Im at 6.5 % adjustable with a 6 K prepay for one more year . I am being offered a 30 yr fixed at 5 and 3/8. is it a good idea to lock in the lower rate now? or wait one year >?
calculate how much you are saving per month in your monthly payment and multiply it by the number of months you plan to live in the house. Then, compare that figure to the $6,000 pre-pay.
If the figures are in favor of you refinancing, now ask yourself whether you will save more money now or a year from now. Keep in mind, however, that a year from now, you do not know what the rates will be, and the odds that they may very well be higher. Also, keep in mind that today's dollars are worth more than future dollars.
We plan on staying in the home 5 yrs or more. Theres a few more details i need to add. we have been pursuing this refi for 2 months from our neighbor who is a mortgage broker. The deal was we would do a cashout refi but because we have only been in the house 10 months the bank said no cash out. We need the cash. He offered a home line of equity after the refi. but they guy lies soo much i dont know what to beleive. I have a 30 k line set up at B of A supposed to sign this morning. hes offering a 50 k line prime plus 1.5 .Prime being 4 something. Kinda of sketchy on details as hes always been. B of A is offering
3.5 added to the secondary jumbo CD which is 1.7. both loans interest only.
The sure thing is B of A . the mortgage broker called last night and said i was approved for a 50 k line of equity and the refi papers were ready to sign. Wont one effect the other? Could i do the Bof A line of equity and then the refi? Im so confused and dont know if the broker can be trusted. he keeps making promises then blames the banks for holding it up.
If you don't think you can trust the broker the answer is obvious - DON'T! I wouldn't expect anybody to work with me if they couldn't trust me, nor do I work with people I can't trust.
Even though rates are off their historically low levels, you shouldnt jump on this refi without doing your homework. The decision to refi or not greatly depends on how long you plan to keep the property.
So how long do you plan to keep the property??? be realistic...
A 6K pre-payment penalty is pretty high, specially when you only have one year to go to avoid it. You will beak even ( 6K penalty Vs monthly saving on the lower payments) only if you keep the property for a few good years. Basically you need to do the math: how many years will it take you to save 6k with the lower payments. Once you find that number, determine whether or not you will own the property until then. If you will, then the refi is worth it. If you think that you might sell before then, thent he refi is not worth it.
For example, I have a property with a 30 yr mortgage at 6.99%. Im refinancing for 4.35% 5 yr adjustable. it will cost me 2k for the closing costs. My math tells me I will beak even after 13 months. And since I plan to keep the property for 3 yrs then this refi is worth it ( beyong my break even point so I'll save and before the 5 years so I wont face a higher payment).
Going back to your situation, suppose your current mortgage is $200k. Assuming that it is based on a 30 year repayment schedule ( though the rate is adjustable after the first few years), your monthly payment at 6.5% will be $1264.14. if you refinance at 5.375% the payment will be lowered to $1119.94 for a monthly saving of $144.20.
To break even, you need to keep the mortgage until the monthly savings of $144.20 totals 6k. In other words, it will take you about 42 months to do that. Which means for the refi to be worth it, you should plan to keep the mortgage for at least 3.5 years.
you're not done yet! say you wait and the rates go up a full point next year. There will be no prepayment penalty and your new rate might be 6.375% instead of the current offer at 5.375. At next year's rate, your payment will be $1247.74. Remember that if you refinance now the payment will be $1119.24. So your payment will be $127.80 higher if you wait a year but you keep your 6k. If everything works out like in the above scenario, then you will start loosing money after about 50 months ( a little over 4 years). In other words, for the refi to be worth it next year, you have to plan selling within 4 years of the refi.
So use your exact numbers and do the math. The key factor is how long you plan to keep the house. Also keep in mind that 6k added to your mortgage at the refi interest of 5.375 that you are comtemplating, will cost you more $12,096 in 30 years.
Obviously, there are more to consider than just the above but Im sure you get the picture.
Thank you all for your replys. As was stated, there is more to consider. I owe 236k now. After prepay and refi cost 1 point plus processing fees my new loan amount would be 251 k an equity loss of 15 k . Then add the 50 k home line of equity makes it 301k if maxed, and locked in a 3 year prepay to boot, on the 251k.
So im going to leave my original loan at 236k take out a 30k line of equity then refi it all in to one loan in 1 year and hope that interest rates dont go too high. I hope im doing the right thing.
