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USBank solicitation for lower mortgage - no brainer?
Old 10-06-2011, 04:30 PM   #1
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USBank solicitation for lower mortgage - no brainer?

I've probably as much suspicion and skepticism as any of you, but a recent mailer from USBank has me wondering what I'm missing...other than seemingly, an opportunity to save a bunch of money on our mortgage.

The basic gist of their letter - due to our "excellent credit and payment history", they're willing to lower our interest rate significantly on our existing USBank mortgage. I can't see the catch.

Existing mortgage details:

Balance of $181K, 15 year fixed @ 4.375%, $1500/month, 157 payments/$238K of payments remaining.

Proposed mortgage details:

New balance of $185,450 (includes all closing costs), 15 year fixed @ 3.250%, $1300/month, 180 payments/$234K of payments remaining.

Everything appears less, except the initial balance bump...monthly and total remaining payments are lower. We've no plans to pay it off early.

Assuming it's an obvious thing to take advantage of...why would a bank offer this up out of the blue?
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Old 10-06-2011, 04:34 PM   #2
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Originally Posted by Da Nag View Post
Assuming it's an obvious thing to take advantage of...why would a bank offer this up out of the blue?
Perhaps they've identified a segment of their mortgages that are prime for refinancing and are trying to be proactive rather than risk you shopping around and lose you entirely?
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Old 10-06-2011, 04:37 PM   #3
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Because you can get a better deal elsewhere.
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Old 10-06-2011, 04:48 PM   #4
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Because you can get a better deal elsewhere.
I'm not so sure about that, but I've not looked extensively.

The home is a 2nd residence, even though we'll be moving to it full time within a year. The offer states 2nd homes are OK - but when we were shopping for our mortgage initially, USBank was the only place I found that was offering competitive rates on 2nd homes.

Just took a brief look online, and of the rates similar to what is being offered - all I saw were for primary residences only.
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Old 10-06-2011, 04:58 PM   #5
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Perhaps they've identified a segment of their mortgages that are prime for refinancing and are trying to be proactive rather than risk you shopping around and lose you entirely?
Make sense...but in my case, the letter simply woke me up to the fact that was a possibility. I knew my rate was a tad higher than what I've seen reported recently, but I assumed the costs associated with a refinance would eat up any savings. Particularly since I'm on a 15 year already.

Live and learn...
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Old 10-06-2011, 04:59 PM   #6
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Sounds OK except for the new balance which is 4500 higher. Where did that come from?
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Old 10-06-2011, 05:05 PM   #7
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Sounds OK except for the new balance which is 4500 higher. Where did that come from?
They roll closing costs/points into the new loan.

So, if we were planning on paying off early - it could be more expensive, depending on the timing. Since we're planning on taking the loan to term - the total of remaining payments is still less with the higher initial loan balance.
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Old 10-06-2011, 05:06 PM   #8
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It sounds like a plain vanilla refinance offer couched in language that makes the bank look like it's doing you a big favor.

Shop around and see what other places are offering.
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Old 10-06-2011, 05:13 PM   #9
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Great job. Congratulations on great rate and savings.
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Old 10-06-2011, 05:23 PM   #10
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Using your numbers....

At 157 months the current payment would be $1,516.16

At 157 months the new payment would be $1,451.66

for a monthly savings of $64.51

Your cost to refi is $4,450 divided by $64.51 means a break even of 69 months...

That seems like a long break even to me... but, gravy after that....


But, just did an NPV of the stream and it is negative $2,400 to you at the 3.25% rate...
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Old 10-06-2011, 05:27 PM   #11
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Two things I see is that on your current loan you would pay 235500.
The second is that the bank get closing cost as profit.

It seems to be a wash since your payment go down to 1300, but you pay longer.
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Old 10-06-2011, 05:34 PM   #12
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But now he has 200 to invest.
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Old 10-06-2011, 05:36 PM   #13
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...for a monthly savings of $64.51

Your cost to refi is $4,450 divided by $64.51 means a break even of 69 months...

That seems like a long break even to me... but, gravy after that....
That's a great apples to apples comparison, and certainly keeps it in perspective. However, in our situation - there's an orange to toss in to the comparison.

When we ER in 6 months, we'll have 3+ years until our pensions kick in - during which time, we'll be living off of relatively minimal savings. So, if we extend the new loan out to it's full length of 180 months, instead of paying extra and matching the 157 months remaining on the existing loan - we're looking at over $200/month savings.

And...while the above scenario has us paying the new loan off about 2 years later than the existing - total payments are still less.
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Old 10-06-2011, 05:41 PM   #14
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go to the mortgage professor's site and try the refinance calculator. Far more sophisticated than what I have seen elsewhere.
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Old 10-06-2011, 05:54 PM   #15
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go to the mortgage professor's site and try the refinance calculator. Far more sophisticated than what I have seen elsewhere.
Cool resource - thanks! Here's the link for others.
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Old 10-06-2011, 09:22 PM   #16
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Concerning the break-even cost of refinancing, I never hear or see a calculator that factors in the tax deduction cost of a refi. Why I know you would be a fool to pay higher interest rate to get a bigger tax deduction, it does really figure into the true savings of a refinance in the short term does it not? For me it would take about 3 years according to a calculator to break even, but at a lower rate my tax deduction would drop over $300 a year in relation to what I would get at a newer lower rate. To be mathematically honest with oneself doesn't that have to be added to the cost (or taken away from the initial savings) during the breaking even process or am I missing something?
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Old 10-06-2011, 11:06 PM   #17
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The current loan is most likely actually held by Fannie Mae or Freddy-Mac, with US bank now just the servicer. The re-fi gets them fees up front, then they sell the new note to Fannie or Freddy again, and once again US Bank become only the loan servicer.

It's a win - win - loose situation. You win a lower rate , bank wins fees, Fannie or Freddie loses a perfectly good , performing high interest mortgage.

No catch that I can see for you.
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Old 10-07-2011, 09:10 AM   #18
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That's a great apples to apples comparison, and certainly keeps it in perspective. However, in our situation - there's an orange to toss in to the comparison.

When we ER in 6 months, we'll have 3+ years until our pensions kick in - during which time, we'll be living off of relatively minimal savings. So, if we extend the new loan out to it's full length of 180 months, instead of paying extra and matching the 157 months remaining on the existing loan - we're looking at over $200/month savings.

And...while the above scenario has us paying the new loan off about 2 years later than the existing - total payments are still less.

That is not the same kind of decision... IOW, you are not savings much money refinancing, but you do get to increase your cash flow... as long as you are aware of that you can make that decision.... my sister did... she did not save much on her refi, but did get a good increase in her cash flow and was happy... she said that she figures she will never pay off the mortgage so who cares when it ends....
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