Comments (scroll down to add your own):

1. Yes but your new payment after the refi is $29 less than your current payment. So how do the numbers come out if you continue to pay what you are paying now (i.e. $179 extra a month ($150 + $29)

   Comment by Papa Rage — Mar 21st 2007 @ 11:29 am

2. Papa Rage: You’re absolutely right, and I also had another error in the math, so the payment is $46 less per month (creating a new overpayment of $196). I’ve fixed everything, and the outcome is now quite different. Thanks!

   Comment by nickel — Mar 21st 2007 @ 11:47 am

3. Got any advice for people who have a mortgage through a bank that doesn’t have no-cost refinancing?

   I have a 5/1 interest only loan, and I’m about 2.5 years into it. I researched refinancing a few months ago and was just a few signatures away from closing, but the costs were just too high so I balked.

   Comment by Clever Dude — Mar 21st 2007 @ 12:51 pm

4. Nickel,

   I was going to point out the flaws in your math and your assumptions, but Papa Rage and yourself beat me to it!

   One thing to note on your refinance is that you will probably end up with a month without a mortgage payment. Save that money up for an initial overpayment your first month, which will also save you a bit on the interest.

   Now, what would your costs come to if you paid a point into it rather than taking a negative point(ish) and got the even lower rate? If you plan on living there for a while, spending the two grand now might enable you to pay your mortgage down even faster, as long as that extra 1.7k won’t hurt too much in the short term.

   Comment by Blaine Moore — Mar 21st 2007 @ 1:14 pm

5. Um nickel I probably wouldnt do it, seems as though its not a much of a savings you would be getting.. but thats me..

   Do you pay monthly your mortgage or do you do the dave ramsey thing and pay every 2 weeks so that you get an extra payment in a year leading to paying off your mortgage 5 years earlier?

   Comment by CreditNine.com — Mar 21st 2007 @ 1:21 pm

6. We pay monthly, but with a $150 overpayment. This equates to about 1.5 extra payments per year. Paying every two weeks is a game for those that don’t have the resolve to overpay their mortgage. The way we’re doing it, we’ll end up paying it off about 8 years early. I’m curious, though… Why isn’t $12,500 enough savings to make it worth the trouble? Again, there’s absolutely no cost involved here, so all I’d really be giving up is a small amount of time to go to the closing.

   Comment by nickel — Mar 21st 2007 @ 1:26 pm

7. Clever Dude: There’s nothing magic about the no-cost aspect… It’s just that we’ll take a higher than market (but lower than our current) rate and the negative points will cover the closing costs. You could do this yourself by taking the negative points and then paying for the closing costs. In our case, the broker is offering to shuffle this stuff for us, but you could do it on your own. The only advantage to doing it our way is that the broker will eat the excess costs if they go beyond the amount of the negative points. I’ve run the numbers, and it will be tight, but I don’t think there’s any way we’d come out ahead by taking the negative points in cash and then paying the closing costs out of pocket. If anything, we’ll come out slightly ahead doing it directly.

   Comment by nickel — Mar 21st 2007 @ 4:16 pm

8. What about running the calculations with the 5.85% refinance? (What are the closing costs associated with that refinance?) That may make even more financial sense in the long run even if you have to pay for closing costs up front.

   Comment by Ramo — Mar 21st 2007 @ 6:49 pm

9. Ahhh, the joys of not having a mortgage.

   Looks to me as if you’re thinking of it the right way (now) and if you can pay less for no cost, why wouldn’t you?

   In addition, you may want to think about adding even more to your pre-payments to save even more.

   Comment by FMF — Mar 22nd 2007 @ 8:19 am

10. I take it that you’re going to refinance, not looking a $12.5K gift horse in the mouth.
    When I ran the numbers on your mortgage through dinkytown, if you went for the 0 points option, the refi payment would be $1035, leaving a $207 overpayment, and a total mortgage cost (excluding the 9 mos already paid) of $297660. Which would mean that closing costs would need to be less than $2176 for this to be worthwhile.

