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Should i refi at 5.75% for a 30 year fixed or wait?

Right now i have a loan at 6.8% and i want to refi in the next couple months at the latest. Is 5.75 for a 30 fixed which is what wamu quoted me a good rate for right now and do you guys expect rates to lower from what they are at currently anytime in the next couple months? Thanks.

  • March 20 2008 - US
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Answers (52)

Save the point what happens if they go up?

 

You can always refi again if they continue to drop.

  • March 20 2008
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Points? Fees? Loan amount? State? LTV? FICO? Let me know and I can calculate your breakeven and if the deal is reasonable or not. In CA, if you are a prime borrower, you should be paying about a half a point loan fee plus costs for 5.75%- other states may be a touch lower.

 

Nobody knows for sure what interest rates will do. If the deal makes sense, do it. You might want to consider a no points, closing cost rebate loan so if rates go down further you can refi again without having lost anything from this transaction.

 

Tom O'Leary

plannersmortgage.com

  • March 20 2008
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Today I'm actually quoting 5.500% with .500 origination and typical fees, or 5.375% with 1.000 in origination and normal fees.  Of course, this assumes a Prime borrower with a 90% or lower LTV and a Conforming (under $417k) loan amount.

  • March 20 2008
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if you can get an absolute "no out of pocket refinance" at a higher-than-market rate yet still lower than 6.8%, I do not see the reason why not to do it

  • March 20 2008
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As long as the principle balance doesn't go up and it is a 30 year fixed rate mortgage with no Pre-Payment Penalty.  You would be foolish not to refinance.

  • March 21 2008
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Since there is quite a bit of cost to refinance, the question is whether you expect to be able to get a better rate by waiting.  Pinks got 5.125% in February; she just posted that it closed yesterday.  Everytime the Feds play with the discount rate, the markets jump up and down, and the mortgage rates change for a day or so.

 

I'm not saying I have any clue how to time the mortgage market, but there may be a chance that you will see some better numbers sometime within the next few months.  The risk is that with all the other bad financial news, many lenders are being more conservative on risk taking, and are thus factoring that in to the loan prices.

 

Obviously anyone would claim you are foolish to refinance 2 or more times in the same year.

 

  • March 21 2008
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"Obviously anyone would claim you are foolish to refinance 2 or more times in the same year."

 

Since most brokers can now do loans where we pay all costs for the borrower (at a higher rate, admittedly) why is refing more than one a year foolish if we can save the customer money and not charge them anything?

 

Tom O'Leary

plannersmortgage.com

  • March 21 2008
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How many points for that 5.75%... You shouldn't have to pay anything....

  • March 21 2008
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You should take Pasadenan's advice...from 6.8% to 5.75% is very good...lock the rate in while you can because in this volatile market, Banks are now avoid risk rather than managing risk, this means the long-term interest rate will go up to offset all the write-offs.  Before, Fed rate cut correlate with 30 years fixed rate. Now, Fed rate cut does not correlate anything, means 30yrs fixed rate will go up, because there are lots of sellers, but no buyers in secondary market.  And not, this is not buyers who buy house.  These are secondary market mortgage buyers.  And whomever tell you at 5.75% rate with no point and no fees is an idiot.  I had experienced so many of my clients shop their way out of the market because of wait for low rates.  In this declining market, your house worth in '07 might be $300,000, but in '08 worth $250,000, so the point is the longer you wait, you more your values drop thus Banks cannot offer you that deal anymore because you just watch your LTV (loan-to-value) shoot up the roof!!!! 

  • March 21 2008
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My advice wasn't to lock; it was to do a 3-month lock-down, and lock in at below 5% when the market was hit by another fed change.

 

Anyone that says their is no cost to refinancing is plain lying.  Any loan that is processed with no costs has the costs built in to the rates and you are still paying for it.  Let them do a no cost loan 50 year fixed fully amoritized at 4.5% if they really think there are no costs.  There are apprasial costs, application costs, processing costs, county filing costs; the list goes on and on... just read what they already posted on Pink's thread about the subject.  And as a "buyer" she was not paying all the costs; there is additional costs when refinancing.

 

This nonsence is the scam that occured in California that has recently been procecuted.

 

  • March 21 2008
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Pasadenan,

 

Not one person said a refinance is free. 

 

If this borrower did a 0 point 0 closing cost loan at say 6.25% instead of 5.75% and saved more than 1/2 point from what they are paying now.  Explain the logic for not doing it?  The borrower is paying less than they are now and have not spent a dollar to achieve it. 

 

1. Principle balnce remains the same.

2. The borrower pays $0.00 to close.

3. The borrowers monthly payment drops.

4. Refinace the loan so the remaining years are the same or less.

 

Why would you not take the lower monthly payment?

  • March 22 2008
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Planners,

Arguing with Pasadenan is like arguing with a 2 year old. It's an argument that can't be won, not because he is right but because he will never admit he is wrong.

“I never trust the Government's stated inflation rates; I look at the prices of what I actually spend money on, and look and changes over longer terms since all prices fluctuate quite a bit in a short term.”

