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Time to Refinance Mortgage?

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  • Time to Refinance Mortgage?

    Anyone refinancing their mortgage with low interest rates? Recommendations for going about it and when it makes sense.  We had used a Jumbo mortgage two years ago but have paid it down with the sale of another home, so now we only have a $350,000 mortgage (appraised value of home 2 years ago $650,000). We are currently at 3.75% but it is a ARM and will be variable in three years.  Thinking about getting a fixed rate to lock in low rates with recent low interest rates.

    I just read this post from 2012 https://www.whitecoatinvestor.com/time-to-refinance-again/

    Curious if any changes of updates in 2019.

  • #2
    We just had a CA client obtain a jumbo for 2.5%. I sent another CA client to the banker (although he services homeowners in 49 states), who was offered "only" 3.7%, but they were refinancing and had less to refi. Not sure if that made the difference. With closing costs, I'm not sure if you are going to get enough change to make a difference. This is a breakeven scenario we can run for clients and it's possible to DIY, lot of info on the net.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Odds are interest rates are heading lower, just wait.

      Run your math on the cost of re-fi vs. what you'll pay over the life of the two loans.

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      • #4
        Bumping this - really thought there might be more opinions!
        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          We had the worst timing and bought just as rated peaked last fall. 4.375% for a 15year fixed. If I can drop that by half a percentage I think it might be worth it. I need to run the math.

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          • #6
            In the process of refinancing my 10 year IO to 2.875% and .25 closing cost credit with Union Bank in CA. Had to bring $500K new relationship money to make that happen. Dropped my payment by $1300 per month.

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            • #7
              Post deleted - see post further down for spreadsheet modifications.

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              • #8
                I posted on Bogleheads, see thread below on refi with relationship discounts. I think if you have a jumbo loan it’s a good time. I’m considering locking in with BofA on a 20 yr fixed. My goal was not to decrease monthly payments, but to pay less interest in the long run as I think we’ll be in this house for another 15 yrs. too wimpy to take the 10/1 ARMs I was being offered but the big banks were offering 2.875% with relationship discount. For strategy I’d start with big banks first, BoFA and WF. Then, once you have that baseline offer you can check out your credit unions and Citi, Chase. Don’t bother looking at posted rates, go in and talk with them. I knew my numbers so didn’t need to spend more than 10-15 min with them to get my estimates. I haven’t locked in yet, can update once I have. It’s between BofA and WF for me right now.... Everyone says feds will lower rates, but mortgages rates often tied with market, so who knows.

                https://www.bogleheads.org/forum/viewtopic.php?t=280692

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                • #9




                  While this spreadsheet doesn’t fit your specific situation (your APR will become variable, which is nearly impossible to do a spreadsheet for) the attached spreadsheet should be helpful for MOST refi decisions.  If you have a better opportunity in terms of the APY expressed, don’t refinance and use your refi cash in that alternative.  If you don’t, then refinance.  Colored boxes can be changed.
                  Click to expand...


                  ENT Doc, you are awesome. I have saved and shared with our office. Thank you.
                  Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #10
                    Johanna, I want to look this over later at some point. Seems odd that $53,491.20 in cumulative negative cash flow in the last few years of the example would, with the initial 5k expense, be offset by $29k in positive cash flows. There are two changes in signs of cash flows so there should be two IRRs. I can’t get Excel to spit out the second one. Before disseminating to the masses let me double check the math and framing of the decision.

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                    • #11




                      Johanna, I want to look this over later at some point. Seems odd that $53,491.20 in cumulative negative cash flow in the last few years of the example would, with the initial 5k expense, be offset by $29k in positive cash flows. There are two changes in signs of cash flows so there should be two IRRs. I can’t get Excel to spit out the second one. Before disseminating to the masses let me double check the math and framing of the decision.
                      Click to expand...


                      Appreciate the update - will await the final product. Thanks again.
                      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                      • #12







                        Johanna, I want to look this over later at some point. Seems odd that $53,491.20 in cumulative negative cash flow in the last few years of the example would, with the initial 5k expense, be offset by $29k in positive cash flows. There are two changes in signs of cash flows so there should be two IRRs. I can’t get Excel to spit out the second one. Before disseminating to the masses let me double check the math and framing of the decision.
                        Click to expand…


                        Appreciate the update – will await the final product. Thanks again.
                        Click to expand...


                        Ok, so I made some slight modifications.  I framed it not so much in a APY based decision but in NPV terms.  What was happening in the prior spreadsheet (to be deleted and post edited to refer here instead) is that with certain numbers the IRR could never yield a NPV=0 and the APY was spitting out error terms.  Interestingly, my initial concerns weren't really problems - the discount rate just took the high future negative cash flows and reduced them so significantly in present value terms that the smaller but earlier positive cash flows more than offset them in PV terms.

                        This spreadsheet is easier to understand and won't have the errors the previous one did (I hope).  If the NPV is positive, refinance.  If negative, don't.  But if you're not going to refinance you better put that money for refinancing costs to work in that alternative investment.  And if you're going to refinance you better increase your monthly automatic investment.

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                        • #13
                          Thanks ENT Doc! I just purchased a home about 6 months ago at 4.125% VA jumbo 15 year fixed. I have been paying extra over the 6 months. I have around 660,000 left. Ran the numbers and it looks like somewhere around 3.3% I can be 30K ahead. Not sure exactly what refinance costs would be but guessed 10K on a VA 15 year jumbo loan. I think I may just pay extra and be done in 7-10 years. Very helpful though.

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                          • #14




                            Thanks ENT Doc! I just purchased a home about 6 months ago at 4.125% VA jumbo 15 year fixed. I have been paying extra over the 6 months. I have around 660,000 left. Ran the numbers and it looks like somewhere around 3.3% I can be 30K ahead. Not sure exactly what refinance costs would be but guessed 10K on a VA 15 year jumbo loan. I think I may just pay extra and be done in 7-10 years. Very helpful though.
                            Click to expand...


                            I don't know.  With the time period you're looking at I might consider looking at a 10/1 ARM or even a straight up 15 year FRM (non-VA).  Not sure if refinancing on a VA loan tacks on that extra fee.  Look at it like this.  If someone walked up to you a check for $30k would you take it?  That's essentially what you're walking away from.  You can still pay it off in 10 years is my point, whether with a 10/1 ARM or not, and still be ahead in PV terms.  I'd rethink this.  You're in a good position even though your principal is high.  That's a sunk cost.

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                            • #15




                              Odds are interest rates are heading lower, just wait.

                              Run your math on the cost of re-fi vs. what you’ll pay over the life of the two loans.
                              Click to expand...


                              What makes you think so? Curious, as I've been running the numbers on refinancing.

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