Financing in 60630>Question Details

Douglas, Both Buyer and Seller in Chicago, IL

Hello, I have a refinancing question on my investment property to see if it is a good deal or not

Asked by Douglas, Chicago, IL Sat Apr 14, 2012

I currently owe $133k 30yr fixed at 5.875%. My current lender is offering 4.5% 30yr fixed. The origination cost is $2258 and other settlement costs are $2595 for a total of $4853. Can someone let me know if this is a good deal or not? My monthly would go down a couple hundred dollars which is the whole idea but the settlement charges seem high. I'm assuming it would take a couple years to make the $4853 back since I'm saving a couple hundred on my monthly. Should I proceed with the refinance or just stay with what I have? Thank you.


p.s. For more info it shows on another document my estimated closing costs as $3368 and estimated prepaid items $1485 to add up to $4853.

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This loan looks a little expensive to me. Shopping it makes sense, as does analyzing your pre-paids and return of your current impounds.
1 vote Thank Flag Link Sat Apr 14, 2012
Hi Douglas, Your settlement costs may include funds to establish a new escrow account. If this is the case, once you settle you will get a refund of your current escrow account sent to you in about 3 days after settlement. You need to deduct this amount from your costs to settle to determine your actual costs and then just divide your monthly savings into your actual costs to find your ROI in months. There is no hard and fast rule as to how many months is the corrrect answer to if it makes sense to refinance. You also have to weigh into the equation how long you plan on keeping the home and what are the chance that interest rates will go significantly lower over the next few years. I think that one is a no brainer, rates can
1 vote Thank Flag Link Sat Apr 14, 2012
Yes, there is a charge for $1246 for "Initial deposit for your escrow account" in the $2595. I plan on keeping at least a couple years.
Flag Sat Apr 14, 2012
Divide the 4853 by the 200/mo savings and you get about 245 months to break even. 4800/closing costs seem rather high, but I do not knwo what you have. My web site has some lender references. It does not cost anything to shop around.
You need to hold the property longer than the 24 months to make it worthwhile.
1 vote Thank Flag Link Sat Apr 14, 2012
Hi Douglas -- It is always good to get a second opinion. A&N mortgage is the company on top of my referral list and they may be able to help you.

Neena Vlamis (president)
A & N Mortgage Services, Inc.
Tel: 773-305-LOAN (5626) ext. 104
1 vote Thank Flag Link Sat Apr 14, 2012
Hi Douglas-
You are looking at it the right way,, here are my comments.
1. the charges are a little high, and you should go back and ask if they will lower the fees.
is this your current lender or someone you approached about the refi? these days for some, gettgin a refinance on an investment property is tough. I can promise some of the lenders who frequent here on Trulia will offer to take a look and see if they can do better. This sounds like it might be an FHA loan, is it?

2. If you are planning on keeping the building for more than two years, no matter what, get that rate down into the low 4% range while you can.
1 vote Thank Flag Link Sat Apr 14, 2012
I already asked about lowering the fees and they said the numbers are standard rates and they can't lower them. I contacted my current lender to get this info. It is not an FHA loan. Probably planning on keeping it at least a couple years.
Flag Sat Apr 14, 2012
It would take you two years to pay off the closing costs and pre-paid items. If you are going to hold onto the property for more than two years it sounds like a good deal to me. I would shop around your refi loan though. If you wants references to some, please email me at 312-545-2775 or and I will forward them along.
Jesse McGrath
Broker, Architect
1 vote Thank Flag Link Sat Apr 14, 2012
If you plan on keeping this investment property for many years then it may make sense. The prepaid items are not costs - they are escrow/prepaid interest that you would pay anyways. As per costs of $3368, do some shopping around. 4.5% for the next 30 yrs is very good though.
0 votes Thank Flag Link Thu Apr 19, 2012

One more question I have not seen put forth here is how old is your current loan? You will be trading down an interest rate but increasing the time to pay the new loan off. If you have paid on the old loan for 7, 8 or 10 Years you will loose that time. Amortized loans have you paying the same amount each month but as time goes one you will be putting more and more towards principle.

Ask your lender about how this new 30 year loan will effect the total paid in principle over the time you will own the property.

Deb Russcol, GRI
0 votes Thank Flag Link Sat Apr 14, 2012
It is hard to say if these costs are extensive or not - but at first glance this looks a little high. However without knowing further details its hard saying. What type of property is this? How much is the property worth? what is your current credit score?
All of these factors will effect your interest rate and fees. If you would like a quote for comparison please feel free to call me and I will be happy to help.

Sam Sharp
Senior VP of Mortgage Lending
Guaranteed Rate
0 votes Thank Flag Link Sat Apr 14, 2012
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