Home Refinance Question

[78sc]

Hi all,

With interest rates as low as they are I had been thinking about refinancing from a 30 year fixed at 6.875 (23 years left) down to a 15 year fixed at 5.0 (or less) which would give me about the same monthly payment.

Now, today at work, the president of our company announced that there will be a workforce reduction by march. So I'm thinking now why not refinance with a new 30 year fixed which would drop my monthly payment by 27%. If I get laid off, I'll have a lower payment to make while I get another job. If I don't get laid off, I can just apply the monthly savings to extra principle payments and effectively end up with a 15 year pay off.

I've already been to several banks and they're all more than willing to do the refi. It looks the refi costs will break even in 5 months.

Anyhow, just trying to think of ways to take advantage of the low rates out there right now.

Thoughts?

Thanks!

[Dantilla]

Not a bad idea.

[Jim Richards]

Phil, how much is your refinance cost? How many months at the new, lower mortgage payment will it take to recoup that up-front cash to refinance? If you get laid off, would that cash have served you better as a cushion while hunting for a new job, or would the lower payment be better? Look at these questions, and your answer should become clearer. Perhaps other questions will be suggested by the folks here that will fill in whatever I've missed. Good luck.

[KFC911]

For my first home purchase, I opted for a 30 year fixed so the "required" payment was managable even if things got tough or the unexpected happened. I paid extra principle each month (gradually increasing the amount) and paid it off in eleven years. Have you checked out a Credit Union for the loan? I've found that banks can't compete with them and I used to be in banking (IT), or shop around for reduced "finance charges". Your strategy seems sound to me. Good luck!

[berettafan]

If i thought a layoff was coming i'd be looking to squirell away some cash even if via refi.

[onewhippedpuppy]

If you refi for a lower rate and the break-even is 5 mo, it's a no brainer. Just don't do something stupid like cash out your equity. Refi to a lower rate and put the money saved into savings, just in case those layoffs include you.

[RANDY P]

yes, no brainer.

As long as you keep the house longer than break even point on fees it works.

rjp

[78sc]

Thanks for the replies guys. I'm not seeing a whole lot of downside in taking advantage of cheap money. The only piece of information I left out was that my wife and I were talking about selling and buying another house next summer/fall but those plans will probably be on hold until we know about the layoffs. If the sale/purchase plans still happened, that would be right about at my refi break-even point.

Originally Posted by Jim Richards

Phil, how much is your refinance cost? How many months at the new, lower mortgage payment will it take to recoup that up-front cash to refinance?

Refi costs look like $1500 which would make my break-even point 5 months.

Originally Posted by KC911

Have you checked out a Credit Union for the loan?

No, I haven't checked with Credit Unions, thanks. Probably be good to at least take a look. I'm kind of partial to my current mortgage lender/bank because it looks like they won't require a new appraisal which is an extra $650.

Originally Posted by berettafan

If i thought a layoff was coming i'd be looking to squirell away some cash even if via refi.

Yes, good thought. I'm not super worried about cash while I'm between jobs because I've saved quite a bit and the layoffs (if that includes me) will include a severance package. Granted, nothing is sure until the money is in your hand, but this company has a long history of making good on those things.

[TerryH]

When I started my business 18 years ago, I refi'd and got the multiple option mortgage. It made house payments easier when cash was tightest.

1. minimum payment - so little it didn't cover interest - neg amortization
2. interest only - cover only interest
3. amortized 30 year payment
4. amortized 15 year payment

A couple years later when my business became established and fixed rates dropped further, I refi'd to a normal 30 year mortgage.

[Flyer88]

Phil,
30yr and 15 yr rates are about the same these days so opt for the 30 but you can always go back to paying at teh 15 year rate when thing stabilize. You should calculate your break even based on a new 23 year payment, not the new 30 year payment - apples to apples. If you think you are going to move take the risk off the table and ask you lender to bump the rate up an 1/8-1/4 and do a no closing cost loan.
Bill

[78sc]

Originally Posted by Flyer88

... If you think you are going to move take the risk off the table and ask you lender to bump the rate up an 1/8-1/4 and do a no closing cost loan.
Bill

Hi Bill - That's a very interesting idea especially if rates continue to fall in the next few weeks/months. Have you done a no cost loan before? Just wondering how open lenders would be do doing a no cost refi. I'll have to make some calls...

[Flyer88]

Phil,
If they aren't smart enough to figure out how to do it look for another lender. It is much easier dor the lender to do this on a $300K loan than it is on a $80K loan as closing costs are fixed for the most part (with the exception of title insurance). On a $300K loan they would need about .875 of "premium" or "over par" pricing to cover the closing costs - that equates to about 1/4 in rate, but on an $80K loan they would need over 3 points of "over par" pricing which would probably send your rate up near a full 1% above the going rate. I run a mortgage company for a living and this option makes good sense for a lot of situations.
Bill