How can you win an argument with someone will disregard information that doesn’t support their argument and create their own information to support their argument. Just like a 2 year old.

Don’t waste your time.

 

 

  • March 22 2008
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I already explained the reasoning; you are correct arguing with me is like arguing with a 2 year old because you don't know what you are talking about, just like you don't know how to talk with a 2 year old.  And besides, why argue with me at all?  I have no need to be convinced of anything you are selling because I'm not in the market for it!

 

But someone missrepresenting what I said just to make a sale is plain deceit and fraud.

 

Call me anything you like; but when you give bad advice for your own profit, it makes no sence.

 

So again, for those that are a little slow and missed what I said about not refinancing 3 times in the same year....   If it will cost you about $5k to do EACH refinance, whether built into the loan or paid upfront, wheither increasing loan ballance or making the rates higher than the optimal offered....  WHY do a refi when the rates are still 1% above what you could get if you wait and time the market better, or if you do a "float down" as someone suggested for Pinks to try to get the better rate when the market jiggles?

 

I know, no big deal to Andrew; he will not be making your payments; it is not money out of his pocket.  But how much is that extra one percent?  Possibly about $4k per year?  Almost enough to spend on another refinance?  You need that extra savings every year, but why pay $10k to get the same savings that $5k will give you?

 

They all tell you that the market cannot be timed and that rates will go up.  True, but rates will fluxuate as well and a float down may give you the best of both.

 

 

 

 

 

 

 

 

 

  • March 22 2008
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And as Andrew stated, don't waste your time arguing with me nor getting information from Andrew; find a good financial advisor that can keep you from being snowed by sales people that are just in it for their own profit.

 

Or find an honest Loan officer, like Darren916

  • March 22 2008
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And if Andrew is so convinced that the propaganda issued by the government is useful, meaningful, and accurate, Andrew can provide the information on all products that comprise the CPI and the weighting used for each item.  Then he can provide the comparision of those items to what he actually spends his money on.

 

I already know he will not spend the time to do this, mostly because he does not know how.

 

(By the way, Darren is licenced in all 50 states and has title company experience as well, so he could help you regardless of your location).

 

  • March 22 2008
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Does anyone know why you can't cut and paste comments? I wrote something in a text editor because I am tired of seeing my poor typing skills displayed to the world, but Zillow won't let me past it and publish.

 

Tom O'Leary

plannersmortgage.com

  • March 22 2008
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OK, I am going to agree with one thing, and disagree with two others, pasadenan. I agree that you can make a good case that CPI understates inflation. The way CPI is calculated was changed in the late 90's (cynics say to limit increases in govt. benefit plans). If the old formula was used today, CPI would be around 6-7%. Reasonable people can disagree about this, but a good case can be made.

 

Tom O'Leary

plannersmortgage.com

  • March 22 2008
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Here's where I disagee. First off, you seem to think that you can predict interest rates. If that's the case, you should not be wasting you time with mere mortals like us, but instead should be trading bonds for a living.

 

 

The reality is that neither you, me or Ben Bernanke knows what interest rates wil be like Monday morning, much less in three months time. You can make a good case that the increasing recession will slow the economy which will drive rates lower yadda yadda yadda, but when you do this kind of stuff every day for thirty years like I have you learn that what you expect to occur quite often isn't what goes down. Only amateurs think they can predict interest rates.

 

 

 

Tom O'Leary

plannersmortgage.com

  • March 22 2008
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Second, I don't think you are quite grasping the whole point of cost rebate loans. It depends on the day's pricing, of course, but usually the numbers work out that if you keep the loan for less than four years, you are better off going for rebate pricing. If you are sure you will keep the loan for five or more years, it may make sense to pay points and/or closing costs. This assumes a tradeoff of .125 percent in rate equals one half point. If it costs more or less than a half point to buy the rate down, the breakeven changes, but that's the usual tradeoff.

 

 

 



Tom O'Leary

plannersmortgage.com



  • March 22 2008
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The reality is that this is less a decision than it appears to be. While salespeople pushing one side or the other can make big claims like the lifetime savings, any analysis that compares savings today to savings 30 years from now without adjusting for the time value of money is just plain wrong. The truth is that when you get to the optimum pricing, there isn't going to be any particular deal that's better for you because that deal would be worse for the lender, and why would they do that? For most borrowers, the discounted difference in long term costs each month is down in what I call Starbucks land.

The real advantage of "rebate" loans, and why my experience has taught me to value them, is in a market like we will probably see over the next year or so. Let's assume your choice is between 6% paying nothing (all costs rebated), or 5.5% paying a point plus costs. If you take the 5.5%, you are out of pocket $5,000 on a $250,000 loan.  Let's assume rates drop .5 percent four months later, so a full rebate deal is now 5.5%. Our borrower who originaly took 6% can now refi for 5.5%, and ends up having paid nothing for either transaction (except the higher rate for 4 months) and our borrower who originally took 5.5% really can't justify doing anything, and id $5,000 poorer.

 

Money for nothing? No, if there is a winner, there has to be a loser. So who is the loser here? The loser in this case is not the borrower, but the first lender, who paid probably $5,000 over par for this loan because they expected a higher yield for years and years, but instead got paid off at par in 4 months.

