Refinance Your Mortgage?

[just-in-town]

I understand the notion of getting rid of mortgage payments as soon as one can, but why do that at a interest rate of 4.25% rather than 3.375%? You guys seem to not understand the concept of paying less interest. I do get a tax deduction for paying mortgage interest but why pay more interest?

Because there's a cost associated with going from 4.25% to 3.375%. The cost includes settlement fees, taxes, appraisal fees, broker fees, etc. You should find out exactly how much that cost is, then divide it by how much LESS in interest you'd be paying with the new lower interest rate. that gives you the number of months it'll take you to "break even". For example, if your closing costs to refinance is 5000, and you save 200 dollars a month with the lower interest rate payment, it would take you 25 months (2 years or so) to just break even with that 5k cost.
It may or may not be worth it. You must do the math and the info you provided is not sufficient for a more detailed answer.

 

[IamNY]

Interest rates have gone crazy low!!!!!!!!!!!!!

I recently got a letter offer to refinance my mortgage at a rate of 3.6% interest. I checked around and my local mortgage broker whom I used when I refinanced in 2010 offered me a new 15 year mortgage locking in at 3.375% interest, with $250 off closing costs, to replace my current 15 year mortgage which is at a locked rate of 4.25% interest.

The math shows that my new monthly mortgage payment would be $200 less than my current monthly mortgage payment..........that is an extra escort per month, fellas. It is a no brainer.

EB,

Without knowing the mortgage balance, total closing costs, current principal and interest payment, and years remaining on the current mortgage its hard to determine if this is a good financial move for you. Sure, the rate drops by 1 1/8%, but your extending your payments another 4-5 years compared to your current mortgage. With that being said, if you factor the cost of the new mortgage, plus the additional 4-5 years in mortgage payments you may not come up with a big enough savings to go through the effort of a refinance. Your current mortgage balance will play a huge factor in determining if this is worth it or not. The smaller the mortgage, the less its worth to go through a refinance. Saving $200 per month is huge, but if your extending your payments for 4-5 years and shelling out a couple of grand to refinance, it may not be worth it in the long run.

PM me if you want to crunch some #'s.

Walooo

 

[Sol Tee Nutz]

Just doing some numbers here and come up with: $100,000.00 mortgage @ 4.25% over 15 years should be around $750.00............ @ 3.375% over 15 years is about $708.00. Am I missing something to find the $200 a month saving? Do the American banks compound their interest different? I remortgaged of Friday with BMO and 5 year variable @ .5% below prime with interest now at 2.5%. Every year I am allowed to pay off 15% of the balance without penalty which is done due to the huge savings.

 

[EagerBeaver]

Here is direct quote from mortgage broker: "Your principal and interest payment is going from 902.73 down to 708.76.. Plus taxes.." My current monthly payment with taxes is $1345.01 as my annual property tax is just over $5300 and they escrow for that.

I have just under 12 years left on the current mortgage... $100,000 owed.........the new mortgage would be 15 so I would be adding 3 more years payments. 144 months vs. 180 months. But yes, the other numbers are correct. Closing costs are actually around $2000 more or less but I am getting a $250 credit. Because the interest is frontloaded and I get a tax deduction for it, I figure that will actually offset the closing costs.

The biggest issue now is flood insurance and whether the flood search comes back showing I am in the redrawn FEMA flood zone and they make flood insurance a condition of the loan, which would be a dealbreaker.

 

[EagerBeaver]

I just got the news. Flood search came back OK and the lender will not require me to get flood insurance. So I am moving forward with the refi.

 

[just-in-town]

I just got the news. Flood search came back OK and the lender will not require me to get flood insurance. So I am moving forward with the refi.

with about 2k in closing costs and a 200 reduction in payment (interest), go for it! good deal! Best of luck!

 

[IamNY]

Let's do a comparison. If you do nothing and continue to pay the current principal and interest of 902.73 the payments after 12 years equals $129,993.12. If you refinance and your new payment for the next 15 years is 708.76 your total payments equal $127,576.80. The true savings is $2,416.32, roughly the cost of the refinance. It's not worth doing. A few suggestions, first, contact your current lender and see if they can do a simple refinance without going through the whole process and secondly, I would recommend looking into a 10 year fixed rate mortgage. If the new payment on a 10 year fixed is the same or close to what your currently paying you just saved 2 years of principal and interest (12 years left on your current mortgage compared to a 10 year fixed). Also, using a mortgage broker for a loan amount of about 100k is usually not going to be cost effective. For example, if your a self employed borrower with an "outside the box" way of earning income, a broker may have ways to get the deal done. If this is a simple refinance, the cost of using a broker might not be necessary.

Just looking out for a fellow merbite, hope this helps.

 

[Sol Tee Nutz]

If this is a simple refinance, the cost of using a broker might not be necessary.

I have never used a broker but I thought they were free to the borrower.

 

[EagerBeaver]

My mortgage broker is free of charge to me, however, I believe she receives a commission from the lender (of which she is an employee) for mortgages she originates.

In any event, I signed the application and I am going through with the refi.

 

[EagerBeaver]

By the way, as part of the refinance application my lender reached out to Equifax for my credit score. My credit score is 812. Do you guys know what your credit score is?

 

[LadyLover]

I have never used a broker but I thought they were free to the borrower.

