Refi yes or no?

Asked by Estherk, Tue Dec 16, 2008

We closed on our first home on 9/18/08 with a 30-year loan at 5.75%. We paid a whole bunch right off the bat and now have 26 years left on our loan. So my question to you more experienced people is: Should we refi? What would YOU do if you had 26 years left on a loan and interest rates are about 1 1/4 % lower?

Also, recommendations of excellent mortgage brokers/lenders (with low closing costs!) please!

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Cindy Hanson…, Agent, Eden Prairie, MN
Thu Dec 18, 2008
Hi Estherk,

We are both in the real estate profession and own a few properties we have posed this exact question to. We base our decision on:
Will we own the property longer than 10 years? If not, we don't feel the savings versus the closing costs outweigh the process. If you are planning on staying in the home, than yes, the savings will be worth it.
Can we afford the monthly payments and how drastically will they change our payment? If it will save us less than $100/month, for us, that is not worth it as at any time plans can change and we would have to sell earlier than later.
With a recent purchase and with the stricter guidelines for refinancing and the current market values stable or declining, would we really qualify for the best rate if we don't have 10-20% equity in the property?
Are closing costs going to run 2%? Adding the closing costs into the loan will add to the payment, not improve it and do we want to pay the cash out of pocket?

It's an individual decision. If we had 15-20% equity in a property and were planning on holding on to it for at least 8 years, we would most likely re-finance as long as closing costs were at a minimum. We would go to who currently holds our mortgage first as that is the best best to have the lowest closing costs.
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Luke Allison, , Asheville, NC
Wed Dec 17, 2008
You can take my answer with a grain of salt because I am a mortgage guy and selling mortgages is in my blood, but yes, this is a great time to refi. You should be able to do a streamlined refi with very little cost. You should even be able to waive the appraisal. You sound like you want to be in your loan for the long-term and get it paid off ASAP. If you get a rate at 4.5%, your new payment would be approx $871/month and save you about $130/month.

Yes, it would take the up front cost but would save you a lot in the long-term.

My main advice would be that if you are considering it, do it now vs. later. Only because rates are spectacular right now and it is hard to imagine them trickling down much lower.

If you have any questions or need a prequal, you are welcome to call me.
Luke Allison
Flagstar Bank
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Estherk, Home Buyer,
Wed Dec 17, 2008
Thanks for your answer, Tim. Our loan amount was $171,850 and our monthly P&I is $1002.87. We don't see a reason to move at the moment but who knows what the future holds?
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Metropolitan…, Agent, Edina, MN
Wed Dec 17, 2008

This is a trick question......

The reason I say that is because there is a lot more that goes into making this decision then "Yes" or "No".

1) How long are you going to live there?
- If it is for 30 years then "Yes" you might want to refinance because the closing cost you are going to pay up front to refi will take you 6+ years to get back with your lower rate. Making it worth your while to refi because you will receive a financial benefit.

2) Is your current payment difficult for you to make?
- Depending on the price of your home you might only save a few $$ a month on your payment when you refi. Now if your home is more expensive that is different. A small reduction in payment might not be worth paying all of the up front fees to refi because the NET Financial gain will not be worth it.

These are just a few of the questions you need to ask yourself before doing a refinance. If you would like more help please feel free to visit my web link below.

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