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Refi looks like a no-go?? Advice

January 8th, 2013 at 02:16 pm

I talked to my mortgage guy ( a couple of mortgage guys). We qualify for a 2.75 percent 10 year loan if we refinance. closing costs are about 2200, although they won't know until we are into the underwriting process if we'd need to pay for an appraisal. Our current rate is 4.875 percent.

I spent a lot of times on mortgage calculators trying to figure out how much we'd actually save in interest with a refinance. I think we are still on track to have this loan paid off in about 4 years. (Most of the calculators don't account for that). I did find one calculator that let me do a straight amortization table on our current balance, with 4 and 5 year estimated pay off times, at the two different interest rates. And, the interest savings from a refinance weren't as great as they appeared at first.

Seems like we'd save about 4,000 in interest, minus the 2200 closing costs, so less than 2000 to go through the hassle of refinancing. Yes, that is real money, but I'm not sure it's worth going through the process if that is the result. What do you guys think?

Or, have you seen any other calculators out there that will help me work out the actual savings?

**
In other news, I managed to sock away my first savings of the new year. (hazzah!)

$200 to kid 1's 529 and $300 into my IRA. I anticipate sending a bit more next week, but I'm shuffling some bills through the checking account, as well as transferring the savings from the ef to the new online bank, and need to see what it looks like when the dust settles.

10 Responses to “Refi looks like a no-go?? Advice”

  1. creditcardfree Says:

    I wouldn't go through with it if that is the only difference. Knowing how fast you pay off debt, you are more likely to find extra cash to throw at the mortgage and pay off even faster. If there is an appraisal your net savings is even less!

  2. Petunia 100 Says:

    Have you ruled out PenFed for some reason or other? 5 years @1.99% with no closing costs. Just sayin'. Smile

  3. Beawealthywarrior Says:

    I would say throw all extras at mortgage

  4. ceejay74 Says:

    OMG Petunia. That is an insanely good deal! Wish I was in a position to take it!

  5. Petunia 100 Says:

    You and me both, Ceejay. Wink

  6. ThriftoRama Says:

    Hi Petunia. I'm not opposed to the idea of PenFed, but I really like our current bank, and I'd be afraid of any penalties if we didn't for some reason pay off the loan within the 5 year time frame. If we lost a job or had a medical crisis, and didn't make the 5 years, would we be hit with huge fees or penalties? That makes me nervous. I like to plan for the best but prepare for the worst.

  7. Petunia 100 Says:

    Thriftorama, I understand wanting some "wiggle" room, just in case. The terms I mentioned are for a home equity loan with fixed payments. You can only get 1.99% for 5 year or shorter loans. If you want to finance for longer than 5 years but less than 10 years, you can get 3.74%, still no closing costs.

    You might consider a 5 year home equity loan, plus opening a heloc. Just in case you couldn't make the payments for whatever reason, you could borrow a bit on the heloc. Effectively, you would be transferring the principal you could not pay to a slightly higher rate. According to the website, the heloc charges prime, but with a floor of 3.75%. If you never need to use the heloc, it wouldn't cost you anything to have it open. If you did need to use the heloc, the higher rate on the small balance wouldn't outweigh the benefit of the moving the bulk of your mortgage debt to 1.99%.

    I'm sure you'll do fine no matter what you decide. Smile

  8. ThriftoRama Says:

    I hate to be a party pooper, but I like simplicity. Having a back up heloc on a home equity loan sounds dizzying to me!

  9. Wino Says:

    I did a similar calculation on my own and came up with similar figures. I decided to NOT do the refinance (I'm at 6%, by the way), and will have the loan paid off this year. The difference was not worth the hit on my credit for the hard inquiry nor the hassle of doing all the paperwork and "oops, we forgot charges" that ALWAYS occur at closing or the day before.

    Basically, less than $40 a month for the hassle factor was not worth it.

    PS. We're ahead of schedule, so it is quite possible the refi would have cost us a little money instead of saving a little money. I didn't bother to do a complete amortization on the existing loan assuming interest diminuation as I paid it off, so my interest paid is actually less than I had calculated.

  10. ThriftoRama Says:

    Yeah. The process was very frustrating and intrusive when we got the mortgage in 2011, and the mortgage guy pretty much said the process hasn't gotten more onerous, thanks to new rules going into effect governing mortgages. All of that will fall on me. Maybe I just need to calculate my hourly pay rate to see if it's worth it!

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