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Refinance or not
Old 10-08-2009, 09:16 AM   #1
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Refinance or not

I am trying to figur if it's time to refinance. I am 59, retired, and have 23 years left on mortgage. Interest is at 5.62% now. Can't figure which would make sense... Refinance 15 yr. at 4.62%, 20 yr. at 4.99%, or leave it. 30 yr. is at5.24% but that doesn't make sense at all to me. My payment would go up $156 on the 15 yr. Up $22 on the 20 yr. Down $103 on the 30 yr. I could pay down the principal by taking money out of 401k tto keep payment anywhere. The present payment is no problem but would mind saving on interest paid. This started when I was called by my bank with offer. They say there will be only $299 in closing cost.
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Old 10-08-2009, 09:21 AM   #2
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The 15 year sounds like a slam dunk to me. The only pucker factor is that the bank is probably rolling the closing costs into the loan (adding principal), or increasing the interest rate. So you'll pay interest on them for 15 years one way or another.

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Old 10-08-2009, 09:29 AM   #3
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Where is Nords - the ReFi "ho" King to respond to this??

I second the 15 yr ReFi!
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Old 10-08-2009, 09:31 AM   #4
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If you are confident enough about the security of your cash flow I'd take the 15, for sure. If you're not as sure you could take a longer term mortgage (at a somewhat higher rate) and pay it down like a 15 as long as the cash flow is good.
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Old 10-08-2009, 09:54 AM   #5
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Should my age, 59 be a factor?
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Old 10-08-2009, 09:56 AM   #6
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Should my age, 59 be a factor?
As long as you have a steady and reliable stream of passive income, I wouldn't think so. I wouldn't think age is a factor unless you will be relying on *earned* income.
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Old 10-08-2009, 11:54 AM   #7
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Originally Posted by glinka View Post
I am trying to figur if it's time to refinance. I am 59, retired, and have 23 years left on mortgage.
I'd do a break even analysis to see when you recover refi costs on the 20yr. After all you can add additional principal payment to accelerate the 20 yr to a 15 yr, but if you run into a cash flow crunch you cannot lower a 15 yr payment to the 20 yr payment.

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Originally Posted by glinka View Post
My payment would go up $156 on the 15 yr. Up $22 on the 20 yr. Down $103 on the 30 yr.
Right now interest rates are pushing historic lows. I recently refi'd a 30 yr fixed at 4.5 with .75% points, perhaps you might look at a 30 yr with the idea that a plentiful cash flow will allow a 15 yr amortization.

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Originally Posted by glinka View Post
I could pay down the principal by taking money out of 401k to keep payment anywhere.
Bad choice.

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Originally Posted by glinka View Post
The present payment is no problem but would mind saving on interest paid.
So do a 30 yr fixed. That should get you the most cash flow savings.

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Originally Posted by glinka View Post
This started when I was called by my bank with offer. They say there will be only $299 in closing cost.
Way way way too low. A cheap refi should cost about 1% - 1.5% of the loan amount. This includes closing costs, points, junk fees, appraisal... everything. So at 299 they are making their money somewhere else and not telling you.
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Old 10-08-2009, 01:38 PM   #8
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That 30 year fixed rate is a little high. Hopefully it includes a rebate that zeros out your closing costs.

I recently refinanced through aimloan.com . They're at 4.875% with zero points and a little over $3k in closing costs. 5.25% would probably get you a zero cost refi, so maybe you're in the ballpark.

The rest of your decision depends on what you are going to do with the money, how long you will keep the mortgage, and how soon you want to pay off the house. You need to run the numbers for each option, using your own internal rate of return. Most likely there won't be a huge difference between them.
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Old 10-09-2009, 05:33 AM   #9
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Quote:
Originally Posted by glinka View Post
I am trying to figur if it's time to refinance. I am 59, retired, and have 23 years left on mortgage. Interest is at 5.62% now. Can't figure which would make sense... Refinance 15 yr. at 4.62%, 20 yr. at 4.99%, or leave it. 30 yr. is at5.24% but that doesn't make sense at all to me. My payment would go up $156 on the 15 yr. Up $22 on the 20 yr. Down $103 on the 30 yr. I could pay down the principal by taking money out of 401k tto keep payment anywhere. The present payment is no problem but would mind saving on interest paid. This started when I was called by my bank with offer. They say there will be only $299 in closing cost.
The $299 closing costs figure is misleading. The bank will add other fees, but not call them closing costs. The appraisal alone will be more than $299. What you need to ask for is a printed estimate of the "settlement statement" with estimates for all costs associated with the refi. They can't give exact amounts, but they should be within 5% when all is said and done. So long as you get this from them in writing, you can hold them to it and will have no surprises.

