Does it make sense for me to refinace current mortgage?

[Slav4ikMD]

I am having a hard time deciding whether to refinance our current mortgage and could use some help to make sure I am making the right decision - to me it feels like a close call.

Here are our numbers: bought a house almost 5 years ago, 30 year term, 3.75 rate with PNC bank, current balance 740k. We've been paying extra every month and if I continue with the same trajectory I will be done in exactly 15 years (and can speed it up a bit more if I choose to). I can refinance for a new 15 year term (would likely go with TFCU), at a 2.875 rate. When I am plugging in the numbers, with closing costs added to the new mortgage (over 20k grrrr), it looks like I would come out ahead about 32k over 15 years. We plan on staying in the house for at least these 15 years till we pay off (although one can never be sure of course).

By the way, I've tried to call PNC to inquire what they can offer in terms of refinancing, and cannot get anyone on the phone. I completed an online inquiry and got an email that a rep will contact me within 48 hours and they have not (it's been 2 weeks!) - in general I am finding that with COVID everything is going very slowly...

32k sounds like a lot of money, but I am not sure if that's the only variable I should be looking at. There is also a variable of having a 30 year term as "insurance" (in case I can't pay the extra 1400 a month for any reason). My brain tells me to refinance but my gut tells me to stay put (which may also psychologically push me to prepay a little more every year given the slightly higher interest rate).

Thoughts? I am happy to provide additional info if needed.

[Slav4ikMD]

Curious whether I am not getting any responses because 1) it's such a close call and a personal decision 2) is too boring of a topic or 3) I didn't present enough info.

[Nysoz]

Probably no responses because everyone was sleeping lol. Anyways as long as no other red flags or major debts or concerns about losing job or paying mortgage, the decision to refinance or not is more often than not a math equation.

there are multiple online calculators to find the breakeven point of refinancing (money saved on interest is more than the costs of refinancing). If you plan on staying in that house longer than the breakeven point then it’s worth it.

[BCBiker]

I think you can get better that 2.875% on 15 year note. You don’t seem super adventurous but I just got 2.375% on a 7 year ARM , 30 year amortization with 20% down and starting balance in 800s. I’m doing a side account as Jim did. I did pay points too I should say, around $8K. Will pay monthly payment and have more than enough to pay it off in 7 years. Might get bored and pay off early.

any way point is to shop around on rates. Go to WCI physician mortgage. Even if you don’t need low down payment these people that do portfolio loans can offer you good rates on conventional mortgage.

[Slav4ikMD]

Thanks guys. I think that if I refinance I would stick with a 15 year term and maybe pay it off in 12 or so, but not faster. I did look around and it seems that for a 15 year jumbo loan current rates are just under 3%. If there a specific place that you would recommend checking out for better rates?

[WorkforFIRE]

I would say no to refinance. god forbid something happens, but having your same 30 year gives you flexibility and no pressure of a 15 year note.
While 32k is a lot, it’s over 15 years and is not going to make or break your retirement.
keep paying more each month the way you currently are and finish paying it off over 10-15 years.
it is a personal decision tbh.

I would leave it and not think about it again.

[EntrepreneurMD]

20K in closing costs is quite hefty for a personal residence. Are you paying points? I always got the origination fee waived. Did you get more than one quote? I may be wrong, but I thought title insurance costs were lower if you were refinancing a property you already had title insurance on. Appraisal is usually under $1K. Consider blocking out your personal information and posting a copy of the closing costs here.

In any event if you can get a few lenders competing, the closing costs are as negotiable as the rates. Problem is right now lenders are seeing rising mortgage defaults and prefer not to lend, especially in the jumbo market. You may have to sit tight regardless but that's not so bad. I get the impression that the house is a bit much for your income, so you may not want to increase your required monthly payment in this COVID environment. If your job is indeed stable, you can take the extra time to accumulate the closing costs so you don't have to build them into the loan. A side gig for some extra income? Maybe look at your plans again in a year if rates stay low. I'm not so sure a negative fed funds rate is out of the question.

