3.75 vs 4.00

[bearishgurl]

[quote=flu][quote=harvey]Lol, the kitchen sink analysis.[/quote]

I like to consider my options, plus I want to see if I can beat BG to see who can come up with the longest post on this thread. It’s my new goal on Piggington. Did I succeed? Its kind of hard for me to type though on a tiny smartphone where I am.[/quote]This!

I have access to a real desktop computer, real keyboard and large monitor … usually all during the business day and also type 80+ words per minute … even in my “leisure.” So, it’s going to be pretty hard for you to compete with that, flu. I know I couldn’t cuz my eyesight isn’t good enough to do anything but twitter on a phone. (Except I don’t belong to twitter, lol ….)

Um, yes. I am a self-professed “road-trip queen” and have been accused in the past of packing the “kitchen sink” in my car’s trunk. I like to have everything I think I might need when on the road :=0

[moneymaker]

Anyone care to post a current YSP chart, haven’t seen one in a long time.

[an]

I find it hilarious that we have a thread about no cost loan periodically on Pigg. I’ve been on both side of this argument. I started with buying down rates, thinking 1) there’s no such thing as no cost loan, 2) 4.5% is the lowest it has been it many decades, so it can only go up from here.

Fast forward several years and many refi later, here’s what I’ve learned: 1)I can’t predict future rate any better than my guessing the lottery # 2) When rates were falling, I went through a couple of years of not having to pay property tax and refi-ing about every 6 months.

I’m now a firm believer and practitioner of “no cost loan”. I’m actually refi-ing again right now, dropping my rate down by 1/8%, as well has having my insurance and property tax paid for. If rate drop again in 6 months by another 1/8%, I would do the exact same thing again. I will ring this cow dry until my rate is 0%. Until then, I will keep on refi-ing as soon as I can drop my rate by 1/8% and have my tax and insurance paid for.

[HLS]

[quote=moneymaker]Anyone care to post a current YSP chart, haven’t seen one in a long time.[/quote]

There is no ‘standard’ chart.. it’s not a secret and
there are some online lenders that show credits at different rates, it’s always a % of the loan amount.
It can give you an idea. There are pricing hits for lower credit scores, equity, rental property etc, so there is not just one rate that fits everybody.

3rd party costs don’t change a lot with a lower loan amount which is why a $400K loan has enough credit to cover all costs but a $200K loan at the same rate may not have enough credit to cover all costs.

Each lender prices differently, but it can be a spread of anywhere from .25% to .875% (of the loan amount) for each movement of .125% in rate.

One lender may have .75 spread between 3.50% & 3.625%
and only .375 between 3.625% & 3.75%
another lender could be very different

[gzz]

[quote=HLS]

Nobody should ever have a drop of 20% in their payment.
unless your rate dropped 1%-2% which would mean that you should have refinanced multiple times all the way down.

Your $6000 a year savings doesn’t sound right.[/quote]

I refinanced just once from a $380,000 4% loan to a $340,000 3.375% loan. The first loan had PMI, the second did not.

[quote=HLS]What if rates go up ?[/quote]

What if, what if, what if?

The fact is he has a place he wants to buy, and only has 5% for a down payment. He’s not going to get a good mortgage with 5% down and likely imperfect but not bad credit scores.

He should pay down the imperfect mortgage he can get and save as fast as possible until he hits 20% and then he can get a good one. Right now people are getting 3.25% mortgages with no PMI. Rates could go up a 0.75% and he’d still be best off paying down the mortgage as fast as possible and removing PMI.

[HLS]

GZZ
90% of what you said makes no sense. Clueless and scary.

Apparently another ‘expert’ who thinks they know what they’re talking about.
Can ya send me the names of ‘people’ who are getting
3.25% mortgages right now ?
That rate comes with a HUGE cost. I don’t know anyone
who thinks it makes sense.

If rates go up .75% it makes no sense to refi,
no borrower would be better off.

There’s no such thing as an ‘imperfect mortgage’
You do get a ‘good mortgage’ with 5% down, the only difference is PMI. the rate is the same. Apparently you don’t know this either.
The only thing you say that makes sense is about removing PMI.

AN & FLU get it. Refinancing all the way down multiple times at no cost saved them thousands.

Refinancing one time and thinking you hit the jackpot
probably means you left a lot of money on the table.
Congratulations.

[Anonymous]

lol, HLS is still trolling for suckers.

[gzz]

Clueless, no, you are looking for clients.

[gzz]

“Refinancing one time and thinking you hit the jackpot
probably means you left a lot of money on the table.”

My mortgage is a 3.375% 30-year with no PMI and 0 points.

Can you show me how I left money on the table?

[an]

[quote=gzz]”Refinancing one time and thinking you hit the jackpot
probably means you left a lot of money on the table.”

My mortgage is a 3.375% 30-year with no PMI and 0 points.

