Posted on: 02nd Jan, 2009 12:40 pm
we currently have a 30 year fixed mortgage with an interest rate of 6.25% on the 1st mortgage of $160k and an interest rate of 8% on the 2nd mortgage of $18k. we have the two mortgages to avoid mortgage insurance. our house would most likely be appraised right around $200k. we have lived in the house for 4 years and plan on living here a few more years.
my question is - should we refinance if we could get an interest rate of 5%? also, we were thinking of refinancing with a 15 year fixed mortgage, if we could get a rate around 4.75%. would it be worth us to refinance even if closing costs are around $4000?
my question is - should we refinance if we could get an interest rate of 5%? also, we were thinking of refinancing with a 15 year fixed mortgage, if we could get a rate around 4.75%. would it be worth us to refinance even if closing costs are around $4000?
if you refinance you do not want the new mortgage to be over 80% of the value of the house because then you must have private mortgage insurance and that payment will eat up any savings you get from the lower rate in the refinance.
if your balance is $160,000 and the value is $200,000, the existing mortgage balance is already at 80% of the value and there is no room to raise the mortgage to cover closing costs.
also, no room to pay off the second mortgage so that would have to be subordinated to the new first mortgage.
you should refinance to 30 fix at 5% or lower and you should do 15 fix if those payments are ok with you.
however, one or more of several things must happen:
1. maybe the house will appraise higher than $200,000
2. if not, you can refinance only if you pay the closing costs out of pocket
3. the second mortgage company has to agree to remian in second position behind the new first mortgage
if your balance is $160,000 and the value is $200,000, the existing mortgage balance is already at 80% of the value and there is no room to raise the mortgage to cover closing costs.
also, no room to pay off the second mortgage so that would have to be subordinated to the new first mortgage.
you should refinance to 30 fix at 5% or lower and you should do 15 fix if those payments are ok with you.
however, one or more of several things must happen:
1. maybe the house will appraise higher than $200,000
2. if not, you can refinance only if you pay the closing costs out of pocket
3. the second mortgage company has to agree to remian in second position behind the new first mortgage
john is correct with one caveat: you can refinance using fha financing that would allow you to borrow up to 95% of the home's value. yes, there is a mortgage insurance premium.
the main thing for you to judge is the difference in costs: how long will it take you to pay for that $4000 in costs with the reduction of interest as a result of the new loan. if it's reasonable to you, then go for it. trading in a rate that's over 6 for one that is 5 or so is generally considered a worthwhile endeavor.
the main thing for you to judge is the difference in costs: how long will it take you to pay for that $4000 in costs with the reduction of interest as a result of the new loan. if it's reasonable to you, then go for it. trading in a rate that's over 6 for one that is 5 or so is generally considered a worthwhile endeavor.
Also, to comment on the term of the loan, 15 year or 30 year. I would stick with the 30 year. I this type of market that additional principle would be best suited in your bank account! If you pay down your mortgage, you have nothing to show for. In hard times, when you need the money, it may not be available to you. Lets face it the guy who owes 100% of the value of his home has the same concern as the guy who owes 50% of what his home is worth. If either misses 4 payments they both lose their house. The one owing only 50% of what the home is worth really loses more.
On the other hand, I am not encouraging you to waste your money. If you have the available funds to pay your mortgage on a 15 year note, call a financial planner and let that extra money work for you. Your house will gain value regardless of what you owe, so it is not the best place for your extra money.
Lets not forget that mortgage interest can be written off on your taxes. Mortgage money is cheap money.
On the other hand, I am not encouraging you to waste your money. If you have the available funds to pay your mortgage on a 15 year note, call a financial planner and let that extra money work for you. Your house will gain value regardless of what you owe, so it is not the best place for your extra money.
Lets not forget that mortgage interest can be written off on your taxes. Mortgage money is cheap money.
If you have the ability to pay more each month (you were talking about a 15 yr loan), then I would make additional payments against that 2nd mortgage at 8% right now. Do what you can to knock that down.
Your other option is to find a home equity product that is close to prime and pay off that second loan. Now your second loan will have a much lower rate. Then, look to refinance that first loan if you can afford the closing costs out of pocket. The prior post was correct in that you have no room to borrow the closing costs while staying under 80% loan to value.
Eric
"http://www.dreamhomefinancing.com"
[Link deactivated as per forum rules. Thanks.]
Your other option is to find a home equity product that is close to prime and pay off that second loan. Now your second loan will have a much lower rate. Then, look to refinance that first loan if you can afford the closing costs out of pocket. The prior post was correct in that you have no room to borrow the closing costs while staying under 80% loan to value.
Eric
"http://www.dreamhomefinancing.com"
[Link deactivated as per forum rules. Thanks.]
