Posted on: 11th Jul, 2011 10:57 am
Hello
I have a 30 year fixed @ 4.85%. Loan amount=$245,000. I am 18 months in, and have an extra $500 each month that I could put towards principal. My curiosity.... is it better to refi? My bank is offering a 15 year fixed at 3.750%. I could chock the $500 towards my current loan, or switch over. What is best? Thank you kindly! Linzyloo.
I have a 30 year fixed @ 4.85%. Loan amount=$245,000. I am 18 months in, and have an extra $500 each month that I could put towards principal. My curiosity.... is it better to refi? My bank is offering a 15 year fixed at 3.750%. I could chock the $500 towards my current loan, or switch over. What is best? Thank you kindly! Linzyloo.
Without a long analysis, which would reveal what the extra $500 would do to your payback and overall interest costs, I'd say go for the lower rate/shorter term.
However, it would benefit you to obtain an amortization that takes into account that additional $500, because it may well retire the balance within the next 13 1/2 years, which would negate any potential benefits you might see by refinancing.
However, it would benefit you to obtain an amortization that takes into account that additional $500, because it may well retire the balance within the next 13 1/2 years, which would negate any potential benefits you might see by refinancing.
I always believe that you never know the future. You have a respectable rate on the 30 year, some of the lowest rates in history. Anyways, my thought is, once you lock in a loan for 15 years, you are stuck on the higher payment. There is no going back to the 30 year loan if money gets tight. Sure you may save a lot of money (interest payments) by going to a 15 year loan, but unless you know for certain that your job is not going anywhere and neither is your pay, then it may make sense. You can also check on bankrate.com and use the calculators to see what an extra payment, or a bi-weekly payment and or extra principle will do to payoff your loan early...Good luck!
Key questions you need to answer are what is the estimated value of the property, how many years do you expect to be in the home, are you confident you can handle the higher monthly payments with the 15 year loan, do you itemize your taxes/yes/tax bracket, what are the fees to close on the new loan?
Provide this info and I will provide with numbers to show which loan has the lowest net cost each year, including adding the extra $500 each month to your current loan.
Provide this info and I will provide with numbers to show which loan has the lowest net cost each year, including adding the extra $500 each month to your current loan.
Chris meant "principal" in his last sentence...I'm still wondering if it's the real Chris or that phantom that's appeared.
Is $245,000 the balance of the loan when it started 18 months ago or is that the balance of the loan now?
thank you everyone for the input... Jveenstra, the balance of the loan at this time is 240,000. It began at 245 :)
to answer jimgilly's questions:
Recent appraisal at $249500.
I plan to keep the home, if I do not live in it I will rent it.
I am 90% confident that I will be able to pay on a 15yr fixed long-term.
I do itemize. Tax bracket: 28%.
Refi fees I estimate 3500.
thanks!
Recent appraisal at $249500.
I plan to keep the home, if I do not live in it I will rent it.
I am 90% confident that I will be able to pay on a 15yr fixed long-term.
I do itemize. Tax bracket: 28%.
Refi fees I estimate 3500.
thanks!
Don't worry... I've got some extra "principle", too; though it is useless towards my loan. ;)
if you pay $500 extra every month on a balance of $240,000 at 4.875% that would pay off in 193 months and you will have paid in that time $346,724. you would pay $1,796.50 in p&i every month.
if you refinance at $243,500 covering closing costs in the loan and pay 3.75% for 180 months you would pay $1,770.79 monthly p&i and in that time pay $318,741. the payment is less than paying $500 extra on current loan by about $25.71 and you pay off in 13 fewer months besides.
the problem is the appraised value. if the value is $249,500, any loan amount over $199,600 requires private mortgage insurance. you are about 97.5% of value and that is not even really possible.
i do not think you have a choice if you must have pmi. just pay $500 extra on the current loa if you want to do so.
if you refinance at $243,500 covering closing costs in the loan and pay 3.75% for 180 months you would pay $1,770.79 monthly p&i and in that time pay $318,741. the payment is less than paying $500 extra on current loan by about $25.71 and you pay off in 13 fewer months besides.
the problem is the appraised value. if the value is $249,500, any loan amount over $199,600 requires private mortgage insurance. you are about 97.5% of value and that is not even really possible.
i do not think you have a choice if you must have pmi. just pay $500 extra on the current loa if you want to do so.
linzyloo, Still might be some options to staying with your current loan and making extra payments but need some followup questions to know for sure.
I would think you are currently paying PMI (conventional loan) or MIP (FHA loan) if so what is the current monthly payment?
Were you planning on paying the $3500 refinance fees in cash or adding to the loan amount?
Last two questions what state/county do you live in and what is your FICO score that you hopefully got from the bank quoting you the 15 year 3.75% rate?
