Our current mortgage company just posted a 30 year fixed rate that’s 5/8 of a point below our current one (which is a pretty good one). We’d been thinking that if they dropped half a point, it was worth it and this is even better.
So - anyone else thinking of jumping on this bandwagon?
Anyone think rates will truly go much lower?
What rate are mortgages at right now, on average? Checking on Yahoo Finance I see the rate for a 30 year fixed at 5.70%, up from 5.64% last week. Do those sound about right?
The interesting thing, at least from what I see there, is that ARMs are mostly higher than a fixed rate loan. Not sure why anyone would pay more for an ARM, unless they thought that rates would go way down, and even then, why not just refinance?
We’re talking about refinancing. We’ve got 6.125% and are seeing rates as low as 5.25%. If it drops to 5%, we’d have to seriously consider it.
The ARM rates are higher because banks don’t want people to choose them, given all the trouble the banks have gotten into because of them. (At least that’s what I’ve heard.)
We’re refinancing a 30-year at 5.5 (which we are 4 years into) to a 15-year at 5.1 something. Fixed.
The lowest I’ve seen is Wells Fargo which lists a 30 year fixed at 5.125% right now (it was 5.325% yesterday). 5.25 was about our target. This is with one point - which since we expect to be there for quite a while, is worth considering. Presumably that point makes an eighth of a point difference in the percentage.
When I got my first job, in 1986, a co-worker asked what my 2 BR apt cost. I said, $450. She said, “Wow, that’s our house pmt.” I have to assume she meant P&I; she and her husband had a nice place on what was pretty good real estate. She said, “There were times we didn’t know if we could make the mortgage, but now, we pay more on our cars.” It made me think: the pmt was based on what they’d borrowed 25 years earlier so the P&I hadn’t but their wages had.
There must be some term for that. The dollars in your last payment check aren’t worth as much as the dollars you borrowed 30 years before. Heck, I remember when candy bars went from a nickel to a dime…now, they’re 89 cents. [ADD moment]And they’re not as big any more! :mad:[/ADD moment] Inflation drives up wages but not the original loan.
If we were talking about paying off a credit card, that’s a short-term loan with a high interest rate and you want to pay it off ASAP. And with a mortgage, interest on interest over years, a 1% difference in rate can make a huge difference.
But I was just using some on-line calculators to figure out what benefit I might gain. My original financing was @ 5.875%, six years ago. I could get 4.75 on a 15 year now. To refinance the thing, let’s say closing costs of $5K.
I would save about $45K in interest…but again, $5K out of pocket to do so. My monthly pmt would go up about $125 and of course I’d be forced to pay it off faster (with current dollars that are probably more valuable than future dollars).
Saving 40K (2009?) dollars over 24 years would be nice, but it’s not as dramatic as I’d hoped. The “less money leaves my account” would happen suddenly, dramatically, in the year 2024. I decided to sell before paying off a 15 year, at what point in time would I recoup the refi charges?
I like numbers and consider them friends, but this makes my head hurt. I could send them $5K on the existing existing mortgage, then $125/mo extra. It probably wouldn’t be as efficient but I wouldn’t be committed to it, either.
Arn’t alot of ARMs a bit higher becuase you’re only paying interest each month?
When we bought our house we took out a $20,000 line of credit with an interest rate that changes with the prime rate (it might actually be prime, I don’t remember for sure). Each month, the minumum due is only the interest that accrued during the last month*. When we asked the loan officer abour an ARM for our mortgage she said it was a great idea if we were only planning to stay in the house for a few years. You’re payment would be much smaller then a regular fixed rate BUT you wouldn’t have any equity when you moved out. She said she only really sells them to people that are okay with that. Typically people that arn’t going to be in the house more then 3 or 4 years and want to use the savings to to put towards a down payment on another house.
*The LOC was used together with our down payment to make the 20% total down payment so we woulnd’t have to pay PMI… I pay a quite a bit more then the interest on the LOC each month.
Why? If you can already afford a 15-year, why not make extra principal payments and turn your 30-year into a pseudo 15-year? Going a step further can you change your current monthly mortgage to biweekly payments? At least you have the flexibility of not making an extra principal payment if the budget gets tight.
Or does a refinance to 5.1% (including refinancing fees, if any) beat the savings I outline above?
Once I get a job, I’ll be refinancing.
Things we’re thinking of:
[ol]
[li] How much will our total out of pocket be (sum of all monthly payments) if we stick with the current loan.[/li][li]How much will our total out of pocket be if we stick with the loan and prepay a bit (right now we’re tossing about 100 dollars a month at it)[/li][li]How much will our total out of pocket be if we refi - and pay only the new payment amount[/li][li]How much if we ref, and pay our old payment amount.[/li][/ol]
The last option is the one where we realize a dramatic savings over the life of the loan - as in, 100,000 dollars. We’d also pay it off 2 years earlier than we’re currently looking at doing. The net savings would be less, assuming a tax bracket of 25%, since of course we’d be paying less interest.
True refinancing costs would be in the neighborhood of 3,000 dollars (I do not count escrow prepays, as we’ve already got an escrow account so we’re not out of pocket anything net - we’d have to come up with it at closing, but then we’d get the old escrow back). More, if we went with a version that included a one-point origination fee (I’ll have to see what the rate difference is if we skip that).