I have no idea how brokers work in the states but in canada they are free and get paid by the bank. Rates are negotiated and basically the lowest you can get of you negotiated at a branch where you have no idea where their best rate is. At a bank you have to negotiate whereas with a broker it's already done.

Also a broker can shop the best rate for you amongst many banks and virtual banks. Best 5 year variable I can get a client now is 2.35% for 5 years. Most banks are at 2.50.

As a former bank manager for 10 years and now an independant mortgage broker I can give you the ins and outs of the two. Shoot me a pm if you're interested.

As far as the math someone posted above using a 100k mtg. Well... 1% difference on 100k is under $1000 saved in 1 year so only a drop of $83.33/ month the reason eager dropped more is because he increased the amortization and the combination of the 2 (the increased amortization played a larger role) reduced his payments.

He's not actually "saving" $200/month he is paying $200 less due to paying the loan off over a longer period.

By the way... A "refinance" in canada usually means taking equity out of a home. Ie bringing a mortgage from $100,000 to a higher amount.

Hope everyone understood all that.

Rates are low in canada and and variable is really nice. It's about 70 basis points lower than a fixed 5 year rate which is an annual savings of about $700/year PER $100,000 of mortgage. So if your mortgage is $300k you would be saving $2100 per year

Later

 

[LadyLover]

By the way, as part of the refinance application my lender reached out to Equifax for my credit score. My credit score is 812. Do you guys know what your credit score is?

Hey eager not sure if equifax numbers are exactly the same as the numbers in the states but if they are then you are EXTREMELY good at 812. Anything over 700 in canada is great.

In canada if your under 680 you want to get that number up.

Remember it's NOT just about making all your payments on time. You may never have any lates but a crappy credit bureau which may be due to :

-too many inquiries! You know those people that wait in Canadian tire to get a card or any other store? They make inquiries plus those "pre approved" mailings you get from credit card companies. Well they still pull a bureau if you fill out the form. Opening a new account with bell, videotron etc... They pull credit also.

-balances used on available credit: I don't recommend you go over 75 to 80% of your credit limit. You're better off increasing your credit limit to a high limit that you will never get to. As an example People who have $1000 credit cards that hover at 900 and sometimes go over limit are hurting their beacon.

 

[EagerBeaver]

My loan application was accepted and I am scheduled to close next week with my rate locked in at 3.375% until July 8. But I got an email this morning offering me a rate of 2.6% from another lender, so now I feel like an asshole for not waiting for the rates to fall lower. I already have sunk $382 into this closing so I kind of feel like I should not pull the plug now. What do you guys think?

 

[EagerBeaver]

I pulled the trigger at 3.375% thinking the interest rates could not get any lower. Now they are at 2.6% and falling. How much lower can they go before the bottom is hit? How can money be given away at these rates?

 

[IamNY]

I have never used a broker but I thought they were free to the borrower.

Brokers can be "free", depending on their arrangement with the lenders. For example, if your borrowing 100k the broker can earn 1-5% (maybe more) from the bank. Although your not paying the broker per say, thier fee is built into the rate. When the fee is built into the rate a broker can give you a higher rate from the bank so that they earn a higher percentage.

 

[IamNY]

EB, ask your broker about floating down the rate. If the rate moves a certain amount (lenders can vary) you can get this benefit. If they say no, threaten to pull the loan and see if they come back with a better deal.

 

[HornyForEver]

I have renewed with Tangerine recently. It took me just a couple of clicks to renew my mortgage online. They sent me the new agreemeent by mail a few days later. It seems like I am allowed to make up to 25% of the original loan and not 25% of the amount of the principal at the renewal date, which is great. Their rate is 3.49% for 3 years, I doubt that it will go down in the coming weeks, but it will not make a big difference for me.

 

[Sol Tee Nutz]

I am seeing the rates dropping and feel helpless to change my situation i signed for 3 years that ends march next year.. don't know how much I would be charged if i change now and if the new bank would cover the switching penalty.

I was going to sell my house last year and asked the bank how much penalty to expect ( 1 year left ), she told me very little as interest rates are so low. Never sold so did not get final answer. A new bank should pay the penalty if there is one.

 

[LadyLover]

Brokers can be "free", depending on their arrangement with the lenders. For example, if your borrowing 100k the broker can earn 1-5% (maybe more) from the bank. Although your not paying the broker per say, thier fee is built into the rate. When the fee is built into the rate a broker can give you a higher rate from the bank so that they earn a higher percentage.

Not in canada !

No idea how brokers work on the states but in canada brokers CAN'T charge a higher rate to a client. That doesn't exist.

Basically the broker gets paid by the bank JUST LIKE an employee at the bank gets paid a salary. The only difference is that the emotes at the bank must get paid regardless, they must pay rent , telephone line, computer and support etc...

A broker is a way more cost efficient way for banks and they are basically free employees that only get paid when they bring them a deal.

At a BANK BRANCH... They can charge you a higher rate and by doing so make more profit for the bank which they have quarterly goals to bring x amount of profit. This is why you get quoted different rates at branches whereas with a broker you automaticaly get the LOWEST rate the bank offers.

 

[IamNY]

I meant to post this yesterday - you may want to call your current lender to let them know that your refinancing with another lender. Many banks don't like to lose their loans to other lenders and they may just reduce your rate without having to go through an entire refinance.