15 posts
I can get 30 years fixed at 5.1% right now. I think my current loan is at 6.5. This means a pretty good savings every month, almost enough to cover property taxes. I know it's a good rate... my only hesitation is, what if it gets even lower? It's going to cost about $2000 to refinance. I'd love to get that rate down below 5%. 4.5% sounds great to me. But what are the chances it might go back up?
Quandary.
Anyone have any ideas?
If you can afford to take it now, and they'll lend to you (since banks don't seem to want to do that these days), that might be really good in the long run. I don't know how low rates will go, but I'd be surprised if they got under 5% on a regular basis.
But that's just wild speculation by someone who doesn't really know what he's talking about. ;) :D
Tripper
Financial advice is precarious thing at the best of times.
But here goes.
US Interest rates are about as low as it gets atm.
the 30 yr swap rate is under 3%
So you are are paying a premium of 2.1% on that deal, which reflects the costs/risk of lending at the moment.
US interest rates might fall a bit further, but there is not much room left - short term rates are 1% already, even getting those down to 0 would likely only shave .25% off the 30 year swap rate - if that.
The lenders premium is unlikely to reduce in the near future going into the trough of a recession.
I would go for it.
should I refinance?
I don't think the crisis has reached its bottom yet. 4.5 may just be on the horizon. I think that will be the bottom however.
I'd look at getting much better closing costs. Have you tried companies like Ditech? I've refinanced a couple of dozen times (on several properties) and usually I only have to pay around $375 or less (the most was about $1,400 once).
YES! If you can get 5.1% with $2,000 closing costs, DO IT NOW! The market has been bouncing radically lately. I've seen .5 percent swings in a few days. More importantly, I have all the big mortgage banks rates and haven't seen anything close to that. Ever. 5.5% was available for a few hours last week (with no points, points always can get you below the "real" rate. Not worth it. Nother discussion). I've never seen 5.1% ever, and certainly not in the last few weeks. If you can get it, DO IT NOW.
A quick comment on paying points to get a lower rate. The only time it's worth it is if you know you're going to stay in your house for quite a while. Even then, you need to do a calculation (I have a financial calculator that I always use for this type of stuff).
First, find out how much it will cost you per month without paying down the interest rate.
Next, find out how much it will cost you per month if you pay down the rate (there could be multiple answers here if they offer more than one pay down, like 1 point for a 1/2 percent or 2 points for 1 percent).
Subtract each pay down monthly payment from the first monthly payment (the one without a pay down) and this is your monthly savings with the lower rate.
Finally, divide the monthly savings into the amount it will actually cost you to get the pay down.
For example (using cheesy round numbers): Let's say you are refinancing $200,000 and if you pay a point (which means 1% of your total or $2000 extra), then you'll save $22.25 per month due to a lower interest rate. This means you'd have to live in your house for about 7.5 years just to break even (i.e, where your "savings" per month finally equals the $2000 you had to put in up front).
Generally speaking, 7.5 years is about normal to breakeven (which is why I picked it). So if you intend to keep your new loan for ten years or more then you might consider it, otherwise it's money best used elsewhere. :)
http://money.cnn.com/2008/12/16/news/economy/credit_market/?postversion=2008121617
I knew they would come down further, once this trickles down that is rock bottom amigo
Craig, a qualified mortgage professional once told me that there's a bit more too it than that. ;) Example: If you finance the point (in your example of a 200K loan) you just added $2,000 to your closing costs AND loan amount. A qualified mortgage professional told me that to now compare the two options, you have to consider
1) how long, making your normal payments, will it take you to recoup that two thousand in money, AND the $2000 in equity. If you look at an amortization schedule, you'll see it takes quite a while to get that $2,000 back. So your example allows for getting the money back, but you still owe 2K more even when you do. How long does it take to get the equity back, as well?
2) Now you have (what I call...) "artificially lowered your rate by the point. You have not reduced your (my term again used only to clarify) "legitimate" amount of deductible mortgage interest come tax time. Calculate the lose of tax deductible interest. Interestingly enough, it will for some strange reason, be about the amount of the reduction in your mortgage payment. Hmmmm.....
What if you paid the point, out of pocket and didn't finance it? Well, now to legitimately compare, you still get to apply part of that above plus...
1) what would that money of yielded if it were put in an investment account, rather than used to artificially buy down your rate? Calculate that, even conservatively. Now, how long will it take to recoup THAT amount through your monthly payment savings?
Should I keep going? A qualified mortgage professional once told me that points are used for one reason. To artificially make one lenders rates look lower than anothers to a consumer who is not educated enough to know the difference. Ironically, as consumers have gotten more educated and start to ask these type questions, lenders have started to become even more deceptive by now not calling them "points" just so they can say "that is with no points, just like the other guys quote." I had someone call the other day when rates were 5.5% for a 30 year fixed, no points. Someone quoted them 5.0% "with no points." That quote included a $3,500 "broker fee" in addition to all the normal lender and title fees. The guy was borrowing $115,000..... meaning this was 3 points he was paying, although it was not called points. The normal buydown for a point on a 30 year fixed rate is 1 point lowers the rate .25 percent, so 2 would get your .5% off, etc... SO, my rate was lower because with 3 points my quote would have been 4.75%. But if I didn't take the time to make them pin that guy down on his quote, they would have gone with him, convinced that he had the best rate during all their shopping around.
What we are looking at (as of Saturday, before the current rate drop) was 5.1% with $2000 closing (wrapped in), for a total a financed amount of around 410k. Our broker offered us 4.75% if we pay one point, added in to the loan amount, which puts us at 4.75% financing $414k. I think the math puts us ~$67 a month lower on the payment, which means over 360 payments we'd save something like $23000. Am I right? Am I missing something? This is of course before the latest rate drop. So we'll see what our broker comes back with.
P.S. And yes, the idea of a $115k loan strikes everyone I have talked to as hilarious.
Thank goodness everything I own is paid for, I don't have to worry about all that stuff. But I do live in a RV resort on a 40 by 62.5 foot lot (which we own warantee deeded), in a 400 sq ft mobile home. My total living expenses come to less than $300 monthly including electricity and my association dues, taxes, water, trash, etc.(not including land lines cell phones Internet and TV which is another 2 bills monthly) Sure it is a small place, but that is how the wifey and I can spend all the money we want to on travel, cars and on and on.
desertbluesman — Dec 17, 2008 ...in a 400 sq ft mobile home.
Holy crap! I used to have a
bedroom down in California that was more than 25% larger than that! :o (18' x 28' - it was the room above the garage.)
Charger,
as you probably know by now, rates are now even lower. (The lowest I've ever seen!). There is some sentiment that it could be coming down even further. Ask your mortgage dude if they have a "float down" policy in case rates drop even further while they are processing the loan and before it closes. Let me know what he says, and if you have any questions, get him to explain the float down policy in an e-mail and forward it so I can tell you if its a good one.
CraigBert — Dec 17, 2008[quote author=desertbluesman link=1228500541/0#10 date=1229533078] ...in a 400 sq ft mobile home.
Holy crap! I used to have a
bedroom down in California that was more than 25% larger than that! :o (18' x 28' - it was the room above the garage.)
Yep no kids just me and the wifey, but you know we can add on an Arizona Room bigger than the Mobile when and if we want to.
Well charger, I'll tell ya....
I thought I would NEVER see gas as low as $1.30 a gallon again like I did last month, but I did. Then just last week I saw it go back up to $1.55 a gallon. If this is any indication of the direction of the economy I would go for it!
cgtrox 8-)