Refi time for 30yr mortgage?

[Neilk]

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.

[JeremyD]

I'd wait a little more

[Porsche-O-Phile]

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

[RallyJon]

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!

[legion]

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.)

[Freybird]

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

[RANDY P]

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

[RANDY P]

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

[RANDY P]

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

[Steve Carlton]

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.

[Rick Lee]

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.

[RallyJon]

If you think there's a good chance rates will keep trending down

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.

[RANDY P]

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

[chuckw951]

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.

[RANDY P]

Originally Posted by RallyJon

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 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

[einreb]

Originally Posted by chuckw951

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

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'.

[RallyJon]

Originally Posted by einreb

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.

[Rot 911]

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.

[RANDY P]

Originally Posted by RallyJon

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.

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.

[Rick Lee]

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.