Refi time for 30yr mortgage?
 

We purchased a home in June 2006 at just about the peak of the mortgage interest rates. We got a 30yr fixed with 20% down at 6.5%. With the Fed lowering interest rates 75 basis points and likely to lower them another 25 basis points next week, when should we consider refinancing?

I see on Bankrate that 5.5% loans are available. Are they likely to drop lower?

Thanks for the tips.

I'd wait a little more

My boss did his yesterday and doesn't seem to be regretting it much.

I'm right there too. When 20yr with no points drops below 5%, it'll be hard to resist.

Or maybe I should stay with a 30 year and take $50k out and buy some new suits, a vacation, stuff for the Porsche... Yeah--that's the American way! :D

Considering the value of my loan and the fact that I'm at 6%, it'd be hard to make a refi work in my favor at this point. (The cost of the refi would exceed the payment savings over the life of the loan.)

Good topic! I spent my afternoon speaking to a bank official yesterday. May wait till next week to test the waters again. Subscribed!

Add the quoted costs into your balance (the new financed amount) estimate the new payment VS. the old payment.

The difference HAS to pay for all fees in a reasonable amount of time - like if you plan on selling the home in 3 years, the monthly savings has to pay for the total cost of the refi before you leave in order to make sense.

For example, if the monthly savings by dropping the rate is $100.00 and it costs you $5K to refi, it would take 50 Mos. to pay off the fees - if you plan on staying there it tachnically makes sense.

You can also subtract from the closing cost total the fact you will skip a payment one month when you do this - if the payment skipped is $1500 subtract that from your closing costs then check how fast the monthly savings pays for itself - $5K costs (-) $1500 old payment ( / ) $100 monthly savings =35 mos. to recoup fees.

Obviously this method shows that a smaller loan has to have a bigger rate discount than a larger one to make sense. This method you also use to show benefit byconsolidating credit cards.

Whatever you do, don't follow the "gotta drop your interest rate 2% to benefit" - that was around when a house cost $15K, if it's a $500K balance obviously you'll save even if it's a .25% rate discount.

Good luck.

rjp

Also, if you can hack your existing payments take the monthly savings and reivest it into the new loan. You continue to make the same payment as you always have but you shave years off the payoff time.

That's the trick to making a refi make sense.

rjp

Lastly, don't overlook a "free" refi.

If the balance after the refi is done is the same as it was before using the formula above you always show benefit. This makes sense if you plan on leaving the home real soon.

rjp

Need to know your current approximate loan balance, rate, and how long you plan on staying in the house to make sound advice. If you think there's a good chance rates will keep trending down, consider jacking up the rate a little bit and having the lender or broker pay the closing costs.

There was a guy on a motorcycle bbs yesterday who was raving about Ditech's new rate. Turns out he had their APR, not note rate. And that can be a big difference. Just be sure you know exactly what you're getting. The Fed does not set mortgage interest rates - the bond market does. They are related, but a 75 bps cut by the Fed does not at all mean the same thing for 30 yr. fixed mortgage rates.

That is the big question. If the Fed's rate cuts have the desired effect and DO stimulate the economy, then mortgage rates won't fall any more. Best case for low rates is if everyone believes we're headed into recession I guess.

I've seen DITECH do "30 year loans" on ad that are really 30 HELOCS -

month-to-month adjustables..

Oh, and "Lending Tree" - lead generation site. They sell their info to anyone who wants to pay $40.00 a borrower - anyone can buy it. YOu will get thousands of calls a day, for the next year going there. Might be a Nigerian or two in there as well.

rjp

We refinanced $250K for 30 years fixed in January 2007 at 5.875% through a mortgage broker. House appraised at $650K at that time last year. Prices have gone down a bit in our area, but I suspect we still have significant equity.

Just emailed him today, he's telling me "at or near 5%" for a 30 year fixed.

I can tell you they fell hard yesterday - I was amazed myself.


Always remember that "rate" in and of itself isn't a reason to do a loan. The refi has to be justified in one of three ways

1)- debt consolidation - paying off and lowering monthly payments you can't afford

2) accelerated payoff - doing the refi gets you a lower payment that when reinvested into the home pays the house off quicker than presently being done

3) cash need - you need the money for something else - medical, biz opportunity or whatever.

