Refinancing?

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I emailed my mortgage lender and asked what the rates were like. She told me that she could get me a 30 year fixed loan on 5.25%. I was shocked, considering that last year my rate was 5.875%. I'm not going to go into details of my mortgage costs or whatever on here...

I priced out a refinance of my mortgage and it was about $150 per month savings. I'd still have to pay appraisal, title - usually 1/2 of original, escrow taxes - get old escrow taxes back, a few junk fees- credit, survey, flood, attorney to close the refi hired by the lender...which can add up to $2,000.

But, spending $2,000 to save $150 a month, i'd make my money back in a 14 months. I don't plan on moving in the next couple of years, and it seems logical to me to refinance.

Is there a rule of thumb on refinancing? Do you just take the costs of refinancing divided by the money saved per month and make sure you are planning to stay in your current unit for that amount of time? Are there any dangers, like to my credit rating, if I were to refinance?

I'm sort of new at this, maybe there are smarter people out there who can offer some insight.

4 Comments

A couple of points. First, can I have the info for your lender? My lender is still quoting 5.675 for a no point 30 year! Other things to consider: What does this save you over the life of the loan? Your lender should be able to tell you this, including fees, points etc. Rembember, you are now extending out your loan and will be paying on your apartment for 31 years. Also, why is your lender making you go through appraisal, survey, flood etc. all over again if you did your orignal loan with them only a year ago. My lender offered to waive these and other costs on a refi since they already had them on file from the original loan. The main reason I'm thinking of doing a refi of my 5.875 mortgage I've been paying on for 5.5 years is that I can now consolidate my second mortgage since the conforming loan amounts have gone up. I'd love to have just one mortgage loan. Good luck....

the rule of thumb for re-financing that i've always heard is if you can get 0.5% better rate then it is worth it. as you said, you'll be making your money back pretty quickly.

Be careful. I used to be a mortgage loan officer and I will tell you that there are a lot of ways to make a refi look like a good deal, especially when there is a lower monthly payment. Watch out for points, buydowns, and "loan origination" fees--they are all basically the same way of saying that they are charging you interest up front. For example, if your current rate is 5.875%, the lender could refi you into a 5.25% rate but charge you an origination fee equivalent to 0.625% of the loan value. Sounds like a great deal because you monthly payments are lower, but at the end of the day the bank is still getting their interest. Also, on the loan paperwork check the APR, because that is the real rate you are paying. Be aware that you are also extending out you loan for a longer period of time, so it could end up costing more in the long run. If you plan on moving before the 30 years are up, your principal balance might end up being higher than if you kept your current loan. Also, keep in mind what is going on with the financial markets right now--it doesn't look like rates are going up any time soon so there might not as much urgency to refi right now as lenders might have you believe. Who knows, rates might even go down further if the current economic situation and housing market continues to deteriorate. All in all, it could be a good deal, but kudos to you for doing research to make an informed decision.

I called my mortgage guy and he said that last week they went down to 5.375 on a 30 fixed no points, but they only had that rate for 4-5 hours. I put myself on a list to be called if it drops to that again. He said I can save another .25 if I go to the 20 year fixed, which I may do since I've already been paying for 5.5 years. He said the next time there might be a low is tomorrow afternoon as the Fed releases some chatter....

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This page contains a single entry by Furey published on January 24, 2008 12:19 AM.

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