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Dan Karachio
01-07-2009, 5:32 PM
Hi All,

Been thinking about refinancing our 30 year from 6.25% to the new lower rates (can get 5%, 4.75% with a point and a half). This would reduce our monthly payment by a little over $200. Problem is, I have nobody in the family who really understands this. Anyone have any good sources of basic information out there? The bank makes it so easy and I have to assume there is something not quite in it for me and more for them. I'd like to be smart and get the best deal I can.

Thanks,

Dan

P.S. Though it is hard to take, I'd like to hear more about 30 year refi's for all those people with adjustable rate mortgages. I know many went nuts and are living beyond their means, but I don't want to go down with them! :-)

Lori Kleinberg
01-07-2009, 5:47 PM
This can be very confusing. My husband and I are going to meet with a mortgage counselor tomorrow to see if it is worth refiancing our home. They say you should be able to save at least $100/month on refi, you are not planning to move in the next 5 years and you get a fixed rate.
Check out www.bankrate.com (http://www.bankrate.com) for I believe impartial information.
Also I would try to find a finance person based on a reccommendation from some one you know. There are way to many crooks out there.
Good Luck

Thomas Bank
01-07-2009, 5:48 PM
Are you trying to convince the rest of the family or information for yourself?

The thing that the bank gets is that you pay the fees for them to process the mortgage. If you plan to sell in the near future, you have to weigh the difference between paying them the lump now vs. how much you save a month. If you're in for the long haul, you'll definitely save money by refinancing.

Another thing to consider is whether you can drop it to a 15 year mortgage. I did that a few years back and paying $50 more a month but save thousands and thousands over the life of the loan.

Mitchell Andrus
01-07-2009, 6:35 PM
An excel spread sheet may help:

Dan Karachio
01-07-2009, 9:01 PM
Great xls, Thanks!

Basically I am just finding information for myself. We are in for the long haul, or at least another ten years, so I think this is the way to go. Thanks to all.

Neal Clayton
01-08-2009, 12:41 AM
do you have 20% equity in the house, even assuming it might appraise for less than when you originally bought it? that's the kicker, imo. PMI would be higher now than when you last had to pay it, if you paid it.

Frank Hagan
01-08-2009, 1:14 AM
My BIL is a mortgage broker and we were talking about this last Friday. He'll lock us in if it drops to 4.5% (we're at 5.75%). That's a historically low rate, so you almost always will come out ahead. That's for a 15 year loan, no points, but fees for escrow, origination, etc. (still works out to about a point on the loan).

He said FICA scores have to be above 650, equity of 20 - 25%, no more than 4 or 5 properties no matter your income, you have to prove income with tax returns, etc. The lower interest rates are only for either a conforming (under $450k or something like that) or a Jumbo Conforming (450 - 655k, or something). If you get over into the Jumbo loan, at more than 655k or whatever it is, the rates are up at the 8 - 8.5% range.

He has a lot of people with high incomes that can't buy now because they have more than 4 or 5 properties or have credit scores below the 650.

Jim Becker
01-08-2009, 8:47 AM
Frank, with most lenders, the rates for jumbo (over $417K) are still "up there" which means many folks in certain areas can't even contemplate refinancing right now. I've never seen the term "jumbo conforming" before, but perhaps that's something specific with your BIL's organization. Or maybe I've just never run into it... There was talk about some measures to "fix" this "jumbo" problem, including raising the limits of conforming to something like $700K, but so far, nothing has happened.

Rob Cooper
01-08-2009, 9:11 AM
Interest rates on conforming primary residence mortgage loans are incredibly attractive. If you are in for the long haul it probably makes sense to lock in a 30 yr fixed. Run the numbers on your current mortgage and the proposed mortgage going out a few years. You will probably find that the breakeven point of a refinance is in the 2 year range. This is due to the closing costs (not prepaids or escrows probably.) Verify the proposed expenses on a "Good Faith Estimate" from the mtg brkr. Be sure to look at the morgtage balanace after a refi, not just the payment. A lot of people refinanced looking at payments only and didn't realize they were adding thousands to the loan balance.

IMHO at fixed mtg in the 4's will be gold in a few years!

Neal Clayton
01-08-2009, 11:02 AM
Frank, with most lenders, the rates for jumbo (over $417K) are still "up there" which means many folks in certain areas can't even contemplate refinancing right now. I've never seen the term "jumbo conforming" before, but perhaps that's something specific with your BIL's organization. Or maybe I've just never run into it... There was talk about some measures to "fix" this "jumbo" problem, including raising the limits of conforming to something like $700K, but so far, nothing has happened.

congress passed an increase to the conforming rules, but it's based on home price per capita in a given zip code. so the conforming limit for los angeles might be 750k, whereas here in little rock the average home price is more like 200-300k so we still apply to the old limit.

Mike Blessing
01-08-2009, 11:23 AM
I locked in my refinance rate yesterday - 15 yrs, 4.25%, 2 pts. I chose to pay the points for the lower rate because I expect to stay in this house indefinitely.

I was 10 years into a 30 yr loan at 6.5% before. Now my payment will be a little lower and I'll get done 5 yrs sooner.

Being able to refinance now helps make up for the hit the retirement accounts took the past year.

