When to refinance your home?
 

Get all sorts of refi letters in the mail almost every day.
Finally called one which holds my current mortgage.
Interest rate will drop from 3.75 to 2.99.
I have 20 years left, so a 20 year mortgage will save me $105 a month and cost just over $2k which is rolled into the loan.
So less than 2 year pay back.
Nothing too dramatic, but it is still $100 a month.
That's like a free cell phone plan.
What do you guys think?

Hit one of the online mortgage calculators unless you've got a spreadsheet, and check out what your current payoff would end up as ie, if you have 200k in principal, and in the next 20 years you'd end up paying 25k in interest, then your total would be 225k. Then figure out the same if you refinance at 20 years for the reduced interest rate, see what the totals would be. If you save enough money to make it worthwhile, then do it. If the end is 200k and the interest is 20k for the next 20 years, then you'd save 3k (because you've got the 2k up front). Are they going to want to refi for 30 years or 20? Do you want to refi at 15 years and maybe you'd save even more with basically the same int rate?

I'd shop it a little bit. I'm not familiar with what rates are now- used to be a mortgage broker almost 20 years ago. You can roll in the refinance costs into the new balance or keep the balance the same with a higher rate. Being that rates are probably really at a historic low, I'd say go for the lower rate and not plan on doing this again. You might find a better rate at 15 years, maybe less, if you can get it over faster with payments you can still afford.

Can't go 15 years because VA requires payment to go down, and mine would go up about $50/month unless I put $27k down. Nope!

We’re in the process now. Had 7 years left on a 15 year fixed which was at 2.8%. Owed $120,000 left on the mortgage.

We took $125,000 to pay off a rental property and refinanced with the VA for a 15 year fixed at 2.25%. Total borrowed $250,000.

Our payments are exactly the same as the previous 2.8% loan. The benefit is we paid off the rental property. If we put $600 a month towards the principal from the rental property we pay it off about 5 years early.

RocketMortgage (Quicken Loans) says they monitor VA rates and if they go lower than our 2.25% fixed rate they can refinance us at the lower rate without cost.

In your case. . . if you plan on staying more than two years it is worth it. If you are eligible for a VA loan I would go that route.

You refi when:

1- you simply need cash- pay off bills, or whatever.
2- When the amount saved monthly can pay for the cost of the refi (increase in balance due to fees) before you decide to sell the house.
3- If, by paying the SAME amount you are paying now towards the NEW loan will allow you pay the home off faster than you are paying now. IE reapplying the savings back into the new loan.

Remember, if your rate drops BUT your balance increases as a result of fees (resulting in more interest being generated) than there's no benefit. This really becomes noticable if you have a small balance on the house. Pay CLOSE attention to 2 and 3 above.

rjp

PS when comparing loans, remember to omit taxes and insurance from the final monthly payment calculations- don't try the "out the door' technique when dealing with a loan officer.

Taxes and insurance will be a constant between both loans. An error here can skew your findings.

rjp

What's the VA rate for 15 years and 20 years?

Can you pay points on a 15 year VA loan to zero out the $50/mo difference?

I closed on a VA no appraisal, no income verification 30 year fixed at 2.25% in January. Loan cost was $7k and it brought my monthly payment down $800.

If you are VA I would do it, with rates this low you wouldn't have to refinance again.

Get the 20 year loan, but pay it like a 15 year loan.

My last loan was a 15 year and I'm paying it like a 10 year loan.

I pay an extra ~$150 a month now. I will keep paying the same amount even if the mortgage goes down $100/month.

Craigster, $800/month??? I am guessing you went back to a full 30 year term? And $7k? Wow!! VA is charging me about $1k plus another $1k in closing fees.

Randy, I do meet criteria 2 and 3. Really thinking about pulling the trigger.

2.99 for 20 or 30, and 2.75 for 15. I still have 21 years remaining. So the latest offer will cut off 1 year and $105 per month.

Thanks guys!

I bought the home in 2017 so I haven't been paying on it long. It's a $700k house, 5 bed, 3 bath. My actual payment is $1800 a month which will get you a 2 bed, 1 bath condo in a dicey area here in So Cal if you were renting.

As far as loan cost I figure I'm saving $9,600 a year which I'm throwing back at the loan to drive down principal. I just wanted to get it done, after being out of work 9 months in 2020 I was glad to qualify for refinancing. Apparently the loan companies don't like to count unemployment checks as "income". :D

From https://www.veteransunited.com/va-loans/va-mortgage-rates/


What are discount points?

Borrowers have the option to buy down their interest rate by purchasing discount points. When you purchase discount points, you are essentially paying interest upfront to receive a lower rate over the life the loan.

Points are generally more advantageous to borrowers who plan to own the home for a longer period of time. Your loan officer can help you determine the break-even point of purchasing discount points, or if points even make sense for your specific situation.

I'm not familiar with your situation or the ins and outs of VA Streamlines. Just wondering if you can pay points, add them to the loan amount, and keep your payment the same for 15 years.

Not really relevant to the OP but maybe to some of the comments:

A while back, a friend refinanced his house to buy a new Cadillac SUV ($$$$).

He doesn't have that vehicle any more but I have to bite my tongue to keep from reminding him that in another 20 years it will be paid off ;)

IMO The only time to take out equity is if it's necessary to save a life, or to keep from looosing the home.

Bingo! Turning short term debt into long turn debt is never a good idea.

We re-fi'd at the end of 2020. Rates had dropped basically 2.0% since we bought 16mo ago. Saving $500/mo., which will go straight to daycare. No plan to move anytime soon. Fees will be covered in less than a year.

It is if you have some kind of terrible fatal diagnosis and hate your kids.

Yup- no reason not to assuming all things being equal, you pay off faster or it pays for itself before you decide to sell.

PS boys and girls, remember you can also do 'free' refis (no fees) and same math applies.

Happy refinancing!

rjp

LOL! I'll have to keep that in mind.

Yes, you can pay discount points up to the limitations of the lender or maximum fee guidelines. Does it make sense to? Typically it seems to make the most sense during the very early years of home ownership when you have a chance to capitalize on the savings of doing such, like you bought the home only a few years ago and don't foresee selling in the near future, or ever.

The more you pay in fees up front the longer it takes to recoup. Just something to consider if you think you may sell the house eventually. Remember that all gets added to the balance owed. Could be sketchy if your house falls in value for some reason- now you get less equity thanks to the extra fees if that happens.

rjp