $300, the savings is $200.) Then take your monthly savings and multiply it by 24 months. ($200 X 24=$4800). Lets say your closing costs are $4000 (includes lender fees, appraisal, commitment fees, points and reserves). Then you know that you will pay back in your closing costs in 2 years. After that, you are saving $200 a month for the remaining months on your mortgage. In this situation, you are savings thousands of dollars in interest for the next 28 years-assuming you do a 30 year mortgage on the refinance.

But if you sold the house before 2 years, it wouldn't be a good deal.. I am a loan officer and that is the way to see if a refinance is worth it.

CCrowe

[excon]

Hello 474:

There is a rule of thumb in the mortgage business. If you can drop your rate by two percentage points, then it's advantageous to refinance.

excon

[Dr D]

That "Two percent rule of thumb" used to be the rule of thumb in the good/bad? Old days (early 80's). Back then, FHA and VA had a "maximum prevailing interest rate". Those attitudes carried over to the Conventional market, even though those rates were not government controlled. This rate had about 3 discount points, plus a 1% origination fee built in. When the market drove rates down to a level where the discount point charge was about 1%, some bureaucrat in Washington would decide to lower the "maximum rate" by 1/2%, causing the points at that rate to go to about 3.5%. Since these high costs and additional title and appraisal and misc costs were built into a refinance, it was imperative to drop the rate at least two % to make it viable. Nowadays we are in the era of negotiated rates and "above par pricing", where by accepting a higher than market rate, the borrower gets cash credit from the lender to pay other closing costs. This means that a true "NO COST" refinance that lowers the rate by a fraction of a percent can make sense.

[Oneill474]

I have a 10.5% fixed mortgage. But to refinace it to a 6.5% rate
would not be worth it. with various fees, sometime they called them lenders fees, closing cost, points. And then you have the interest rate
which depends of your credit rating.

the mortgage payment is only $474.00 a month. its the taxes and insurance that are the main expense of the mortgage payment.

even for senior citizens and the reverse mortgage program, there again
the taxes and insurance are more than the mortgage payment itself.

do you agree you must factor in the expense of refinancing before you commit yourself

Update: according to mortgage calculator. If I paid off just the
Mortgages $65,000 and got a rate of 6.29% the payment would be $401.91
If I took $75,000(leaving $10,000) for home improvements the payment would be $463.74. Currently I'm paying $474.00 with 23 years to go on
The mortgage. This scenario doesn't account for any closing cost or other factor.

Yes Scott for 15 years $65,000 payment loan would be $558.74 on $75,000
It would be $664.00. But would they go for that. I know they would hit me with
Some kind of fees




Fees

[ScottGem]

You don't mention the terms which is an issue. If you refi for 30 years it not such a great deal. If you refi for 15 years, cutting 8 years, then it's a very good deal.

[kanicky73]

Going from an interest rate of 10.5% to 6.5% would totally be worth it. You probably would end up with about the same payment (around the $400) With escrows (taxes and insurance) wrapped in. Cutting your term from 30 years to 15 really only depends on how long you plan on living there. If you do a term of 15 years your payment will be significantly higher because your only amortizing over 15 instead of 30. Rates for both programs are relatively the same. When I refi my customers, if they don't have the money to pay the closing costs I usually work them into the loan for them.