n4te's Discussions

I have a 1st mortgage of $422k at 6.375% and a 2nd mortgage of $105k @ 8.3%. So we owe $527k and our house is worth about $540k. The house is located in Seattle, WA, 98199. I want to refinance to take advantage of lower rates. I got a GFE but I have no idea if it is any good. Can you guys give your advice? Here it is:http://n4te.com/temp/gfe.pdfThe GFE was done 5/26 so I don't know if we can actually get this rate. Does everything else look in line?

Thanks for the advice guys. Sorry I took so long to reply. There has been a pretty significant change of plans and I didn't want to post before I had sufficient information.You guys were right of course, I asked for an updated rate on June 3rd and it had gone up from 5.25 to 5.5. I asked again today and it is at ~5.8. Apparently it is estimated rates will continue to rise.I had been dealing with Wells Fargo in early May. They were extremely unresponsive (super busy I guess). It seemed as if they were not interested in my refinance, so I went to a different lender and got the GFE I posted above. It turns out that Wells Fargo has locked a rate for me around May 20th, just before rates went up! They didn't freaking tell me until weeks later!The lock is for 90 days at 4.5%, but that is with 1% origination and 2.58% discount. Annoying, because I didn't ask to pay discount points. They claim to be unable to quote a rate with no discount points until after we get an appraisal. Their "guess" with no discount is a 1% higher interest rate if not more. We are waiting on the appraiser to come look at the house....continued....

The question I have now is, should I pay the discount points? Assuming the house is appraised at 540k, I'll need to pay $13,932. Wells Fargo tells me I'll save $6k/year in payment reduction and $9k/year in interest savings for the first year and another $15k for the second year. If this is right, it seems that it may be worth it to pay the discount, no? I vaguely remember reading that a refinance should break even within a year or so. Is that a good rule of thumb?I guess it really depends on what comes of the appraisal, so we can know what the rate would be with no discount and just the 1% origination. So far all we have to go on is it would be around 5.5 to 6.0.If you guys have any advice, it would be greatly appreciated!

Wait a sec, the $6k/year and $9k/year they say I save in payments and interest is the difference between my current loan and the 4.5%, not the difference between paying discount and not doing so! So the break even is waaaay longer. If no discount gets me 5.5%, it would take 42 months. If no discount gets me 6.0% it would take 28 months. I think it should also be factored in that money today is worth more than money tomorrow. So it will take a bit longer than those numbers.Even though we don't have any plans to move, it is kind of scary to drop basically all our savings into discount points.

Sorry for posting so many times in a row.Do I have this right?In 18 months at 5.5% the interest paid will be $46549.In 18 months at 4.5% the interest paid will be $38009.$8540 in interest is saved in 18 months.$330 a month is saved using 4.5% instead of 5.5%.$5940 in monthly payments is saved in 18 months.$14480 is saved in 18 months. Would this be considered the break even point? Why don't the online calculators take interest saved into account when computing the break even point?

Meg, the situation has changed since I started the thread. Please see my latest posts in the thread.

I am refinancing my home for ~$540k. I have a lock with the option to buy 2.58 points to get 4.5%. Otherwise we aren't quite sure what the rate would be, probably 5.5%. Do I have the following right?2.58 points is $13932.$330 a month is saved using 4.5% instead of 5.5%.$13860 in monthly payments is saved in 42 months.$5940 in monthly payments is saved in 18 months.In 18 months at 5.5% the interest paid will be $46549.In 18 months at 4.5% the interest paid will be $38009.$8540 in interest is saved in 18 months.So $14480 is saved in monthly payments and interest in 18 months.Is the break even point for paying 2.58 points 42 months or 18? Why? Why don't the online calculators I've found take interest saved into account when computing the break even point?

Ok, thanks. But why isn't interest taken into account? Doesn't buying a lower interest rate mean I pay less total interest, effectively saving money?

Thanks for all the info guys. I'm slowing understanding more.Please correct me if I'm wrong, but I think interest saved due to buying down a rate should be taken into account, as well as the increase in taxes I will pay due to paying less interest. This is very different from what most online calculators and even some people in this thread say: to just divide the cost of the points by the monthly savings.James, thanks for the calculator link. I have looked at many calculators but none were as good as the one you linked. I am pretty sure it takes into account interest and tax, which is great. It is telling me 50 months to break even (assuming 28% tax rate since I'm not sure).The calculator also uses savings interest, but I'm not sure exactly how that is figured. Is that the interest I would have earned on my money if I didn't pay points?Clay, my existing rate is 6.375% on $422k and 8.3% on $105k. I did an 80/20 on $540k originally, on 11/2006. I'd like to consolidate the two mortgages into one. I used $540k in my original question in this thread as just a rough estimate. I have about $16k in cash. That is my emergency money, but my employment looks to be pretty stable, so I could put it into refinancing if it would really help. As for the closing costs other than the discount points, I don't have them in front of me. I know for sure there is a 1% origination fee and ~$9000 for the FHA upfront MIP. Other costs should be typical for my area (Seattle). I can post them tonight if you'd like. We are actually waiting on an appraisal to get more solid numbers, we have been waiting a couple weeks.Mark, good point about pushing the loan out to 30 years. We have had our current loan since November 2006. While I have ~$16k in cash, I just have it sitting in a money market account collecting dust. It makes something like 1.2% currently. I wish I knew more about how to invest the money. I would want to do something reasonably safe. I could put it in a CD and earn ~2.3%.Thanks again for all the info so far! I would love to hear anything else you'd like to contribute.