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Help with Refinance Question?
Old 12-25-2011, 11:37 AM   #1
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Help with Refinance Question?

Can anyone please weigh in on my options for refinancing my home? I have $59,000. left on my mortgage at 5.5% rate. The monthly payment (without escrow) is $568. My house is most likely worth about $275,000 in today's market. I'm one of those persons who is really really wants to pay off the mortgage asap (no talking me out of it: I am debt adverse) and hence have had myself on an aggressive paydown schedule for several years. At my current and sustainable rate of paydown--$850. on principle per month--I should be able to pay off the mortgage in Dec. 2015, four years from now.

From some quick calculations it looks like refinancing might be able to cut a half year off this payment schedule. Also from some things I've read, it may be best to go for a 5/1 ARM as I am very confident the mortgage will be paid off in 4 years. Does this sound like a good choice? Also, I see incredibly low rates advertised for 5/1 Interest-only ARMs. Would there be an advantage in going for one of these? In all cases I would continue to pay down the principle agressively, with the object of paying it off in 3.5 years.

Finally, can anyone recommend a bank and/or online source for low rates? My current mtge. is with a local credit union but they don't offer ARMS. I'm a little scared to step out of the box. Thanks.
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Old 12-25-2011, 12:27 PM   #2
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Quote:
Originally Posted by Marita40 View Post
Can anyone please weigh in on my options for refinancing my home? I have $59,000. left on my mortgage at 5.5% rate. The monthly payment (without escrow) is $568. My house is most likely worth about $275,000 in today's market. I'm one of those persons who is really really wants to pay off the mortgage asap (no talking me out of it: I am debt adverse) and hence have had myself on an aggressive paydown schedule for several years. At my current and sustainable rate of paydown--$850. on principle per month--I should be able to pay off the mortgage in Dec. 2015, four years from now.

From some quick calculations it looks like refinancing might be able to cut a half year off this payment schedule. Also from some things I've read, it may be best to go for a 5/1 ARM as I am very confident the mortgage will be paid off in 4 years. Does this sound like a good choice? Also, I see incredibly low rates advertised for 5/1 Interest-only ARMs. Would there be an advantage in going for one of these? In all cases I would continue to pay down the principle agressively, with the object of paying it off in 3.5 years.

Finally, can anyone recommend a bank and/or online source for low rates? My current mtge. is with a local credit union but they don't offer ARMS. I'm a little scared to step out of the box. Thanks.
I am in the process of refinancing to a 15 years fixed at 3.375%. My current mortgage has 13 years left but is at 4.375% so I am reducing my interest rate by 1%. The refinancing cost is about 1% of the loan and is being folded into the refinancing.

In our area a 5/1 ARM is actually 1.5% more than a 15 year fixed. Since your time horizon is so short perhaps a 10 year fixed would be best. In our area a 10 year fixed offers the lowest interest rate and with auto-pay is 3.225% with no points, so shop around.
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Old 12-25-2011, 12:50 PM   #3
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Check bankrate.com for mortgage rates. I've refi'd twice through the internet without a problem, but you never know. I'd be happy to go with the ARM since you're pretty sure you will pay it off and the rate's are probably really nice. But do think about what happens in the worst case, if you lose your income (j*b?) and can't keep up the extra payments. If that's a disaster, then go with a fixed mortgage.

Be sure to look for a "zero cost" mortgage, with no up-front costs and nothing added to the principal amount. You'll pay a higher interest rate, but that should be better than fees up front when you are paying it off early.
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Old 12-25-2011, 12:59 PM   #4
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Thanks for your replies. I have been looking, especially, at ING's Easy Orange 5 year. Any thoughts on these?
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Old 12-25-2011, 01:09 PM   #5
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No idea on anything specific. My last refi was 2009.
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Old 12-25-2011, 01:30 PM   #6
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If you're so close to being done with the mortgage, why not pay extra principal each month instead of going through the hassle and costs of a re-fi? I knocked our 30 year mortgage out in 10 years doing when we had a 7.25% rate. Being mortgage free is wonderful!
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Old 12-25-2011, 01:50 PM   #7
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You might find it hard to get a reasonable no cost refi on a 59k balance. A low cost home equity loan may turn out to be a better option so look into those as well.

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Old 12-25-2011, 01:58 PM   #8
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Do check the amortization schedule for the current mortgage (there exist calculators on line that will generate it). I suspect you will find at the stage the mortgage is in the payments are mostly principal. Of course one other way to pay faster, with todays auto pay features, is to pay twice a month, which takes a bit off the interest due.
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Old 12-25-2011, 01:59 PM   #9
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Kira, as stated above I am indeed paying extra per month on principal--$850./month. Still, I was wondering if an interest rate lower than 5.5 might shave a few months off of the pay down plan. My credit union (where my mortgage currently is held) offers an 8 year fixed at 3.125 with $1499. closing costs. After crunching the numbers it seems I can shave about 2 1/2 months off my current plan. Just wondering whether it is worth the hassle!
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Old 12-25-2011, 02:35 PM   #10
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If you go to www.penfed.com they are offering an online only special 5 year home equity loan at 2.99% with zero closing costs. I don't think you could possibly do better.
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Old 12-25-2011, 06:20 PM   #11
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We had a 15 year mortgage that we were 3 1/2 years into at a 5% rate. In November we closed on a 7 year ARM at Wells Fargo for 2 7/8%. Since we are wanting to pay off the mortgage before we retire in the next few years, this was a great deal. Our break even on refinancing charges is in 9 months.