Never fall into the "better rate" belief - for instance saving 2% on rate means nothing if the payment goes up and it's back out to 30 years - that happens in a lot of scenarios where it's just simply lowering rate. The only person who benefits is the guy writing it.

rjp

Not to pick on you... but I'm always befuddled when things like that get tossed round.

You can get pretty much any rate you want... if you pay enough 'points'.

LOL. When we bought our house, we paid 3 (!) points to get a "fantastic" rate--"we'll never beat this". Then we refinanced in '04 and those points turned out to be money flushed down the toilet.

Now I'm only comparing no-points loans.

I too am considering a refi. We bought in 2006 at 6.75. Think I am going to wait a bit as I think interest rates are just going to go down over the next few weeks.

do the math, check the deals. Just look at total loan amounts VS where you are at.

The no cost aren't bad but they will have higher overall rates attached. In those situations, the banks PAY points towards closing costs. thats why they are free.

Look and new loan amount, vs. old loan amount and payment differences.

Oh, and rarely does paying extra points work out. THe more you pay, the longer you need to keep the loan to show benefit.

Anyone hear those radio commercials for Linux or Lennox Financial with Jon Shibley (sp?). His slogan is "The biggest no brainer in the history of Earth"? I can't believe a single word the guy says. He says his company is having another record year, while others go out of business and he'll do you mortgage for free. I guess, if someone got snowed into a mortgage they didn't understand and they now want out, that kind of person would believe refinancing is really free. I wonder how much higher their rates are to cover closing costs.

No problem, point taken. We are talking about same terms as last time, no points. I understand points and junk fees.

The last refi I did had “reverse points.” This means that the lender paid all the fees. It was the smartest decision I’ve made in a loan. We got a 5.625%, 30 year fixed loan and the lender paid all the fees. We could have gotten a bit lower if we paid all or some of the fees, but I was tired of paying fees and points only to have them flushed down the toilet.

Not necessarily a scam. Mortgage brokers who write "conforming" (non-jumbo) mortgages, loaning money to credit worthy people with actual equity who aren't trying to buy Florida condos in 2006 for no money down are doing just fine.

I've heard those commercials too and I wonder.

Still, he used to have one where he said something like: "I'm not a nice guy and I'm not doing this because I like you. I will refinance your loan because I expect to make money off of the interest."

Yes, I liked that one. But he makes up all kinds of nonsensical analogies like, "Would you go with a mortgage company recommended to you by a taxi driver just because they drove you around? Why do it with realtors then?" Or his tall tale about how the "manage" people's mortgages. Gee, I put a check in the mail once a month. How hard is that? No one does a mortgage for free. That's a flat out lie. He even says he's doing it to make money. Where's the money coming from? It's coming from the higher fixed rate that desperate ARM borrowers get slapped with. It's a double dip. Not only does the higher rate cover the closing costs, it pays the note holder for the life of the loan AND gives them a good hook for calling you back in a few years to try to refi you again.

the g/f has a 10 year fixed then it goes adjustable. She's thinking of refi to a 30 year fixed (she bought last year). Seems like now is the time...

Which rate is lower and how long does she plan to keep the house?

I bought back in 2000 and am ready to get out of my ARM and into a 30yr fixed, Can anyone recommend a comprehensive book, magazine, or website where a laymen can get up to speed on the loan industry lingo and how the various different components of a loan work? You know get edumacated on the ins and outs before throwing myself into the shark pond?

Thanks in advance for any help from the brain trust-

Try here:

www.fool.com/

(And no, this is not a joke, this is a real finance website.)

Just get a few Good Faiths and post them here. We'll parse them for you. Plenty of closing costs are set by the state or industry and you can't change. Just be sure you're gonna stay in the house long enough for your monthly payment savings to cover your closing costs. You don't save a dime until your break-even date, even though it feels better because you have a lower payment. Unless you're 110% positive you're staying in that house for more than 10 yrs., I'd probably refi into another ARM. Avg. life of a 30 yr. mortgage is seven yrs. before it gets refi'ed or paid off at sale.