Another thing to consider is what your net difference is in 5 years: have you recouped the closing costs in that time. That’s probably a more realistic view since people tend to move around more than in our parents’ day. With our scenario above, we’d get our closing costs back in roughly a year.
lobotomyboy63’s scenario is an interesting twist. There’s one where you’d really want to look at the 5 year picture: would you be enough ahead in equity in 5 years if you refinance, versus if you stay with your current mortgage and don’t pay anything extra, to make it worthwhile). I’m assuming there are calculators online that can display amortization schedules, vs. just the payment calculators - I made a spreadsheet to do it and it seems to be pretty accurate (it’s always within a couple of pennies of the bank’s balance).
In your case, you might just be better off throwing the extra money into the current mortgage as you have it, if you look at the 5 year picture.
Yeah, I looked up how much is going to principal right now: about $220; if I refi, that number goes to about $370. And of course it doesn’t stay the same
It’s tempting to divide the $150 difference into $5K and get what, 33 months or so? Except I’d be paying $125 more per month so does that mean the actual gain was only $25? Divide that into $5K and it will take 200 months but wait, the loan is only 180 months. 
http://www.ppar.com/amortization.htm will show payment and amortization for anybody who would like to play with the numbers.
Yes. The term is : inflation.
Sorry, I wasn’t very clear. Individuals say, “Well, I got a 2% raise but considering inflation, I’m not really 2% wealthier.” The issue there I think is “real wages.”
Of course on a 30 year loan, inflation over the life of the loan is a pretty big deal. My ex- was an economist. I thought she mentioned a term. Poking around, I found this for “Real rate of return:”
*The annual percentage return realized on an investment, which is adjusted for changes in prices due to inflation or other external effects. This method expresses the nominal rate of return in real terms, which keeps the purchasing power of a given level of capital constant over time. *
I was wondering how they calculate how much they “really” make on their investment in the long run. And, for that matter, how much we “really” pay for houses.
Funny this topic came up. I’ve been thinking about asking for advice here about this situation.
Because we rennovated our current home from an older farmhouse, the amount we spent on it is higher than the appraised vaule. A good portion of that amount we paid in cash, but some we rolled into our mortgage. So we ended up with an 80/20 first and second mortgage to avoid paying PMI. Worked out for us, we have a low rate on the first mortgage (5.75%), and a slightly higher but not bad (7%) but that’s only for like $58K or so. We make payments every two weeks, so we’re already well ahead of the game for the equity that we have in the house and look to pay it off about 6 years early.
So the housing market bombs, and everything goes to shit. We start getting phone calls from our mortgage company about refinancing. Turns out that in the new shitty loan environment, they can’t sell our 80/20 loan. Even though we don’t miss payments and actually pay extra, it is “costing them money” somehow. They offer to roll everything into one FHA loan with a 6% interest rate and to pay all the closing cost! What a deal! Evidently they assume I never got past 6th grade math or something.
To make a long story short, I told them to pack sand. They came back a few times and I think the current offer is for one mortgage at 5.25%, which is lower than ours now, but will leave us with a mortgage that is greater than 80% of the vaule of the house…which means we have to pay PMI…something they neglect to mention in these letters. I responded and told them that we’d consider refinancing the first mortgage to an FHA loan if they just forgave the second. I pointed out that currently FHA-backed mortgages are able to be sold for .90 on the dollar, vice .63 on the dollar that other “bad” loans are currently going for. Of course the fed has just changed it’s mind again and decided to purchase bad loans from mortgage companies. So I haven’t heard anything back yet. Way I look at it, I have nothing to loose. All I need is one greedy loan officer looking to make a bonus before the company goes belly up to approve it. 
I currently owe more than my home is worth. I can’t think that any mortgage company is going to want to touch that.
I’m just glad I refinanced to a 30 year fixed right before the whole market went to shit. My rate is still fairly decent, and I am easily making payments, so I’m okay for now.
Well, some 3-month T-bill rates went negative the other day. Money market funds are wondering what they’ll do when their cost-adjusted rates hit zero.
Maybe if you wait, the bank will pay you interest on a mortgage. (George Bailey approves.)
We got a variable rate at prime minus .75 in August, and we’re now paying 2.75%. I wouldn’t have thought that possible.
It’s only a matter of time before the bank calls and tries to talk me into converting to a fixed rate. Apparently they’re doing that now.
In Soviet Russia, neighbor has YOUR money!
Irving Fisher’s Theory of Interest argues that the interest rate takes into account all expected inflation. (Unexpected inflation or deflation can’t be accounted for, by definition.)
I was actually looking into refinancing until we got a letter from Wells Fargo suspending our home equity line of credit. We don’t use it, we got a discount on fees if we opened it when we got our mortgage. The letter actually said that the reason was a credit agency reported us in collection or foreclosure which freaked us out because we were not aware of anything like that. Turned out is was a clerical error and the reason was actually that they reappraised our house and the value had gone down to much. So right now we would probably have to pay PMI which would negate the savings on interest. We have a 15/30 year fixed rate interest only right now with a decent rate (6.125%), and we can afford to pay more than interest, so it is not a big deal at the moment. It would have been nice to get into one for less than 5%, but it looks like it is not to be. To bad I couldn’t convince my wife to wait for two years to buy.
Jonathan