Refinance or pay extra - Which one is the better option?

Sunni, first you must be paying points to get the rate down to 4.25%. What is the loan balance and what are the total closing costs for this loan plus how long do you intend to stay in the home?

Unless you really need to lower your monthly payment, it doesn't make sense to start a new 30 year loan term all over again. As long as you can handle the payments you should strongly consider a 15 year term instead of the 30 year. You will also find the 15 year interest rates are also lower.

I am 60, and currently have 23 years left on my 30 year loan. I want to reduce the time to 7 years total to pay off loan, if possible. Loan current balance is $85000 at 6.25% at $580 per month. If I get a 15 year loan 4.50% payment would be $649 per month. How much would I have to pay per month on each to reduce my pay off time to 7 years.

You would need to increase the monthly payment by about $532 to pay it off in 7 years with a 15 year loan at 4.500%. So the total monthly principal and interest payment would be around $1182.

I have a house that I couldn't sell, so I rented it out. I owe about 113k (and maybe 150k equity) at 5.875%, and I paid biweekly (with $45 more each payment). I owned the house since 2006 and started renting it out in 2008 because I moved. Since it's a rental, if I refi the APR will be higher and the closing cost might be higher. Should I refi and get equity out to buy a new place where I live? I am paying $1700 for rent right now.

Hi Guest,

If you have equity in your property, then you can refinance the existing mortgage and take out a cash out refinance which will help you in purchasing a new property.

Thanks

So.. im living in this house since March 2003. Price tag was 180,320 ..and I still owe 158,335.09 on it currently and the rate has been 6.5% fixed since the beginning. Still have 22 years left. Monthly payment is at 1,508.04 which includes principal (271.65), interest (859.12) and the rest property taxes (273.50) and whatever else (103.77) on an FHA loan. I have roughly 30k in the savings right now.. if I throw some of that in there to bring the principal balance down to say ...130,000 or even 128,000 .....how much lower would that possibly make my monthly payments? And how much would that reduce my paying interest? Are there any penalties for doing such? How many more years would I have after that? Lastly, do people usually get any portion of $$$ for selling (I guess through an agent or whatever) if they still owe a lot as such on the principal balance? Like.. do I walk away with anything in my pocket?? Sorry for so many questions.. just trying to survive these difficult and stressful times with the least amount of cuts n bruises!!! Thanks!

forgive me, im talking about just paying on the principal.. not refinance... wanted to be clear.

Welcome dudleywannadoright,

Before paying off a certain portion of the principal amount, you need to check and see if there is a pre-payment penalty clause mentioned in the mortgage docs. If there is such a clause mentioned in your mortgage docs, then you may have to pay a penalty for paying down the principal. You should also keep in mind that when you pay extra, you must tell the lender that you want the money to go toward the principle amount. Do not presume it will be done automatically. You should also note that the mortgage does not change with the lump sum unless you refinance it.

Couple of key questions. What state are you in and what is the current estimated value of your property? Also, how is your credit/credit scores?

Good chance you can do a lot better that what you currently have but need more info.

Adonis, there is actually a field on the bill I get every month for "Additional Principal" and another field on it for "Additional Escrow". Thanks for the warnings about it not changing, whew. Guess Ill ask teh lender just in case.

jim, i live in maryland and the value is estimated at 188,500 from what I can tell. In 2010 it was at 200,900. Credit is unquestionably excellent. I pay everything on time or ahead if possible.

Im just really tight on cash at times.. especially now with the economy. Work is slowing down and hours are cut, heh. Enter the secondary job hunt. Stage right. :(

If your property value is about $188,500 and you have a loan balance of say $158,000, then you should consider paying the balance down to $150,000 to give you 80/20 loan to value. This way you will not be required to pay for mortgage insurance.

Then I would look at a conventional 20 year fixed rate loan and you should be able to get a rate of around 5.00% with little or no out of pocket closing costs. The monthly payment for principal and interest would be $990 versus the $1130 you are paying now and the loan will pay off 2 years sooner.

Thanks for the reply. What is mortgage insurance? Thats the first time I heard of such insurance.

I was told I could definitely go for a 20 year loan but was hoping for at least 4.5% ...lol dsarn.

Mortgage insurance is what you typically pay when you have a loan where the loan to property value is greater than 80%. With a conventional loan is is called PMI and with an FHA loan is is called MIP which I take it is what you are paying $103.77 a month for.

Regarding rates on a 20 year fixed rate loan, you might be able to get a 4.5% rate, however, you will need to pay discount points to get the rate down that low. As I said, if you got a rate today of 5.00% you would have little or no out of pocket costs. I would be more concerned if I were you to get the loan balance down to around $150,000 if this puts you at an 80% loan to value ratio. That would still live you with funds for an emergency out of the $30,000 you currently have.

Of course rates can and do change from day to day but if you could get a 5.00% 20 year fixed rate versus the 6.50% 30 year you have now, I wouldn't hesitate to get it.

Cool thanks jim.. sounds like a solid plan. Im going to try and get in contact with the right people tomorrow or so to see about making that happen. Thanks again peoples!

Oh and yes, there is something about MIP in my monthly statement. I see what that is now.. cool.