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Should we Refi or not?

We (husband/wife)  have about $90,000 remaining on a 10 year mortgage loadn on our primary, single family home. About 6.5 more years to go. We have about 55% equity. The existing loan is on 4.5%. Both of us have Credit Scores over 810. Stable jobs (6+ years for both). Household income combined $85,000 with no dependents. None to negligible credit card balance. Own a secondary property, fully paid, of approx. $45,000 value (minimum). Current payment is $1404 + taxes/insurance (escrowed), comes to $1516.

 I am thinking we could ReFi. So I contacted a lender who is offering a 10 year loan, at 3%, which will bring the payment down to about $1015 (approx) but will add 3.5 years back and Closing Costs, according to GFE, to approx. $3400.

I think we could do better. 

Our goal is to pay off as fast as possible--within 2-3 years. We have been making extra payments and will make even more starting January 2013 (approx. $1000/month extra over $1516/month).


So what can we do? We are going to live in this house for a long time--forever, may be!

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December 20 2012 - Central
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Replies (11)

You should be able to get a better rate.  Shop it around.
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December 20 2012
If you refinanced on a 10 year loan at 3% and payed it at a rate that would get you paid off in 6.5 years, you'd be paying close to $1390 per month anyway. You should be able to get closer to 2.5% on a 10 year though. You'd probably come out slightly ahead in the end. However, if your planning to get it paid off within 2 or 3 years I wouldn't bother with the hassle. 

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December 20 2012
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Thanks, merino.
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December 20 2012
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Keith, our plan, if ref, was to make approx. $2500 pm in payments...so that would be approx. $1600 above the $907 for principal+interest. But even then there is not enough gain by refi compared with the existing mortgage and plan to pay extra $1000 pm.
Thanks for the advice!
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December 20 2012
 I have taken the liberty to run an amortization schedule for you given the figures you've provided...with the additional payment of 1000.00 you will pay the loan off in July of 2015, and will have paid roughly 6979.00 in interest (taking into account your additional 1000.00 per month. If you refinance you are looking at adding roughly 3400.00 to the loan for pre paids and closing costs (a portion of which will come back to you in the form of escrow refunds), you will skip a payment (which you can dump right back into the loan to pay the principle amount down). @ a "sub 3" rate, making the same additional 1000.00 a month payment, your total net interest savings is only a little over 1000.00 dollars and you would extend the loan until April/May of 2016.

That being said...there are benefits and drawbacks of the refinance you are considering. on the plus side, you would save a little in interest. You will also gain the benefit of extending the tax deduction, and also meet your goal of having the mortgage paid off within your target timeframe. On the downside...your target date to pay the loan off is extended slightly and the process of refinancing is a little more "taxing" than it used to be 5-7 years ago! I would be happy to explore this in more depth with you at your convenience.

Nevin Bunnell
C&F Mortgage Corporation 
VA Beach Branch 
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December 20 2012
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Kevin, thank you very much for breaking this all down! July 2015 doesn't seem too far off..
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December 20 2012
As others mentioned the 3% rate is not competitive.

You should be in the 2.5-2.75 range max, with a lender credit to cover your closing costs at the higher part of the range.
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December 20 2012
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Thanks, Michael.

where can I find an amortization calf and what to input? Our loan is approx. 90000 on 4.5% with approx. 6.5 years to go. I think our p+i is around $1400. I can't find a calculator which shows July 2015 with the$1000 extra. I am so glad I have asked these questions here! Thanks!
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December 20 2012
http://mortgage-x.com/calculators/extra_payment_calculator.asp

This is a good calculator where you can input monthly pre payments or up to 5 one time prepayments.

As Nevin pointed out, in todays market there is no easy refinance. You will have to go through the entire process and will have your tax returns and asset statements scrutinized by an underwriter. This may not make sense for you if you can just pay down your current loan and add principal payments through the process.


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December 20 2012
2.875% 15 year
2.75% 10 year

I would take the 15 year and pre-pay the mortgage, beat the bank at its own game...Turn the 15 year into a 5-8 year pretty quickly ...

Kieran Rodgers
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December 20 2012
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I have decided to not refinance at this point and instead make extra payments and try to pay off earlier--by July 2015!
Thank you all for your help.
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December 23 2012
 
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Should we Refi or not?
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Latest reply by Moby Kahn
December 23 2012 | 11 answers
  • Posted by Moby Kahn
  • In Refinance
  • December 20 2012
Mortgage Rates
 
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