Rates are headed up, probably by at least 0.75% over the next 12 months, if that's any help. Rgds, TJ
calculate how much you are saving per month in your monthly payment and multiply it by the number of months you plan to live in the house. Then, compare that figure to the $6,000 pre-pay.
If the figures are in favor of you refinancing, now ask yourself whether you will save more money now or a year from now. Keep in mind, however, that a year from now, you do not know what the rates will be, and the odds that they may very well be higher. Also, keep in mind that today's dollars are worth more than future dollars.
We plan on staying in the home 5 yrs or more. Theres a few more details i need to add. we have been pursuing this refi for 2 months from our neighbor who is a mortgage broker. The deal was we would do a cashout refi but because we have only been in the house 10 months the bank said no cash out. We need the cash. He offered a home line of equity after the refi. but they guy lies soo much i dont know what to beleive. I have a 30 k line set up at B of A supposed to sign this morning. hes offering a 50 k line prime plus 1.5 .Prime being 4 something. Kinda of sketchy on details as hes always been. B of A is offering
3.5 added to the secondary jumbo CD which is 1.7. both loans interest only.
The sure thing is B of A . the mortgage broker called last night and said i was approved for a 50 k line of equity and the refi papers were ready to sign. Wont one effect the other? Could i do the Bof A line of equity and then the refi? Im so confused and dont know if the broker can be trusted. he keeps making promises then blames the banks for holding it up.
If you don't think you can trust the broker the answer is obvious - DON'T! I wouldn't expect anybody to work with me if they couldn't trust me, nor do I work with people I can't trust.
Tom
[addsig]
Even though rates are off their historically low levels, you shouldnt jump on this refi without doing your homework. The decision to refi or not greatly depends on how long you plan to keep the property.
So how long do you plan to keep the property??? be realistic...
A 6K pre-payment penalty is pretty high, specially when you only have one year to go to avoid it. You will beak even ( 6K penalty Vs monthly saving on the lower payments) only if you keep the property for a few good years. Basically you need to do the math: how many years will it take you to save 6k with the lower payments. Once you find that number, determine whether or not you will own the property until then. If you will, then the refi is worth it. If you think that you might sell before then, thent he refi is not worth it.
For example, I have a property with a 30 yr mortgage at 6.99%. Im refinancing for 4.35% 5 yr adjustable. it will cost me 2k for the closing costs. My math tells me I will beak even after 13 months. And since I plan to keep the property for 3 yrs then this refi is worth it ( beyong my break even point so I'll save and before the 5 years so I wont face a higher payment).
Going back to your situation, suppose your current mortgage is $200k. Assuming that it is based on a 30 year repayment schedule ( though the rate is adjustable after the first few years), your monthly payment at 6.5% will be $1264.14. if you refinance at 5.375% the payment will be lowered to $1119.94 for a monthly saving of $144.20.
To break even, you need to keep the mortgage until the monthly savings of $144.20 totals 6k. In other words, it will take you about 42 months to do that. Which means for the refi to be worth it, you should plan to keep the mortgage for at least 3.5 years.
you're not done yet! say you wait and the rates go up a full point next year. There will be no prepayment penalty and your new rate might be 6.375% instead of the current offer at 5.375. At next year's rate, your payment will be $1247.74. Remember that if you refinance now the payment will be $1119.24. So your payment will be $127.80 higher if you wait a year but you keep your 6k. If everything works out like in the above scenario, then you will start loosing money after about 50 months ( a little over 4 years). In other words, for the refi to be worth it next year, you have to plan selling within 4 years of the refi.
So use your exact numbers and do the math. The key factor is how long you plan to keep the house. Also keep in mind that 6k added to your mortgage at the refi interest of 5.375 that you are comtemplating, will cost you more $12,096 in 30 years.
Obviously, there are more to consider than just the above but Im sure you get the picture.
Good luck!
Thank you all for your replys. As was stated, there is more to consider. I owe 236k now. After prepay and refi cost 1 point plus processing fees my new loan amount would be 251 k an equity loss of 15 k . Then add the 50 k home line of equity makes it 301k if maxed, and locked in a 3 year prepay to boot, on the 251k.
So im going to leave my original loan at 236k take out a 30k line of equity then refi it all in to one loan in 1 year and hope that interest rates dont go too high. I hope im doing the right thing.