    Comment by plonkee — Mar 22nd 2007 @ 8:24 am

11. Plonkee: I just ran the numbers and came up with something a bit different… At 5.875% (which requires us to pay closing costs), the total repayment is $1018/month (maybe you used $175k as the loan amount? The refi would be for $172,136). At $1018/month, our overpayment would grow to $224 ($150 + $74) which would results in a total cost of $288,559. Adding the nine months back in brings us to $228,559 + $11,178 = $299,737. This is slightly over $11k better than the no-fee option, and $22k better than doing nothing. Of course, the savings come on the back end when the mortgage is paid off early, so we also have to consider what our closing costs would be worth in the future. Assuming $2k in closing costs and projecting out 20 years at 5% (ignoring taxes) we end up with a future value of the closing dollars at $5306, which is about half the additional savings of paying for the refi.

    Now I just need to dig out our closing papers from 10 months ago and figure out exactly how much we can expect to pay in closing fees.

    Comment by nickel — Mar 22nd 2007 @ 9:07 am

12. Just want to suggest you call some other brokers and bankers and ask if they could refi your mortgage at the current rate with no fees.

    You just don’t know what you can receive until you ask. Sometimes, they do wave all costs, because they make the interest off of you.

    At least this has been my case.

    Comment by D — Mar 22nd 2007 @ 9:23 am

13. From what you tell me it seems to be not a bad deal, though you’re stretching that $12.5k savings over 30 years! That’s maybe one dinner out a month (just you and the Mrs., not the four boys, unless you go to McDonald’s), until inflation turns it into an extra box of cereal a month in about 2030. Savings is savings, but that doesn’t seem like something I’d be dancing in circles about.

    Also, “no-cost refinance” might just be the costs they have control over. Are you sure that other folks won’t be charging you fees?

    If you do it I’d stay on top of them to make sure they’re moving on it. I did a refi from 30-year to 15-year (and shaved off a percent in the process) but they dragged it to the bitter end and I ended up signing the refi without knowing exactly what the final closing costs would be. Some lenders have a way of using time pressure against you.

    For what it’s worth!

    Comment by mbhunter — Mar 22nd 2007 @ 11:26 am

14. mbhunter: Good point on additional fees, and that’s the first thing that I asked. The broker is offering to use the negative points to offset the *full* closing costs, including third-party fees. If the negative point fall short, he’ll eat the difference (and yes, I’ll be sure to get that in writing). Mortgage brokers get a commission from the lender beyond what they hit up the borrower for, so they’ve got some wiggle room to absorb costs.

    Comment by nickel — Mar 22nd 2007 @ 12:55 pm

15. Nickel Dude,

    My take is always do the no-cost option. This way if and when rates go down again, you can refinance again and push your rate even lower.

    When I played this game starting in 2000, rates were falling a point every year or so. I refinanced 3 times in two years, each time a no-cost and each time lowering my rate. If I had paid points, I would have lost that “investment” when i refinanced 6-9 months later.

    Comment by Deejay — Mar 22nd 2007 @ 11:30 pm

16. Nickel,

    One thing you are leaving out of the equation is the opportunity cost of that extra money you are applying to your mortgage payment. Sure, you may save yourself some interest by paying your mortgage off early. BUT, what you are you losing out on by NOT allocating the extra payments somewhere else?

    In other words, you’re not really “saving” $76,000 by paying off your mortgage early.

    Comment by JLP at AllFinancialMatters — Mar 26th 2007 @ 12:06 am

17. JLP: Very true, although that has more to do with how we choose to spend the difference from our reduced payments (pay down mortgage vs. invest) as opposed to whether or not we should should refinance in the first place. If we choose not to pay down our mortgage early, we could still refinance and have additional money for investing.

    Comment by nickel — Mar 26th 2007 @ 7:32 am

18. If you are planning to settle for a fixed mortgage rate, research on the best fixed mortgage rate. You can ask your broker about it or a mortgage quoter.

    Comment by Shawn — Jun 26th 2007 @ 11:27 am

19. Ask yourself basic questions first. Do you know the current home loan mortgage rate? Are you willing to carry such burden? Are you in favor of the current payment terms as well as the payment period? Do you think you can sustain that? If so, then you may be ready to refinance.

    Comment by real estate blogger — Jul 5th 2007 @ 12:35 am

20. We were told to wait to refinance till the market stabilized a bit-with all the bankruptcies, it’s putting us all at risk. What if our lender goes bankrupt? What then?

    Comment by James — Oct 20th 2007 @ 4:43 pm

Leave a comment