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Should I refinance?

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  • Should I refinance?

    We've lived here for 6 years on a 30 year adjustable at 4.25%
    Bought it for $180,000. Current balance is $145,000. Valued at $260,000

    I really don't know anything about refinancing. I have been reading about it and am having a hard time understanding.

    Is this worth it?

    Refinance at 30 year with 2 year fixed 3.75% after that adjustable, with $6000 closing cost.
    This is not good right.

  • #2
    Alot depends on how much longer you plan to stay in the house. You can calculate the break even point.

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    • #3
      You should be able to do a lot better than that.

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      • #4
        With decent credit you ought to be able to do better than 3.75%, much less 4.75%.

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        • #5
          That refinance rate quote seems really high. I’ve read about lots of 30 year refinances lately under 3%, and some people even making money on the process through lender credits. I’d shop around with other companies (Better, Loan Depot, LenderFi) as I’m confident you’ll get a better rate, unless your credit score is lousy.

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          • #6
            Originally posted by Mnica123 View Post
            We've lived here for 6 years on a 30 year adjustable at 4.25%
            Bought it for $180,000. Current balance is $145,000. Valued at $260,000

            I really don't know anything about refinancing. I have been reading about it and am having a hard time understanding.

            Is this worth it?

            Refinance at 30 year with 2 year fixed 3.75% after that adjustable, with $6000 closing cost.
            This is not good right.
            You might have a problem because below a certain number, maybe $150k, you’re not really worth the hassle to mortgage lenders and you don’t get optimal rates.

            I just closed a 15 year for 2.25% with no lender costs, and I’ve seen some people get 1.99%. So 3.75% in this environment is terrible, if you have excellent credit.

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            • #7
              with a much lower rate, you should be able to get a 15 year mortgage with the same monthly payment, or better. You should be able to get that.
              Make sure you don't refinance to another 30 year loan if you are 24 years in.

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              • #8
                1. Refi has a few variables but is reasonably straightforward. You might do it to take cash out because the property is worth more (typically an investor play), or to reduce total costs by reducing payments, shorten the loan term or both.
                2. As others have noted, with decent credit you should be able to get a new loan under 3% for 30 years, and under 2.5% for 15 years. Maybe even lower for an ARM.
                3. Key question: how long will you stay in the house? If <5 years, get a 5/5ARM. If forever, consider the 15 year loan. Payments may not go down (lower rate but shorter period, so they offset), but you will save a ton in total interest payments. Don’t do another 30 year loan, because you will have 6 more years of payments and that interest will also be a lot of money. If selling in some intermediate period, say 10-20 years, and the monthly buffet is tight a 30 year loan now might make sense because you permanently lower payments snd you are going to sell it before payoff anyway. Etc.
                4. You have to look at payback. Assume you can knock $500 a month off your payment with the refi, but with points/closing costs you gave to pay say $3000 to close the new loan. You won’t see true savings for 6 months, but every month after is money in the bank. If you plan to sell in 2 years and your payback is 1-2 years you are getting closer to the deal not making that much difference.

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                • #9
                  The magic # for credit rating is 740. Anything above this and you will get the best rates.

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