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Old 12-26-2011, 04:02 AM   #12
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Brewer, I am seriously considering the 2.99% 5 year Penfed home equity loan. As you state with such a low rate and no closing costs there's nothing that beats this for my situation. I've always had a traditional mortgage so I'm just a bit concerned with going this route. Does anyone see any problem at all with taking this home equity loan to pay off the balance of my mortgage? By paying more on the Penfed principal each month my calculations state that I can now shave 1/2 year off my current mortgage payments--ie. be done with the whole thing in 3 1/2 years. Any thoughts from the experts here?
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Old 12-26-2011, 04:06 AM   #13
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Additional thought--do lenders mind if you apply for a home equity loan to pay off a mortgage? That is should one be upfront about this use of the loan?
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Old 12-26-2011, 06:41 AM   #14
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I don't know if they mind but last May when I refinanced, I was exploring a home equity loan as an alternative and the application flat out asked if I intended to pay off the existing mortgage with it. This was with USAA.
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Old 12-26-2011, 07:42 AM   #15
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Additional thought--do lenders mind if you apply for a home equity loan to pay off a mortgage? That is should one be upfront about this use of the loan?
I did this a few years ago before I paid off my mortgage. I did tell the loan officer that I would likely pay off the mortgage with the home equity loan, but there is really no reason that you are required to tell them. You just need to have enough equity in the house to cover the HE loan (appears that you do).
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Old 12-26-2011, 08:05 AM   #16
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Actually, I think they would favor your paying off the mortgage because if you used the proceeds for something else (say to buy a car or a boat) their collateral is second lein to your mortgage, but if you use the proceeds to pay off the mortgage then they are the only lien on the collateral.
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Old 12-26-2011, 08:29 AM   #17
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I rather doubt pen fed cares what you do with the loan proceeds.
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Old 12-26-2011, 10:08 AM   #18
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I would figure out how much I would be paying at the current rate to retire the mortgage. Then do the same with your proposed new mortgage (either you will have closing costs requiring you bring cash to the closing or you will be financing them!).

If the costs of the new mortgage including all payments are less than what you will pay, then you have your answer. As to which company or what type of contract -- that's up to your comfort level.

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Old 12-26-2011, 03:28 PM   #19
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Brewer, I am seriously considering the 2.99% 5 year Penfed home equity loan. As you state with such a low rate and no closing costs there's nothing that beats this for my situation. I've always had a traditional mortgage so I'm just a bit concerned with going this route. Does anyone see any problem at all with taking this home equity loan to pay off the balance of my mortgage? By paying more on the Penfed principal each month my calculations state that I can now shave 1/2 year off my current mortgage payments--ie. be done with the whole thing in 3 1/2 years. Any thoughts from the experts here?
I had a Penfed HEL several years ago and they didn't care what I used the funds for. 6 months ago I looked at the getting a Home Equity Line of Credit and they were more interested in the use of funds. I am pretty much positive that using the loan to pay of the mortgage will make it easier to get the loan.

As an aside, in my experience working with a Penfed is a joy. Not only are the customer representative pleasant, but they are also knowledgeable, and Penfed has been very intelligent about using automation. No more of this type in your 12 digit account on your phone, only to be connect to a rep who asks for you to repeat the same account information.

About the only downside of Penfed is they will make you less tolerant of working with other financial institutions. Ya that means you BofA!
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Old 12-26-2011, 03:40 PM   #20
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Brewer, I am seriously considering the 2.99% 5 year Penfed home equity loan. As you state with such a low rate and no closing costs there's nothing that beats this for my situation. I've always had a traditional mortgage so I'm just a bit concerned with going this route. Does anyone see any problem at all with taking this home equity loan to pay off the balance of my mortgage? By paying more on the Penfed principal each month my calculations state that I can now shave 1/2 year off my current mortgage payments--ie. be done with the whole thing in 3 1/2 years. Any thoughts from the experts here?
I closed on exactly this loan with Penfed a couple of months ago. It was as easy as easy could be. I'm refinancing to a 3%, 5-year mortgage

This time around, I used the proceeds to pay off another Penfed HEL that had 7 years to run at 5%, so there was a string attached - I had to increase the balance.

But that previous loan was set up exactly like you propose, with the purpose of borrowing the amount needed to pay off a traditional mortgage.

Joining Penfed is a minor step - you'll need to become a proud member of a military family association and set up an account with a minimal balance.
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