 



Tom O'Leary

plannersmortgage.com



  • March 22 2008
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Pasadenan,

Your definition of honest is someone that agrees with you.

My personal opinion about rebate loans is that the only time they make sense is when you know you will be refinancing or selling in the near future. Otherwise you are paying too high an interest rate.

You are predicting a rate improvement and telling someone not to take advantage of a loan that will save them in a payment not as much if they paid closing costs, but will save them money month to month over what they are paying today.

It's not rocket science but you clearly don't get it!
  • March 22 2008
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"WHY do a refi when the rates are still 1% above what you could get if you wait and time the market better, or if you do a "float down" as someone suggested for Pinks to try to get the better rate when the market jiggles?"

If the only cost is paying a lower rate than you currently have but higher than the bottom of the market why wouldn't you, take the lower payment today and refi again when the market bottoms out.
  • March 22 2008
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Because you only save 1% annual for 2 months (about $670) but it costs you an additional $5k to do that ---> 7.5 times what you would save...

 

DO the math!

 

And the loan market already bottomed out over a month ago.  The only lower rates are going to be temporary 1 or 2 day rates; likely not even that.  You probably need a float-down to catch them.

 

And why are you trying to tell others what my definition of "honest" is?  You missed it completely.

 

It is this "garbage" about refinancing every time the rates are 0.5% different that produces the scams that occured in California and this crazy notion that it is OK to refinance 6 times in one year.  Again, do your math, don't just state that you can save someone $670 by having them pay $5000, of which about $1000 you pocket.

 

  • March 22 2008
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The rebate mortgage does not cost you a penny in Dollars. If you expect rates are going to drop it makes sense to save. If you don't think rates are going to drop you should pay the closing costs to get the lowest possible rate!

If it doesn't cost you anything and saves you money Refi 365 times in a year.
  • March 23 2008
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Refi may not make since if you are well into your loan.  At first you pay almost all interest, and as time goes by you pay more towards principal every month.  If you refi and start the 30 years again, even with 1 or 2 percent reduction in rate you may end up paying more.  I would want to see an amitorization of the current loan and the new one to see the real bottom line.

  • March 23 2008
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Let's do the math, pasadean. Using my $250,000 example above (which is prety close to the real numbers today, by the way), Mr. 5.5 would have to borrow $255,000 @ 5.5% with monthly P&I of $1,477.86. Mr. 6% would only have to borrow $250,000, with monthly payments of $1,498.88. Let's assume that each borrower pays $1,500 per month to equalize the monthly payment differential and see how their loan balance ends up each year.

 

 

           6%             5.5%

1     246,916      250,923

2     243,642      246,616

3     240,165      242,066

4     236,475      237,260

5     232,557      232,183

6     228,397      226,819

7     223,981      221,153

 

 

So on a pretax basis, it takes almost five years to break even. After 7 years, the difference is $2,828, which if you discount @ 5.5% is worth $27.68 per month (Starbucks land). 

 

 

 

Tom O'Leary

plannersmortgage.com

 

 

 

  • March 23 2008
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So on a pretax basis, it takes almost five years to break even. After 7 years, the difference is $2,828, which if you discount @ 5.5% is worth $27.68 per month (Starbucks land).

But wait, that's not all. The 6% option generates a slightly higher deductible expense since the higher rate is deductible but the points and fees are not (it's a refi, remember).

You would pay $99,981 in total interest over 7 years @ 6%. You would pay $92,153 @ 5.5%. Assuming a 28% tax bracket, that's $2,191 in greater tax write off ($7828 times .28), which divided by 84 (doesn't have to be discounted because it's being received over the term of the loan instead of at the end) is worth $26.08 in monthly tax benefit.So for paying $5,000 up front, the net after tax average monthly benefit after 7 years comes to...... $1.60.

Tom O'Leary
plannersmortgage.com

  • March 23 2008
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Thank you Planners.  Good exampe.

 

I don't think a good loan officer would even let someone refinace multiple times in a year knowing that it ultimately would cost the customer rather than saving.

 

No can you explain the costs of a float down, and when it would be benifical or not?

 

Since the available rates may fluxuate many times in a day, how does the float-down allow one to get the best rate offered of the day, the best offered for a period of a month or more?

 

And must one pre-select a lender when doing a foat-down, or is it possible to continue shopping lenders through a broker if doing a foat-down?

 

Is it possible to shop the loan to different parts of the country, or are rates really set by the area where the property is located?

 

  • March 23 2008
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By the way, I'm sure you know that Re-fi points are deductable; it is just that they have to be spread out through the life of the loan; and if one pays off early, one deducts the balance of the points the year the loan is paid off.

 

Similarly, if one refinanced to get a better rate, the person should countinue to pay the monthly payments previously made in order to get the loan paid off earlier so as to actually save the money that would have went to interest.  The exception is if you could invest that difference in payment at a higher interest rate than one is paying for the mortgage.

 

  • March 23 2008
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No can ---> *Now* can

 

  • March 23 2008
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