Mortgage Rate Question - Refi now or wait 30 days?

asphaltgambler · 11-28-2007, 10:10 AM

Recent home owner this year. Current product is 30 yr fixed. I am told (and see) that 30 yr rates are dropping for conforming.

After much research, I located a product and closing costs that are very attractive and I want to do the deal. Problem is I believe that the rate will 'rachet down' again slightly in the next 30 days saving me even more. Most financial experts seem split on where this will go.

Anyone in the business here have more insight to this? I realize that we are trying to predict the future but I bet someone here may know the 30 day question!

Thanks Again all.

legion · 11-28-2007, 10:12 AM

Refi now.

TyFenn · 11-28-2007, 10:24 AM

What makes you think the rates will come down in the next 30 days?

If it is because of a perceived cut in rates, I must advise (and you probably already know this) against waiting as a cut in rates does not necessarily mean a corresponding reduction in mortgage rates. See the previous rate cut, for example.

However, my personal theory is that rates will indeed filter down 'slightly.' My reasoning, and this is a bit conspiritorial (sp?), is that banks are looking for a more consistent revenue stream and think that the payments made on a 30 year fixed will be, over time, be more consistent. I'm making no connection to potential defaults. I'm thinking from a balance sheet perspective. Especially for portfolio lenders.

**DISCLOSURE** I work for First Federal Bank of CA in the afternoons, as a loan consultant.

How much further do you think they will go?

Porsche-O-Phile · Porsche-O-Phile's Garage

Refi now while you still can. The people who "bought" using I/O, ARM, neg-am, or option garbage assuming they can refi their time-bomb mortgages to get out of 'em later on are going to be very, very sorry when they realize that refis are all but impossible now.

If you're fortunate enough to be in a position to still do it, I'd do it while you still can.

TerryH · TerryH's Garage

Many lenders will allow for a correction is the rate drops during the refi., but I wouldn't ASSuME that.

Rick Lee · Rick Lee's Garage

Are you even sure you can refi now? Some banks require 6-12 mos. seasoning before a loan can be refi'ed. And what about your value? It probably hasn't gone up. So your LTV might be higher now. The formula for refi'ing is to divide your refi's closing costs by the amount by which your monthly payment will go down. Divide that number by 12 and that's how many years you need to stay there to break even. If it takes you five years to break even, you are losing money if you sell the house a day sooner. I've never known anyone who paid off a 30 yr. mortgage over 30 yrs. Avg. life of a 30 yr. mortgage is seven years, probably lower now.

asphaltgambler · 11-28-2007, 12:59 PM

yes I've been in 6 months, Idealy i think that with the downward trend just may continue ........................to the tune of .2 of a point on my end..I would pull the trigger

stomachmonkey · 11-28-2007, 01:39 PM

Your info is limited but my gut tells me you are not really saving much.

Assume $500,000 float for 30 years. Let's pick a ridiculaous rate of 10%. Costs you $4387 per month.

Move the rate to 9.8% and your payment goes down to $4314.

Basically $70 a month. Or $840 per year. $25200 over the life of the loan.

If you threw an extra payment at it each year you'd reduce the payback by a few years and save $100,000 on the total cost.

Zeke · 11-28-2007, 02:29 PM

Quote:

Originally Posted by stomachmonkey

Your info is limited but my gut tells me you are not really saving much.

Assume $500,000 float for 30 years. Let's pick a ridiculaous rate of 10%. Costs you $4387 per month.

Move the rate to 9.8% and your payment goes down to $4314.

Basically $70 a month. Or $840 per year. $25200 over the life of the loan.

If you threw an extra payment at it each year you'd reduce the payback by a few years and save $100,000 on the total cost.

Throw in the points he will pay and do some more math. He won't be right side up for a long time. Yes, 25.2K over the life of the loan (30 years). But, no one stays 30 years these days in one house. If they do, they are extremely unlikely to have the same loan they started with. Meaning, that the 30 years keeps getting put off and points added with each refi make the principle that much more.

Flatbutt1 · 11-28-2007, 02:45 PM

Sorry for this..but do you guys think the current environment will impact the home equity loan market in the same way?

