Home › Forums › Financial Markets/Economics › Refinance or not…
- This topic has 17 replies, 8 voices, and was last updated 12 years, 7 months ago by
sdrealtor.
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April 23, 2012 at 8:21 PM #19713April 23, 2012 at 8:34 PM #742049
sdrealtor
ParticipantIf I understand this corectly??? You are looking at a $3600 ($300 x12) return on a $22,000 (cash you probably have sitting idle) investment which is 16% guaranteed for the life of the loan? And you are asking your gut? Talk to your accountant, he has no gut and understands what a no brainer this is.
April 23, 2012 at 8:46 PM #742050sdduuuude
ParticipantWhy would you have to pay $22,000 ?
I’m looking at a 3.875 refi and getting $1800 back.
April 23, 2012 at 8:55 PM #742051scaredyclassic
Participant22,000 to buy it down to 417,000.
i don’t have an accountant.
it’s not quite 16% cause i lose some of the tax deduction, right?
also i have a longer loan.
but i think im fine with the longer loan.
and if the house is destroyed it’s bad.
but it probably won’t be.
April 23, 2012 at 9:01 PM #742052Participantand though you lose some of the tax deduction, the $300 you save is tax free in the sense that you get 300 more each month and don’t pay any tax on it.
April 23, 2012 at 9:15 PM #742053Participanti was kind of saving that money to deal with some major repairs on this house but there’s not anything really wrong to repair.
ok then, what about a 40 year loan with a 430 mo lower payment at 4.25%
realistically, i’m probably not going to live to pay this loan off anyway.
i feel better having some money in the bank.
April 23, 2012 at 10:03 PM #742055moneymaker
ParticipantMy suggestion would be to stretch it out to retirement. If you are 40 then a 30 year loan would be fine. There is just something psychological about owning a home outright when you retire that i like. Of course if you can own it outright before then, then that is even better. Just got a 20 year loan @ 3.75% last month and I’m already itching to pay it off sooner, even though i know in my mind that stretching it out would be smarter (at such a low interest rate).
April 23, 2012 at 10:17 PM #742057Participantwe could just buy some nice wood flooring for upstairs, some furniture and other consumables.
but the cats would probably pee on the flooring, and my wife would spend too much time thinking about which furniture to buy so it would stress her out.
better to stay with the decade old couch, which we know is beat up but which continues to perform its essential couchly duties, and keep the slightly icky carpet upstairs, and get a cheaper rate.
April 23, 2012 at 10:19 PM #742058Participantim 50 but I have the body of a 46 year old. so i should probably get a 24 year mortgage.
April 24, 2012 at 12:31 AM #742062HLS
Participant1. You aren’t paying $22,000, you are reducing your debt by $22,000.
**According to your comment, you are not paying anything to get the loan.2. The payment (& tax) savings is irrelevant. Mistake to even consider it.
3. You can still pay the loan off in 28.5 yrs if you want by adjusting the payment.
4. You will save around $3500 in interest just the first year, and a declining amount each additional year.
5. If you can spare the cash, it’s a no brainer to refi.
April 24, 2012 at 12:43 AM #742063
CoronitaParticipantMay I ask where you’re getting a 3.75 no fee/no cost loan from?
April 24, 2012 at 1:51 AM #742065ParticipantYou have choices if you decide to refi $417,000
If you continue making the same payment that you are making now, approx $2250mo.
Your $22,000 ‘investment’ will save you $144,000 (GUARANTEED) in interest payments over the life of the loan and you will pay the loan off in 23yrs and 2months rather than 28.5 years.
OR
If you save the $300 every month and just make the lower minimum payment each month, the $22,000 investment will save you about $114,000 in interest over 30yrs QEDApril 24, 2012 at 7:31 AM #742069Anonymous
Guest[quote=HLS]1. You aren’t paying $22,000, you are reducing your debt by $22,000.[/quote]
This is an essential point. The $22K isn’t a cost as you are just trading cash for equity in your home. It’s still “your” money either way.
It all comes down to the actual refinance costs (appraisal, fees, etc) vs. the cash flow you will receive (lower payment.)
Since the costs are up front and the cash flow comes over time, you start out negative, eventually “break even” at some point (typically a few years), and then come out ahead over life of the loan.
There are two risks to consider:
– If you sell the house before you recover your costs, you will lose some portion of the costs.
– You lose liquidity by putting the $22K into your house instead of cash. In theory you could get into trouble if that was your only cash and you needed it for an emergency, job loss, etc.
I don’t follow the rate market closely, but I’m not sure that you can get 3.75% today with no costs. But, even if the costs are a few thousand, you will “break even” in a few years and then enjoy an extra $300/month for decades.
So, if you aren’t planning on moving in the next few years and have more cash as an emergency fund, it’s a no-brainier.
April 24, 2012 at 7:43 AM #742072GuestA couple of other points:
– Don’t bother sorting out the tax implications, they usually don’t make any difference.
– If your current loan is more than 25 years or so, extending the life of the loan has an incredibly small impact on the total cost of refinancing.
With even modest inflation, the real cost of the payments you have to make 25 years from now will be less than half the value of today’s dollars. The extra $300 you start getting now – in today’s dollars – will more than make up for the extra payments you will have to make 25 years from now in 2037 dollars.
April 24, 2012 at 10:19 AM #742097ParticipantIsn’t the Jumbo limit 546K not 417K in San Diego?
http://homeloanartist.com/2011/11/ca-jumbo-conforming-fha-loan-limits-restored-20012-2013/
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