ARM's are good if you can pay off the loan by the time the fixed rate is up, but after that you can wind up paying a higher interest rate than you are comfortable with or be forced into another refinance to mitigate that. The advantage of the ARM is a lower fixed rate but still the flexibility of lower monthly payments (based on 30 year). I used ARM's but always paid off any property within the fixed rate period.

https://www.msn.com/en-us/money/real...er/ar-BB16SmTF

[Slav4ikMD]

Thanks again everyone. My gut is with what WorkforFIRE is saying and I think I sort of needed to hear that. Luckily things are very stable now (mortgage balance is <1.5 annual income), work is going well, but one just never knows. As of now I can pay it off faster, but with rates being low I am not even sure if it makes sense to do. I am in my early 40's so will definitely be done by retirement.

I think I will stay put, maybe see if rates go down even more and then shop around. I'll take a closer look at the breakdown of closing costs as well.

[Slav4ikMD]

Just added a little extra to what I am paying, so now have 14.5 years to go. Will keep an eye on the rates going down and will reconsider refinancing if they do. Still curious where I can look for a lower rate. An online search doesn't show me anything less than what I was quoted. Someone on another post mentioned being able to get as low as 2.25% - would love to find the source.

[jhwkr542]

You can find that term loan for that rate with much lower closing costs. Does the 20k include escrow? That's a huge number. You can do better if you keep looking.

[BCBiker]

Call every company on the list that serves your state: https://www.whitecoatinvestor.com/we...ortgage-loans/

I'm not a WCI shill. I did that and have multiple competitive offers so was able to compare offers. You can also get play between offers to lower fees.

An appraisal on a refinance should be $50-200 at most.

[Lordosis]

I would rather have 20k now then 32k over 15 years.

[nephron]

You should really shop around those closing cost for refinancing, that seems very excessive to me. The decision to refinance is just a math problem, with a break even point a few years after the refinance. There is no universally right answer, but if you intend to be in your home for a long time after the break even point, it obviously makes sense. You don't have to stick with your current mortgage company to do a refinance, you should be be able to shop the rates around at other companies.

[Slav4ikMD]

I would rather have 20k now then 32k over 15 years.

Agreed, but when I did the math I included the closing costs in the new mortgage and basically I would come out ahead about 32k over 15 years. But I totally hear what you are saying.

[Slav4ikMD]

Here is the breakdown of closing costs, in case anyone wants to critique and point out which of this should be most negotiable (keep in mind I am in a high COLA with high property taxes and a very high cost home insurance):

Closing Cost Details
A. Origination Charges $1,025
% of Loan Amount (Points)
Application Fee $100
Processing Fee $525
Underwriter Fee $400
B. Services You Cannot Shop For $1,509
Appraisal Fee $450
Credit Report $43
Flood Determination Fee $10
Tax Service Fee $111
Title - Attorney Fee $895
C. Services You Can Shop For $3,255
Title - Endorsement - Survey $50
Title - Lender's Title Policy $2,905
Title - Title Closer Fee $300
D. TOTAL LOAN COSTS (A + B + C) $5,789
E. Taxes and Other Government Fees $7,011
Recording Fees and Other Taxes $915
Transfer Taxes $6,096
F. Prepaids $8,100
Homeowner’s Insurance Premium (12 months) $7,200
Mortgage Insurance Premium ( months)
Prepaid Interest ($60.02 per day for 15 days @ 2.875% ) $900
Property Taxes ( months)
G. Initial Escrow Payment at Closing $8,000
Homeowner’s Insurance per month for mo.
Mortgage Insurance per month for mo.
Property Taxes $2,000.00 per month for 4 mo. $8,000
H. Other
I. TOTAL OTHER COSTS (E + F + G + H) $23,111
J. TOTAL CLOSING COSTS $28,900
D + I $28,900
Lender Credits
Loan Amount $762,000
Total Closing Costs (J) -$28,900
Estimated Total Payoffs and Payments -$741,771
Estimated Cash to Close From To Borrower $8,671
Estimated Closing Costs Financed
(Paid from your Loan Amount) $20,229