Re-Financing May be Good for Some DUers

[maseman]

This is more of an FYI than anything else and I know some will bnot fall into the same category as me. I re-financed my home today and think I made out pretty well.

I was in year #5 of a 30 year fixed loan at about 5.875%. I refinanced at 5.01% for a 20 year loan shaving about 5 years off my loan period. It cost me $25 more per month but ultimately will save about $42,000 if I stay here for 20 years.

I did this for two reasons. My mortgage payment really isn't that big as I live in Ohio. Second, with the prices falling we are not planning on moving anytime soon so I will pay more principal down per month rather than interest. It seems the more hjome you can own the better this day in age.

I would recommend looking into a re-fi if you have similar conditions.

[Sancho]

1. I just refinanced, too...

I have a 15 year 5.75 loan that I refinanced to 10 years and 4.75. If you have been in a house long enough to have equity and don't plan to move, a refinance is a good move. Best rates in my lifetime.

[Liberal_in_LA]

2. My rate is 6.15%. I'm definitely looking into refinancing. Starting the process this week.

[maseman]

3. One note

Obviously ask about the closing costs. Mine were about $2,500 and that was included in the monthly spread over 20 years. Closing costs should never be more than $2,000 to $2,500 so make sure they are not screwing you with that either.

I have a friend in the mortgage biz and he said some banks could even find a way to do zero closing costs if you also open savings or checking with them.

Sometimes they are even negotiable.

[Liberal_in_LA]

4. Thanks.

[lonestarnot]

5. Be careful about who you use. I just saw a scam whereby the third

party takes out all the equity and leaves the homeowner as a renter. But it involved a homeowner who was in trouble with the house. Poor thing is going to be evicted within the week.

[maseman]

6. Yeah I wouldn't use bullshit advertisers on late night radio shows

Go to decent banks or even solid local credit unions. I did mine through 5/3 bank which does not re-sell their mortgages and they basically do not do the risky stuff (at least anymore.)

Good points though.

[NNN0LHI]

7. What happens to the +4 years of payments you already paid though?

Due to the way the lenders front load their mortgages I would assume most of what you paid on your previous 4+ years of mortgage payments you have made went for mostly interest. So that money is gone.

Now you will have to restart that process from the beginning of paying mostly interest again for a long time until you start paying down on the principal.

At least I think thats how it works?

Now I did do a Loan Modification once on an existing mortgage I had. All that really did was lower my monthly payment about a hundred dollars a month where the payment terms stayed the same by basically purchasing a better interest rate on my existing loan for about a thousand dollars upfront cost.

Don

[maseman]

8. Here's the scoop

Let's say I bought my house for $200,000. I paid 10% down which was $20,000. So my loan amount was for $180,000 for 30 years with an 5.875% APR.

After five years (yes most were interest payments) my principal is down to say $165,000. So I re-finance the $165,000 of principal I still owe on the house. Where the savings comes into play is that now instead of owing 5.875% interest on $165,000 I owe 5.01% on that principal. I could have chosen to refinance for 30 years which would have made my payments go down monthly from where they were. Yes that would also make me spend more overall on interest.

However, I chose to reduce my terms to 20 years paying nearly the same as I am now saving $42,000 in interest.

[TahitiNut]

12. One minor point about the 30-yr term vs. the 20-year term.

While it's correct that you'd wind up paying more in interest with the longer term loan, you COULD make 'additional principal payments' and reduce the term of a 30-year loan to as many months below that as 'additional principal payments' made. The loan, of course, would have to omit any language that prohibited such payments or penalties for early payment. The flexibility this would offer is pretty clear. The minimum payment would be less, which would be good during times of financial stress, and the 'additional principal payments' are pretty low at the beginning of a loan. (They're equal to the principal amortization amount of the next payment.) In effect, the homeowner makes two payments and saves the interest amount of the next payment.

It's always worth considering. :shrug:

[chimpymustgo]

15. Help! What about $12,000 closing costs on $600,000 mortgage? Amortized into monthly payments.

[K Gardner]

9. Good post.. I think it'd pay me to refinance as well. I'm only 3 years into a 30-year

fixed and I'd like to knock that down to 15 with a little lower rate. My mortgage payment is less than half what most people I know pay for rent. I'm going nowhere :-)

[TexasObserver]

10. Good idea, but rates are going to 4.5% in 2009.

And don't pay a bunch of points to refinance.

[wartrace]

11. PLEASE- do not fall for the "mortgage interest deduction" idiocy.

If you pay 10,000 a year in interest you are able to deduct it from your income! WOO HOO! You spend 10,000 dollars in order to "save" 2500 or 3000 dollars in taxes.

[maseman]

13. Right

When I hear people say "You can deduct it from your taxes" I always say "Yes and not having a mortgage payment every month is worse how?"

[EnviroBat]

14. I was going to sign the papers on Dec 23rd

But National City fucked the whole deal as they have yet to pay the property taxes they have escrowed. Their excuse is that the county auditor hasn't sent out the statements yet. So hopefully they will be paid on or close to Jan 1st. Otherwise I had to come up with $1800.00 of money that I don't have just lying around at the moment to close. If they screw me out of this deal, I'm going to be less that happy.