Should I refinance?

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kylemerriman
Posts: 31
Joined: Mon Jan 09, 2017 8:56 am

Should I refinance?

Post by kylemerriman »

My existing mortgage:
Loan origination of August 2018
4.75% fixed rate, 30 years
Amount borrowed: $332,500
Current balance: $325,000
Monthly payment: $2,150.00

3 New Options (fees worked into new loan amount):
Option 1: Loan of $338,000, 3.724% fixed, $1,883/mo,
Option 2: Loan of $336,000, 3.786% fixed, $1,897/mo
Option 3: Loan of $333,000, 3.834% fixed, $1,907/mo

I could save ~$50k over the life of the loan by refinancing.
I would lose ~$20k in interest already paid for the last 1.5 years.
The breakeven point is about 30 months.
I am leaning towards refinancing, but am not sure if there is something I am missing in my calculations. Also, I like the idea of lowering the monthly but still using the money I save each month to make an extra principal payment. Any thoughts? Thanks.
tenkuky
Posts: 1438
Joined: Sun Dec 14, 2014 4:28 pm

Re: Should I refinance?

Post by tenkuky »

Have you used mortgage professor calculators to see what the savings are with each option?
You want the 2nd one (refinance calc)
https://mtgprofessor.com/home.aspx

But, on first glance, your logic seems sound.
dsmil
Posts: 743
Joined: Tue Sep 08, 2009 10:51 am

Re: Should I refinance?

Post by dsmil »

It seems like a good idea, but definitely shop around to make sure you're getting the best rate/fees. On our recent refinance, our fees (not including escrows/prepaids) were about $3k (origination, title, appraisal). Also, if you are paying PMI and you've put some money into the house, the appraisal could lower that PMI rate.
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RickBoglehead
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Location: In a house

Re: Should I refinance?

Post by RickBoglehead »

kylemerriman wrote: Mon Jan 06, 2020 8:49 am My existing mortgage:
Loan origination of August 2018
4.75% fixed rate, 30 years
Amount borrowed: $332,500
Current balance: $325,000
Monthly payment: $2,150.00

3 New Options (fees worked into new loan amount):
Option 1: Loan of $338,000, 3.724% fixed, $1,883/mo,
Option 2: Loan of $336,000, 3.786% fixed, $1,897/mo
Option 3: Loan of $333,000, 3.834% fixed, $1,907/mo

I could save ~$50k over the life of the loan by refinancing.
I would lose ~$20k in interest already paid for the last 1.5 years.
The breakeven point is about 30 months.
I am leaning towards refinancing, but am not sure if there is something I am missing in my calculations. Also, I like the idea of lowering the monthly but still using the money I save each month to make an extra principal payment. Any thoughts? Thanks.
How do you lose interest already paid? That's a new one on me.

The only issue is breakeven, and whether you're going to stay in the property long enough to hit it. That's where a breakeven calculator comes in.

In addition, based on your current payments, you're paying PMI and taxes in your payment. You want to remove those from the analysis, and then analyze them separately.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Topic Author
kylemerriman
Posts: 31
Joined: Mon Jan 09, 2017 8:56 am

Re: Should I refinance?

Post by kylemerriman »

RickBoglehead wrote: Mon Jan 06, 2020 9:18 am
kylemerriman wrote: Mon Jan 06, 2020 8:49 am My existing mortgage:
Loan origination of August 2018
4.75% fixed rate, 30 years
Amount borrowed: $332,500
Current balance: $325,000
Monthly payment: $2,150.00

3 New Options (fees worked into new loan amount):
Option 1: Loan of $338,000, 3.724% fixed, $1,883/mo,
Option 2: Loan of $336,000, 3.786% fixed, $1,897/mo
Option 3: Loan of $333,000, 3.834% fixed, $1,907/mo

I could save ~$50k over the life of the loan by refinancing.
I would lose ~$20k in interest already paid for the last 1.5 years.
The breakeven point is about 30 months.
I am leaning towards refinancing, but am not sure if there is something I am missing in my calculations. Also, I like the idea of lowering the monthly but still using the money I save each month to make an extra principal payment. Any thoughts? Thanks.
How do you lose interest already paid? That's a new one on me.

The only issue is breakeven, and whether you're going to stay in the property long enough to hit it. That's where a breakeven calculator comes in.

In addition, based on your current payments, you're paying PMI and taxes in your payment. You want to remove those from the analysis, and then analyze them separately.
I mean I already paid about $20k in interest and would now be starting a new 30 year over. So I may be saving $50k over the life of the loan, but I need to account for that $20k. This is what I mean by "not sure about my calculations". I think I may be considering variables in my calculations that are irrelevant.
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RickBoglehead
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Location: In a house

Re: Should I refinance?