Steve Carlton · 11-28-2007, 02:52 PM

Most home equity loans are based on the prime rate and are variable, so it wouldn't matter unless you got a fixed rate 2nd. Seems like home equity loan guidelines are getting more strict as time goes on, and if values trend down, it gets worse. I'd get one while I could.

asphaltgambler- you could lock in a rate now, and if rates go down you might be able to re-negotiate before you draw docs or lock in with another lender. Or, you could let your lock expire and re-lock. You'd need to discuss with your lender if they re-negotiate or if they have a minimum amount of time you have to wait before re-locking an expired loan.

stomachmonkey · 11-28-2007, 03:04 PM

Quote:

Originally Posted by milt

Throw in the points he will pay and do some more math. He won't be right side up for a long time. Yes, 25.2K over the life of the loan (30 years). But, no one stays 30 years these days in one house. If they do, they are extremely unlikely to have the same loan they started with. Meaning, that the 30 years keeps getting put off and points added with each refi make the principle that much more.

Yeah, we don't have the info on the points so I was trying to illustrate that it's not enough of a diff w/out the closing costs to warrant the aggravation.

There are all sorts of ways to save money. Sometimes the more you spend the more you save.

If it's an issue of trying to work within a tight monthly budget and save a couple of bucks to make life easier that's one thing.

But if the motivation is to save money over the life of the loan then spending more now in an extra principal payment will return far more in total cost savings and will build equity faster.

And let's remember that equity is like cash in pocket. Can be used to float a LOC whose interest is tax deductible. So for example you can lend yourself your own money and buy a new car interest free.

Zeke · 11-28-2007, 03:56 PM

Quote:

Originally Posted by stomachmonkey

Yeah, we don't have the info on the points so I was trying to illustrate that it's not enough of a diff w/out the closing costs to warrant the aggravation.

There are all sorts of ways to save money. Sometimes the more you spend the more you save.

If it's an issue of trying to work within a tight monthly budget and save a couple of bucks to make life easier that's one thing.

But if the motivation is to save money over the life of the loan then spending more now in an extra principal payment will return far more in total cost savings and will build equity faster.

And let's remember that equity is like cash in pocket. Can be used to float a LOC whose interest is tax deductible. So for example you can lend yourself your own money and buy a new car interest free.

We're on the same page....

RANDY P · RANDY P's Garage

Professional opinion:

Don't screw with it. Take the rates now- they're good. 30 year loans aren't tracking like they should. It's a wildcard what happens next.

rjp

asphaltgambler · 11-29-2007, 04:18 AM

Total costs to close are @$4500 on a loan of $365K My current rate is 7% - the best that they can offer as of yesterday is 6-5/8%

This is interest only product same as I have now - 30 years fixed

Rick Lee · Rick Lee's Garage

Quote:

Originally Posted by asphaltgambler

Total costs to close are @$4500 on a loan of $365K My current rate is 7% - the best that they can offer as of yesterday is 6-5/8%

This is interest only product same as I have now - 30 years fixed

On a simple interest calculation, it looks like you'd be saving about $114 per month with the new rate. Divide the closing costs by that amount and you're looking at over three years until you save a dime. And even then you're only saving $114 a month. How long will stay in that house? You're probably better off just paying down extra principal each month.

asphaltgambler · 11-29-2007, 06:15 AM

Most likely I would stay 10 yrs at least for now. Also I'm paying $300./ mo for PMI - which if I refi with this firm will be eliminated.

Rick Lee · Rick Lee's Garage

Well, the PMI savings makes this a sweet deal if you're positive your LTV will be 80 or lower.

Steve Carlton · 11-29-2007, 06:50 AM

How much lower would your rate be if the loan was full ammo? Sometimes interest-only increases the rate more than it's worth. Are there points in those closing costs? Seems like they should be more like $3K. Can you request the existing lender remove the PMI?

forklift · 11-29-2007, 07:17 AM

Quote:

Originally Posted by Steve Carlton

How much lower would your rate be if the loan was full ammo? Sometimes interest-only increases the rate more than it's worth. Are there points in those closing costs? Seems like they should be more like $3K. Can you request the existing lender remove the PMI?

Full disclosure, I am a Loan Officer:

On a conforming 30 year fixed, the rate is 1/2% higher for IO. Today that means 6.375% IO vs. 5.875% full am w/ 0+0 points (over 720 score <80% LTV). IO ARMs are less, but are........ARMs.