I would think you are currently paying PMI (conventional loan) or MIP (FHA loan) if so what is the current monthly payment?
Were you planning on paying the $3500 refinance fees in cash or adding to the loan amount?
Last two questions what state/county do you live in and what is your FICO score that you hopefully got from the bank quoting you the 15 year 3.75% rate?
Use mortgage calculators to find out if it is better to refinance. In order to come up with a good solution to your problem have it assess to an expert which you can have a private discussion about the figures involved.
Expert, schmexpert!
What we've seen here is some astute analysis by John Veenstra along with some good posts by Chris Gummerson (the real one) and JimGilly. Each of these guys has displayed some expertise in this situation.
To now expand the search so as to "have it assess to an expert which you can have a private discussion about the figures involved" is ridiculous.
Linzyloo, you didn't mention paying mortgage insurance, which leads me to believe that you don't, currently; and that your current value is likely substantially less than what it was when you purchased this home.
But then again, I retract what I just said, because Jim's thought about your current situation (probably paying mortgage insurance) makes a great deal of sense.
Just how firm is this offer of the lower rate for the refinance? Has that lender actually acquired an appraised value on this property? It would seem unlikely.
What we've seen here is some astute analysis by John Veenstra along with some good posts by Chris Gummerson (the real one) and JimGilly. Each of these guys has displayed some expertise in this situation.
To now expand the search so as to "have it assess to an expert which you can have a private discussion about the figures involved" is ridiculous.
Linzyloo, you didn't mention paying mortgage insurance, which leads me to believe that you don't, currently; and that your current value is likely substantially less than what it was when you purchased this home.
But then again, I retract what I just said, because Jim's thought about your current situation (probably paying mortgage insurance) makes a great deal of sense.
Just how firm is this offer of the lower rate for the refinance? Has that lender actually acquired an appraised value on this property? It would seem unlikely.
As George, myself and others are aware, one of the difficulties with giving advice on this or any forum, is the often lack of needed info provided by the original poster.
In the case with linzyloo, it is imperative to know whether or not PMI/MIP is currently being paid and the amount before any worthwhile comparisons can be made.
If the property was purchased 18 months ago with an original mortgage of $245,000, then the purchase price would have had to been around $305,000 to have an 80/20 LTV to avoid PMI/MIP. (Unless we are looking at single pay PMI, VA, RD, whatever). I don't think the property would have dropped that much in value ($305,000 to $249,500) in the last 18 months, so I am guessing linzyloo is paying some sort of mortgage insurance.
Also, appraisals are the wild card/deal breakers these days along with actual FICO scores used by the lenders. Another monkey wrench is by the time someone posts on the forum and replies are submitted. rates will have likely bounced multiple times in both directions making any quoted rates/fees null and void.
I'll end by agreeing with George some of the replies and advice being given leave a lot to be desired. Hopefully, readers can separate the wheat from the chaff but unfortunately I doubt that will always be the case.
In the case with linzyloo, it is imperative to know whether or not PMI/MIP is currently being paid and the amount before any worthwhile comparisons can be made.
If the property was purchased 18 months ago with an original mortgage of $245,000, then the purchase price would have had to been around $305,000 to have an 80/20 LTV to avoid PMI/MIP. (Unless we are looking at single pay PMI, VA, RD, whatever). I don't think the property would have dropped that much in value ($305,000 to $249,500) in the last 18 months, so I am guessing linzyloo is paying some sort of mortgage insurance.
Also, appraisals are the wild card/deal breakers these days along with actual FICO scores used by the lenders. Another monkey wrench is by the time someone posts on the forum and replies are submitted. rates will have likely bounced multiple times in both directions making any quoted rates/fees null and void.
I'll end by agreeing with George some of the replies and advice being given leave a lot to be desired. Hopefully, readers can separate the wheat from the chaff but unfortunately I doubt that will always be the case.
I think we probably ought to first define "wheat" and "chaff" for everyone.
What is generally meant in this instance - "separating the wheat from the chaff," to use the entire quote at once, is as follows:
When you separate the wheat from the chaff, you select what is useful or valuable and reject what is useless or worthless.
I don't believe that there's a specific method by which those unfamiliar with our topics here will be able to perform this operation. Here's a hint, though - ask for guidance before you take as Gospel the advice that's provided to you.
Maybe that'll work.
What is generally meant in this instance - "separating the wheat from the chaff," to use the entire quote at once, is as follows:
When you separate the wheat from the chaff, you select what is useful or valuable and reject what is useless or worthless.
I don't believe that there's a specific method by which those unfamiliar with our topics here will be able to perform this operation. Here's a hint, though - ask for guidance before you take as Gospel the advice that's provided to you.
Maybe that'll work.