Post by RickBoglehead »

kylemerriman wrote: Mon Jan 06, 2020 9:43 am
RickBoglehead wrote: Mon Jan 06, 2020 9:18 am
kylemerriman wrote: Mon Jan 06, 2020 8:49 am My existing mortgage:
Loan origination of August 2018
4.75% fixed rate, 30 years
Amount borrowed: $332,500
Current balance: $325,000
Monthly payment: $2,150.00

3 New Options (fees worked into new loan amount):
Option 1: Loan of $338,000, 3.724% fixed, $1,883/mo,
Option 2: Loan of $336,000, 3.786% fixed, $1,897/mo
Option 3: Loan of $333,000, 3.834% fixed, $1,907/mo

I could save ~$50k over the life of the loan by refinancing.
I would lose ~$20k in interest already paid for the last 1.5 years.
The breakeven point is about 30 months.
I am leaning towards refinancing, but am not sure if there is something I am missing in my calculations. Also, I like the idea of lowering the monthly but still using the money I save each month to make an extra principal payment. Any thoughts? Thanks.
How do you lose interest already paid? That's a new one on me.

The only issue is breakeven, and whether you're going to stay in the property long enough to hit it. That's where a breakeven calculator comes in.

In addition, based on your current payments, you're paying PMI and taxes in your payment. You want to remove those from the analysis, and then analyze them separately.
I mean I already paid about $20k in interest and would now be starting a new 30 year over. So I may be saving $50k over the life of the loan, but I need to account for that $20k. This is what I mean by "not sure about my calculations". I think I may be considering variables in my calculations that are irrelevant.
You are. That $20,000 is totally irrelevant, and doesn't need to be accounted for in any way. All that matters is - what's the breakeven between old and new mortgage, and will you be staying in the property long enough to achieve that breakeven?
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
RevFran
Posts: 235
Joined: Sun Jul 07, 2019 4:48 pm

Re: Should I refinance?

Post by RevFran »

Is refinancing at 15 or 20 years an option? That would shave another sliver off the interest rate. I know some people believe in holding low-interest mortgages as long as possible— while others of course prefer being debt free as soon as possible. Both with my primary residence and with rental properties I have found the 15-year Morrgage, with its higher monthly payments and lower interest rate, a nice halfway point between those two perspectives.
tenkuky
Posts: 1438
Joined: Sun Dec 14, 2014 4:28 pm

Re: Should I refinance?

Post by tenkuky »

Depending on which state you live in, you can even get a 10 year refi. We did.
Third Federal. Great rates and low to no closing cost options.
chevca
Posts: 3473
Joined: Wed Jul 26, 2017 11:22 am

Re: Should I refinance?

Post by chevca »

kylemerriman wrote: Mon Jan 06, 2020 8:49 am I would lose ~$20k in interest already paid for the last 1.5 years.
It's already gone. How could you lose it now? Is this your way of thinking to hang on to the current mortgage to make all the interest paid 'worth it'? If so, don't think that way. You paid the interest for the mortgage you had at the time. Water under the bridge now. Forget about it.

Yes, I'd refinance. Shaving about 1% of your mortgage rate is a no brainer to me. Go for it.
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rocket354
Posts: 412
Joined: Mon Dec 14, 2015 12:31 pm

Re: Should I refinance?

Post by rocket354 »

There are a lot of variables in a refinance so it's easy to get lost in the sea of numbers. The only two that are relevant are:

1) Cost of refi
2) change in rate

This is because even if a loan is extended (starting the 30-year clock over) you can always pay extra up to what you were paying, and then you'd pay it off even quicker. It's up to you how quickly the mortgage gets paid off, the savings all comes from lowering the rate.

In your example it looks like the refi might be costing you between $8000 and $13,000 to lower the rate by about 1%, since your current balance is $325k and it would go to $333-338k. 1% of $325 is $3250 which is about how much you'd save the first year (giving back some due to increasing the principal some) and then it goes down, slowly, from there. So your payback period is going to be 3-5 years, depending on which option you take.

So will you have the loan for 3-5 years? How sure are you? Because that's how long it takes just to break even. I've had six mortgages, and only once have I had one for even four years.

That said, you might try shopping around some. I bet you can beat both rate and the loan cost considerably if you shop a bit. I've had good success with LenderFi.com, and others have done well with Better.com, just to throw out two options.

Good luck!
corysold
Posts: 960
Joined: Mon Mar 24, 2014 12:58 pm

Re: Should I refinance?

Post by corysold »

You don't have to refinance for 30 years. Some lenders will allow you to amortize the payment over 25 or 27 years, or whatever works for you. Your payment will be a little higher, but you'll payoff the loan the same time as you would now, just with lower interest from now until then.
Admiral
Posts: 3489
Joined: Mon Oct 27, 2014 12:35 pm

Re: Should I refinance?

Post by Admiral »

Nobody has asked, so I will:

What is your age?

The reason this is relevant is that it's preferable to go into retirement with no mortgage (for numerous reasons that are discussed in other threads). If you're 25 or 30 and looking at a 30 year mortgage, OK. If you're 45 or 50: I would not take a 30 year loan UNLESS you plan to sell the house/downsize or buy something with a shorter loan term. Perhaps this is your starter home. 30 years sounds great in terms of low payments, but it's still payments for a long time. If you can afford a shorter term, you'll also get lower rates.
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