Refinance now or Later?

hi abbey,

i'll go by what others are saying. it's better if you refinance now because rates have dropped even lower now. check out from a very recent mortgage rates discussion. and, if you can pay off the second loan, you may not have to take out a lot of extra cash. so, hopefully things seem to be good enough for the refinance!

good luck

Hi Abbey,

Some prepayment penalties are as high as 6 months interest. You can look this up by refering to the copy of your note in the original paperwork that you signed. How much longer do you have before it expires?

You should be able to get a rate in the mid 5's with no prepayment penalty so it could make up for the cost of having to pay that. If you have less than 6 months on that current prepayment penalty, then I would wait.

Lisa,

Please stop quoting rates. Are you saying you can get the best rate with cash out as well? You can't quote a rate because we don't know the whole scenario yet. And we still don't know if refinancing will save them anything even if they could get that rate you quoted.

Abbey,

Could you please answer these additional questions?

You have had your current mortgage for 10 years?

What is the exact time if you know it?

What is the payment?

What was the original loan amount?

Do you know what you prepayment penalty is?

I am still not sure it would be best to refinance. You may be able to pay it off faster with the loan you have. Answer those questions above and I will do the math for you.

Is your current loan a fixed rate or adjustable?

Eric, Thanks for your input! I have been wondering the same thing--But, we have 20 years left on our 30 yr fixed at 8.25%. We built our house in 1997. The original loan was 86,000 and our house appraised at $130,000 as soon as it was built. It should appraise now at about 150-160K. Our current balance is appx. 74k but I don't know the actual payoff amount. I do know what a prepayment penalty is but I didn't know how it was calculated. My PP concern was about the new loan, not the one we have now because we want to pay it off within 15 years. I thought the 30 would give us more flexibilty in our payment ie adding extra principal as often as possible while still having our mandatory payment lower. Our current payment is 825. mo PITI. It varies a little each year depending on taxes/escrow. It has been as low as 775. The current payment is the highest it has ever been.

"I do know what a prepayment penalty is but I didn't know how it was calculated. My PP concern was about the new loan, not the one we have now because we want to pay it off within 15 years. I thought the 30 would give us more flexibilty in our payment ie adding extra principal as often as possible while still having our mandatory payment lower."

I understand your concern. A prepayment penalty as far as I have seen is only for the first 3 years or less. After that there is no penalty. There may be longer but I am not familiar with them. So you shouldn't have one for the current loan any longer. And as far as the new loan goes (if you decide to get one) won't matter as long as you stay for over 3 years. You said you will so a prepayment penalty won't be relevant to you. A prepayment penalty isn't always bad, IF it saves you money. In your situation it doesn't sound like you will have to worry about having one either way.

Now on to the fun stuff.

You owe $74,000 on a home worth $150k.

Your original loan was for $84,000 and you have 20 years remaining at a payment of $825. So you have $631.06 is your principle and interest and right now $194 mo for taxes and homeowners. That should be correct let me know if it is not. What that all means is that you have
8.25% / 30 year fixed

20 years remain

Original $86,000

owes $74,000

payment $825 piti

pi $631.06




pay extra $85 per month to pay off in 15 years
for a total of $716 month X 179 months = $128,164



----------------------------------------------

New loan- no cash or other debts paid

74,000 for 30 years at 6% is $443.67 PER MONTH

or 15 year payoff with an additional $185 per month

total of $628.67 month X 179 months = $112,531


You would save $15,633 by refinancing your current mortgage.

-----------------------------------------------

Now lets take a look with cash to you -

$85,000 loan amount for 30 years at 6.5% is $537.26

or 15 year payoff with additional $205 per month is

a total of $742.26 month X 180 months = $133,606

So it would actually cost $21,000 more to pay off the 2 debts.

So you will need to consider the total cost of those debts
and see if they will cost you more or less than $21,000.


To summarize it appears to be beneficial to refinance. Whether or not you get the $5000 cash and pay off the other debts is up to you and would cost you an additional $21,000 over the next 15 years. Either way you are going to save money over what you currently pay. Everything in my figures are just estimates and of course not based off of any facts just what you have provided me and the rates are simply for example purposes. If you got a lower rate the benefits would obviously increase and the opposite if you got higher rates. Keep in mind that you will most likely have to pay a higher rate if you decide to get cash and pay off other debts. This is called a "cash out" refinance. The other option is to simply refinance you current first mortgage, this is called a "rate and term" refinance.

I know this is a lot of info, so simply let me know if you have any questions.

"Can I expect a good rate and service with the current scores or should I wait for higher scores and lower interest rate this summer? Thanks for your feedback."

I didn't really catch this comment at first. You should (and this goes for everyone, not just the original poster) always expect a good rate and especially good service no matter what your credit score, situation, income, race, color, gender, etc, etc, etc...

As far as rates go even low credit borrowers are getting rates lower than they were 20 years ago for the best credit borrowers.

I just wanted to point that out. And as far as your scores go they are fine and I don't see the rates getting any better. What matters just as much as your scores is the credit report itself. You can have a high score with poor credit and vice versa, you can have a low score with (seemingly) good credit.

Thank you! Hmm---what about the 1040 tax implications? We are now paying less interest as the loan has aged. If we refi, will we be able to deduct more interest again? Just a thought.

Who does your taxes?

That is a great point and you or anyone else would definitely want to talk to a good tax advisor.

Looking more closely at your numbers, I think we will go with a straight rate and term. Can't stand the thought of having to pay that much more for that
already-too-pricey truck!

Ahhh you caught that. That is why I wanted to point it out to you. If you pay it off now. Which you said you could you will save a lot more money, and simplify the process.

Best of Luck

Yep. The potential additional cost of the truck was a jaw dropper to my husband as well when I showed him your numbers. He thanks you, too!
This will also be very valuable information for others in our refi situation.

Hi Abbey,

Have you found attractive terms for your refinance? You can always ask questions here about the quotes you are gathering to make sure you are comparing apples to apples.

Lisa, I did get some quotes but the rate is changing daily (or twice daily), depending on the stock market, so unless I'm ready to pounce, which is what I'm working on, it doesn't do much good. I didn't expect all that volatility. Anyway, I've gotten mid 5s, no points, and very fair GFE.