UPDATE: Mortgage Refinance: Would you do it?

bmo88

So, we have considered this before, but a unique opportunity came up and we are thinking about doing it. When we purchased our home in 2014, we put 10% down and did an 80/10/10 loan. So we took out a 2nd mortgage at $27,000 at 5.99% interest only. Our plan is to pay it off within 3 years total.

Current situation:

     Purchase Price of Home in 2014: $268,000

     Estimated Current Value (need appraisal): $289,000

     Current 1st Mortgage Amount: $209,000 @ 4.35%  = $1,358.20 a month

     Current 2nd Mortgage Amount: $20,250 @ 5.99% interest only loan = $103 a month, but we pay $603 a month.

     Total Mortgage Payment: Min = $1,461, We pay $1,958.20

Mortgage Refinance Option at Local Credit Union:

• No origination fees
• No closing costs (they cover $1,600) and we just pay prepaids for property taxes and homeowner's insurance of $2,600. But since we already have $2,800 in escrow, they would refund us.
• We could get a 20 year loan at 3.87%. With appreciation on our home, our new total minimum payment would be $1,665.55
• Overall savings of 30 vs. 20 year: $115,000

We like the flexibility of our 30 year mortgage, but it is appealing to pay it off sooner and only see a minimum balance bump of only around $200. We could easily afford it and we are currently paying $300 more than that now.

A 15 year mortgage would be at 3.31%, but the minimum payment would go up to $1,945.80. While we could afford it now, it doesn't give as much flexibility down the road. We will probably continue to pay extra on a 20 year or 30 year (if we don't refinance). 

What do you guys think? Would you do it?

julieanne912

I would do it especially since there's no cost to you.  The amount of interest you would save is killer and it gets you out from under that high rate on your 2nd.  

Just a heads up, the escrow refund won't happen at closing... you'll get a check from whoever your lender is that's holding the escrow afterwards, they have 30 days to refund you that money.  

cbee817

I would do the 20 year at 3.87% for sure- especially with the break on closing costs/fees. The extra (about $300) can go to your SL debt from the previous post and you won't have to worry about the interest only 2nd mortgage.

brij2006

I would do it.  Especially since you can then get rid of the 2nd mortgage and just have it all under the new lower rate. 

And those savings for switching to a 20 year mortgage are huge!

hoffse

Yeah I probably would.  But triple check the no closing cost thing.  I've never found that to be 100% true once I start going through the list of stuff with the agent.  Still, if you're really only out a few hundred bucks that's not bad at all.

Ditto PP's point about having to float the prepaids for 30 days, but IIRC you guys have enough cash to do that.

Also, if you're going to do it, do it now.  It sounds like the Fed is tee'd up to finally raise rates in December.  Make sure you get your rate locked down in case the loan doesn't close before then.

bmo88

hoffse: Good to know about the feds raising rates, thank you!

hoffse

bmo88 said:

hoffse: Good to know about the feds raising rates, thank you!

Obviously not guaranteed, but lots of Fed watchers think it's going to happen.  It's way past due.

julieanne912

hoffse said:

bmo88 said:

hoffse: Good to know about the feds raising rates, thank you!

Obviously not guaranteed, but lots of Fed watchers think it's going to happen.  It's way past due.

Ditto this.  I'm "in the industry" and we've been hearing this, a lot.  

kyrgyzstan

I sold all my bonds ahead of the expected Fed increase, lol. 

It would be so, so hard for me to turn down that 15 year with that rate, but I would definitely do the 20 year at 3.87%. That's awesome!

dragonstarjk

Yes, I absolutely would do it.  Agree w/ @hoffse--I'm in banking and we've heard for months that they anticipate a rate increase by the end of this year/beginning of next.  We're probably talking 1/4 of a percent, but still...if you're going to refinance, you want to get the best rate possible!

Also double check on the no closing/no origination fees.  Really sounds too good to be true, but if it pans out, that would be way too good of a deal for me to pass up.

bmo88

dragonstarjk: From what I have read online, typically, when there are no closing costs, they hit you with a higher interest rate. So I looked at other local banks and this seems somewhat true. There is a bank nearby offering a 20 year loan at 3.68%, but they charge $2,500 closing + $4,000 in prepaids. So, technically over the life of the loan, that would save money. But we aren't really interested in parting with $6,500 in cash right now and may not stay in the home long term. 

short+sassy

I think at least switching to the 20-year one sounds great, because it will at least get you out from the interest-only second loan and still lower your interest rate and payments...even the accelerated payment you all are already doing.

bmo88

UPDATE:

Oh my goodness I am so elated, I wanted to share the news. We just finalized our refinance info and found out our home appraised for $22,000 more than we paid for it 1 and a half years ago. So that will knock out the remaining $20,250 2nd mortgage we had at 5.99% variable rate.

Our new loan will be a 20 year mortgage at 3.87% fixed rate and the minimum is only $140 more than our previous 30 year at 4.35% and 2nd mortgage combined! We took out the 2nd mortgage to avoid paying PMI and did an 80/10/10 loan. But now we won't have to pay PMI because we will have 79% equity in the home.

This lowers our total debt to $20,000 between DH's student loans ($16,000) and my car loan ($4,000). At our current pace, we are on track to pay it off in 10 months, which will be 11 months sooner than anticipated!

I was hesitant to do the process, but the posters on this board encouraged me to do it. So I owe a huge thank you to all of you!

brij2006

Great update!  That's a good rate, and I'm glad you were able to get rid of the variable 2nd mortgage.  You must feel so releived.

bmo88

brij2006 said:

Great update!  That's a good rate, and I'm glad you were able to get rid of the variable 2nd mortgage.  You must feel so releived.

It's a huge relief and I am so looking forward to getting rid of our debt within a year. This is a really good game changer for us.

short+sassy

Wow!  That is fantastic for so many reasons.  No debt, other than mortgage, within a year.  No second.  Paying your house off 10 years sooner for a not much higher mortgage payment.  Huge savings on interest, both in cutting the loan time and in lowering your rate.

So many win-wins.  Congrats!