Larry Browning
01-08-2009, 1:46 PM
To me refinancing a 30yr loan that has been paid on for 5-10ys with another 30yr loan make no since at all, especially if you are planning on staying there for a while. Seems to me like you are just agreeing to pay more interest to the bank and they can keep you on the hook that much longer. However if you can reduce the time AND the payment like Mike did, then that is when you should pull the trigger. Even if you can reduce the time only, that can save you lots of cash in the long run. To me, reducing the time is far more important than reducing the payments. Plus, you can almost always get a better rate on a shorter loan.

Jim Becker
01-08-2009, 9:09 PM
congress passed an increase to the conforming rules, but it's based on home price per capita in a given zip code. so the conforming limit for los angeles might be 750k, whereas here in little rock the average home price is more like 200-300k so we still apply to the old limit.

Did that actually hit congress? I must have missed it somehow. I will have to check that out further because it would potentially make a major difference to us relative to any refinancing decision.

Frank Hagan
01-08-2009, 10:25 PM
Frank, with most lenders, the rates for jumbo (over $417K) are still "up there" which means many folks in certain areas can't even contemplate refinancing right now. I've never seen the term "jumbo conforming" before, but perhaps that's something specific with your BIL's organization. Or maybe I've just never run into it... There was talk about some measures to "fix" this "jumbo" problem, including raising the limits of conforming to something like $700K, but so far, nothing has happened.

He said they already added the "jumbo conforming" ... he did say it was known by a couple of other names as well ... and he's writing loans for homes between the conforming and upper limit for about .25 higher. The upper limit is below 700 but over 645 ... sorry that I can't remember specifically. He's in Newport Beach, CA, where every home is worth more than the 417k, so maybe that has something to do with it.

He's having a really hard time getting loans for investors; there just isn't money for it. So unless you have cash, you can't play in the "down market" and flip houses.

Frank Hagan
01-08-2009, 10:34 PM
Did that actually hit congress? I must have missed it somehow. I will have to check that out further because it would potentially make a major difference to us relative to any refinancing decision.

Google "jumbo conforming loans in 2009" and you'll get some hits on it. The law that passed is referenced here (http://www.raincityguide.com/2008/11/07/2009-conforming-and-conforming-jumbo-loan-limits-for-seattle-metro/) (although it has the calculation for the Seattle area, it includes the formula for other areas). And there's some more detail on why they may disappear soon here (http://realestate.yahoo.com/info/news/jumbo-loans-getting-smaller).

Rich Engelhardt
01-09-2009, 7:17 AM
Hello Larry,

To me refinancing a 30yr loan that has been paid on for 5-10ys with another 30yr loan make no since at all, especially if you are planning on staying there for a while. Seems to me like you are just agreeing to pay more interest to the bank and they can keep you on the hook that much longer.

Here's how it should work: (all figures hypothetical)
You have a 30 year note @ 7% w/a monthly payment of $800.00.
The $800 includes $200 a month escrow for taxes and insurance. You're actual payment is $600.00
You've paid on that note for 10 years.

You refinance for 30 years at 6% w/a monthly payment of $600.00.
That $600 also includes $200 escrow.

IF - you've taken a note w/no prepayment penalty AND you have the disipline - you can continue to pay the original $800 a month payment, which throws $200 a month at the principal.

My wife took it a step further. She stripped out the taxes and insurance from the monthly payment and paid them seperatly. We still continued to pay the higher monthly payment as if they were still packed into it.
Bottom line is we shaved an extra ~ 7 years off the note that way.
Just by paying the higher payment (as if we stil had the 7% note), our 30 year loan would have been paid off in a little under 20 years.
W/the extra from the taxes and insurance, it took us down to a little over 7 years to repay the refi.

Sadly - like you say, most people look at and get sucked into that "goodie! I have an extra $200 a month to spend!" idea.

Or, as others have said, they are so overextended in the first place they need that extra to keep treading water.


Rob,

IMHO at fixed mtg in the 4's will be gold in a few years!
IIRC, that's what happened back in th late 70's/early 80's. I knew quite a few people back then that had taken 30 year notes out in the 60's @ 4 something. The banks were offering all sorts of incentives to them to get out of those notes. One woman I knew even had the bank offer to "forgive" x number of years of the note if she would pay it off.

Lori,

This can be very confusing. My husband and I are going to meet with a mortgage counselor tomorrow to see if it is worth refiancing our home.
It's actually extremely simple. Just run a credit check on any potential advisor. See what their personal finacial situation is. I can tell you from experience that the vast majority of them are poor to extremely poor.
We (my wife and I) do this all the time when shopping for a loan/shopping for advice.

John Schreiber
01-09-2009, 9:24 AM
Just run a credit check on any potential advisor.
You can do that? How do you do that? Do you need their permission or personal information?

Back to the original question. We refinanced about five years ago at 5.25% and went from a30 year to a 20 year mortgage. It raised our payment by about $25, but it means we will own our house free and clear before we are near retirement. That adds a lot of comfort for us.

Rich Engelhardt
01-09-2009, 11:23 PM
Hello John,
I was asked about this off line also by someone else.

Yes, if they agree, to having a credit check run, you can run one.

I guess I should have worded it a little different above to say:

"Ask if they'd agree to having you run a credit check".

Sorry for any confusion.
My mind is a bit on the whacked up side right now & I'm not thinking all that clear.