Posted on: 04th Dec, 2009 08:07 am
i currently have a 30 year fixed mortgage at 5.375 percent. the intial loan amount was $163,000, and the loan began in july of 2003. i have an opportunity to refinance now for a 15 year fixed mortgage with no closing costs at 4.75 percent, of a loan amount now of $146,500. my payment will go up about $220 to do this. should i refinance, or just pay $220 more per month on what i have now? thanks.
You could actually do either. If you plan to be in the home for at least 10 years, then refinance. 10 years is not the typical answer I would give but because you are going down less than 1% in the rate, you would need a longer time before that refinance starts to pay you back.
paying $220 more per month will still be paying at a 5.375% rate with almost 24 years remaining. that would be a foolish move, in my view.
by all means, if you're not paying closing costs and you're dropping your rate to 4.75%, go for the refinance. you're also chopping almost 9 years off your payback period. this is, or should be, a no-brainer.
by all means, if you're not paying closing costs and you're dropping your rate to 4.75%, go for the refinance. you're also chopping almost 9 years off your payback period. this is, or should be, a no-brainer.
I am sure the closing costs will be added to his/her loan balance. So, we do not know what those costs are and what the real new payment will be.
Yes, there may be a good case for refinance. No-cost refis can be a pitch for higher than normal commissions so you should look carefully at various alternatives.
At your current rate, a P&I payment of $1,187.39 would pay your balance of $146,507.21 in 180 months compared with the 15-year refinance P&I of $1,139.58 – a difference of $47.81/month. Since your in closing costs is zero, the rate of return is infinite! Not bad but Id look at the $47.81 as the monthly cost of giving up the option of reverting to your current $912.75 P&I if you had a month. This is the $220 spread you mention in your post.
You must understand that youre being charged a higher than rate so that your closing costs are paid by the lender. The lack of closing costs naturally appeals to your greed but is it a good deal? Seems reasonable appears about $2,800 extra over and above a normal commission to pay costs. This would be on the high side around here but could be reasonable in your location. Ask for a GFE. This should show the estimated costs to be paid even though paid by the lender. If YSP (yield spread premium) has definitional meaning to the company with whom dealing, the YSP should also show on the GFE and you could get a feel for the balance between the two. Id also compare the option of a lower, zero-point rate with closing costs paid by you.
If theis reasonable to you, the refi could make sense.
At your current rate, a P&I payment of $1,187.39 would pay your balance of $146,507.21 in 180 months compared with the 15-year refinance P&I of $1,139.58 – a difference of $47.81/month. Since your in closing costs is zero, the rate of return is infinite! Not bad but Id look at the $47.81 as the monthly cost of giving up the option of reverting to your current $912.75 P&I if you had a month. This is the $220 spread you mention in your post.
You must understand that youre being charged a higher than rate so that your closing costs are paid by the lender. The lack of closing costs naturally appeals to your greed but is it a good deal? Seems reasonable appears about $2,800 extra over and above a normal commission to pay costs. This would be on the high side around here but could be reasonable in your location. Ask for a GFE. This should show the estimated costs to be paid even though paid by the lender. If YSP (yield spread premium) has definitional meaning to the company with whom dealing, the YSP should also show on the GFE and you could get a feel for the balance between the two. Id also compare the option of a lower, zero-point rate with closing costs paid by you.
If theis reasonable to you, the refi could make sense.