Here's a sample of the settlement statement - http://www.homeloanlearningcenter.com/files/HUD1.pdf

Once you have that...here's how I do these analyses.

It's essentially an NPV calculation. You are investing all costs on the settlement statement, so that's an outflow at year 0. Then you have inflows each month of the savings on the lower payment. If you put that in Excel and the NPV is positive, you do the refi.

It's not quite that easy, but close. If you're changing loan terms it gets a bit more complicated. In that case you should do two NPVs...one on the old loan payments showing them all as outflows, and one with the new arrangement, and see which comes out higher.

Good luck.
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Old 10-11-2009, 09:31 AM   #10
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Where is Nords - the ReFi "ho" King to respond to this??
I second the 15 yr ReFi!
(FAQ archive) Should I pay off the mortgage or invest the money?

Our latest refinance is for 4.625%, 0.875% below our current rate, and I can't believe that they're doing it on rental property. (It's an opportunity that we probably won't see again for years, and it's really different this time!) I think we should be able to beat that interest rate in CDs within the next five years.

But I guess I should update my own thread on investing the mortgage money. That'd scare anyone off.

From the numbers glinka was given, this is a bad deal that can get better by shopping around-- especially credit unions. I'd never refinance a mortgage for $299 because I'd be too busy laughing at the salesperson who tried to say it with a straight face! I could see a $299 home-equity line of credit but for a mortgage I don't know what the bank is thinking...

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Should my age, 59 be a factor?
No, my parents-in-law obtained a 30-year mortgage when they were in their 70s. It's a secured debt, not a mortality issue.
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Old 10-11-2009, 08:51 PM   #11
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I have done a no-cost refi maybe 10 years ago. You pay a higher interest rate and the lender rebates cash up front that you can use to cover closing costs. It's not added on to your loan balance either. It works nicely to lower your interest with a refi if you think you might refi again in just a couple of years.

I think OP is paying about .25% added interest over cheaper loans, and could be just $299 out of pocket at closing because of it. The numbers work from the rebates listed at aimloan.com. Of course that might not be the case, in which case it's just a rip-off. Read the fine print and don't take the bank's word for it.
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Old 10-11-2009, 09:04 PM   #12
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I have done a no-cost refi maybe 10 years ago. You pay a higher interest rate and the lender rebates cash up front that you can use to cover closing costs. It's not added on to your loan balance either. It works nicely to lower your interest with a refi if you think you might refi again in just a couple of years.
I think OP is paying about .25% added interest over cheaper loans, and could be just $299 out of pocket at closing because of it. The numbers work from the rebates listed at aimloan.com. Of course that might not be the case, in which case it's just a rip-off. Read the fine print and don't take the bank's word for it.
I wonder if the HUD-1 disclosure statement would let the bank hide the fees in the refinancing amount like that, or if they have to come clean.
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Old 10-11-2009, 09:11 PM   #13
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Should my age, 59 be a factor?
It would to me. I would do whatever is reasonably possible to not leave a mortgaged home to my kids/heirs. Chances are at least 50% that you won't be around to pay off a 30 yr mortgage without making extra payments. That's just a personal choice I would make.

If you have no children, i'd still say go with the 15 yr because you'll pay less interest.
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Old 10-11-2009, 11:42 PM   #14
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It would to me. I would do whatever is reasonably possible to not leave a mortgaged home to my kids/heirs.
I'd give the kids a vote. Personally I'd hate to be dead surrounded by dead equity.

Net worth is the same whether the mortgage is $10K or $1M...
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Old 10-11-2009, 11:56 PM   #15
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I'd give the kids a vote. Personally I'd hate to be dead surrounded by dead equity.

Net worth is the same whether the mortgage is $10K or $1M...
I agree, i'd talk to the kids to see what they think. I personaly would not want to deal with someone elses debt even if it comes with positive equity. Your welcome to disagree, that's just my opinion.
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Old 10-14-2009, 02:54 PM   #16
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I checked with bank and the deal is the call was for what they termed equity refinance. Not the same as just a refinance. It's $299 closing costs are right but the rate is higher than the bank presently has. Bank closings would be closer to $1700.
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