I think the 30 year fixed will actually be lower. I think her 10 year is above 6%. As for keeping the house...not sure. Probably a long time as even if she doesn't live there she'd maybe rent it out as it is a really nice fixed up place in a neighborhood that is slowly regentrifying.

Trick is home values are so low that your appraisal may come back less than your value. If the appraisal is less than 110% of your loan value then your going to have to pay the difference to refi. Banks are only giving out 90% loans these days.

Thats my currnet position. I owe more than its worth. Anyone know a good lending company that appraises high?

Hey, thanks for the link- a lot of information at that site, I will be ingesting

I will probably be renting the house out in about a year and then use my substantial equity to make another home purchase. Is this a reasonable plan and does it make sense to sit down with someone who is savy with the complexities of loans and financial future planning before going through the refi process?. Any suggestions of how to find a person who does this sort of thing?. Basically I am looking for someone who can read my cards so to speak and see my situation in a more black and white manner. This I feel would be invaluable to me in the long run and allow me to make a more solid and educated decision.

Thanks again

Actually, if it's a 500k balance you are out of luck - jumbo's are at historic spreads to conforming loans, no real refi oppourtunities there right now, unless they up the agency limits...

Randy - I'm locked in at 5.81% fixed - been so for 4 years. Would you wait till next week or jump now at a refi?

Yep, but in theory if there is less rate reduction needed VS. closing costs to show benefit, that's what I meant.

rjp

Just had this discussion -- the wholesale banks usually start hedging what the rates will do just before and immediately after a announced rate cut. I woulld honestly start checking daily until the end of this week.

My uneducated guess is towards the end of this week just before the next announced and right after is a good time to check.

But, of course remember the math I discussed above. A rate reduction may be useless if your closing costs when added back in raises your balance owed so you don't save anything.

The monthly payment savings has to pay for the additional balance added to what you owe within a reasonable amount of time for it to make sense. Rate be dammed.

I'm kicking myself for not checking the rates this morning - if I had gotten a clue earlier today I would've really been good on a few loans. I'm going to be watching like a hawk through the end of this week. If you're in the market it's a good time to start watching closely.

After the rate cut was announced, the banks went crazy for a day, then raised it right afterwards - remember they are all playing a game of liars poker when deciding how much to cut - they want to be in the middle, not way lower than the other banks...

Watch over the next several days - but in the meanwhile determine if you have a real benefit for even considering it after the costs are factored in.

rjp

rjp

Right now I don't have my taxes or insurance in my mortgage payment. If I can put them in and refi without an increase in my monthly payout, I would do it.

The 30/ fixed is at a historic low right now - even compared to ARM's -

the smart thing is to simply get into a fixed note assuming you can handle the payments.

Find a financial website with a calculator and add an additional 5% (to simulate average closing costs) to what you owe, 30 years, figure the rate at 6% (it will be lower, but if it makes sense at 6% it will definitely make sense at 5.5%) and look at the payment.

You need to get out of the ARM, and if that payment looks good (don't forget to factor in your impounds) then by all means, go with it.

Don't get too attached to terms and whatnot - you see in the mortgage biz, a bank may use different terms for different costs to disguise fees.

Remember that if a broker charges "processing fee" "admin fee" "origination fee" "broker fee" if they are all paid to the same company, it's all the same fee. So, what I'm trying to say is that they aren't all standardized throughout the industry.

one guy may not charge "broker fee" but instead charge "admin fee" and then advertise he doesn't have "broker fees" You need to look at the whole picture and you'll notice different things.

Never take a rate quote over the phone - make sure you get a full GFE and if it sounds like a good deal, make them issue a Rate Lock Agreement - a legal form showing all costs required to get that rate.

Getting the GFE will insulate you against bait and switch - if the rate worsens and it isn't locked the LO is required by law to re-disclose a new GFE within 3 days of signing or it's considered bait and switch. that's where people get in trouble - they never knew what they were being charged in the first place for a given rate.

Good luck

rjp

keep your fingures crossed for 5.375 or so. then I am going to do it. whatching closly