Can you show me how I left money on the table?[/quote]My rate is 3.5% 30 years with all my closing cost paid for and about $2500 to pay for my property tax and insurance. If rate drops again where I can get 3.375% with about $4000 in credit like I am getting in this deal, I will refi again. A few years ago, I did exactly that 4 times over two years. So beyond getting lower rates, I got about $4k in credit each time I refi. So, I didn’t pay taxes or insurance for over 2 years. This time, I had option for 3.375% with $2000 in credit (should be enough to pay for 3rd party fees but not enough to pay for my property tax and insurance), so I decide to go with the 3.5% and get another $2k in credit. If I went with 3.375% and rates go down 1/8% of a %, if I refi again, I would lose out on the $2k – interest saving I would have saved going with 3.375% instead of 3.5%, which isn’t that big if it happened w/in a few months. That to me, is leaving $ on the table.

[Anonymous]

Why stop at mortgages?

Car dealers offer cash back also.

[gzz]

Well you are actually gambling that rates will stay low or keep going down.

If you lose, you pay more for the life of the loan. If rates go back to the 4% range and you intend on keeping the house for a long time, the extra .125 will be about $125 a year in interest payments per $100,000, gradually decreasing as the balance gets paid down. But on a typical San Diego house, about $12,000 over the life of the loan.

So it is not free money, rather you won a number of bets with banks. That’s great.

The process of doing the refi also results in a credit inquiry and a lot of time and hassle, though that depends on how complicated your finances are and whether you are self employed or not. I am, and it makes the mortgage process more complicated.

I’d need at least $1000 gain before I’d deal with all that, maybe $2000. Personally, if I want to bet rates will go down, there are easier ways of doing so with bond funds and ETFs.

In summary, the cash you picked up from banks doing serial refinances are no more free money than the money I made this year with some good stock investments. In both cases we made money with correct predictions about markets. It wasn’t free because we took on risk to do so.

[bewildering]

[quote=gzz]Well you are actually gambling that rates will stay low or keep going down.

If you lose, you pay more for the life of the loan. If rates go back to the 4% range and you intend on keeping the house for a long time, the extra .125 will be about $125 a year in interest payments, gradually decreasing as the balance gets paid down. But on a typical San Diego house, about $12,000 over the life of the loan.

So it is not free money, rather you won a number of bets with banks. That’s great.

The process of doing the refi also results in a credit inquiry and a lot of time and hassle, though that depends on how complicated your finances are and whether you are self employed or not. I am, and it makes the mortgage process more complicated.

I’d need at least $1000 gain before I’d deal with all that, maybe $2000. Personally, if I want to bet rates will go down, there are easier ways of doing so with bond funds and ETFs.

In summary, the cash you picked up from banks doing serial refinances are no more free money than the money I made this year with some good stock investments. In both cases we made money with correct predictions about markets. It wasn’t free because we took on risk to do so.[/quote]

$12000 over 30 years. The extra $125 will reduce in ‘real’ value over the years. Plus, the average length of stay in a house is 6 years.

[gzz]

“$12000 over 30 years. The extra $125 will reduce in ‘real’ value over the years. Plus, the average length of stay in a house is 6 years.”

I agree, that’s the worst case scenario. The extra interest may be tax deductible depending on AMT status as well. But it does happen. The banks offering to pay you for taking a higher rate are not stupid and think it is risk worth taking.

[Coronita]

Oh just stop people, will you? Grind through the number yourself. It might make sense to refi, it might not. It depends on your personal situation.

Here is a screenshot of the rough spreadsheet I was using for my own situation….

[img_assist|nid=25817|title=Should I Refinance?|desc=|link=node|align=left|width=500|height=800]

Let me explain how this works. (again again, this was something I put together in 15 minutes at the time. And since I’m not a finance major, this might not be correct).

1. Loan #1 represents your first loan
2. Loan #2 represents your refinanced loan

3. The loan term is in months (360 for 30 year), and the monthly interest rate is used (4% yearly divided by 12)

4. I believe the monthly payment is determined by the same formula used to determine present value of an annuity.. So the payment = p * r / (1- (1+r)^(-t)
where p is you total loan, r is your monthly interest rate and t is the loan term in months.

5. I created two amortization tables (which you can’t see).
The first table amortizes the first loan using a loan balance of $500k
The second table amortizes the second loan, using a loan balance based on the month of the first loan you decided to refinance

6. In my example (cell c11), I hypothetically decided to refinance 22 months into my 4% first loan….

a. On month #22, I would still have a principle of 483583.74 (row 12)
b. Up to that point, I would have paid 36,099 in interest charges alone (row 19) on the first loan,
c. I would have had a remaining 359347 in interest charges for the remainder of the loan

7. If my new loan was .25% lower (3.75%)
a. My total interest paid on the new loan would be $322654.8741, about $600 lower than if I finished my original 30 year loan
b. My monthly payment would be lower by $150/month (row17 and row 7)
c. If the bank was also offering $3000-4000 rebate on top of a no out of pocket closing costs (which many times they were), that’s even more icing on the cake…Free money.

Lower monthly payment, less total interest to pay, plus cash up front.
Win, win ,win.

And hence, why I was a serial refinancer of 2 years or sometimes less or if rates dropped by more than 0.25%. If you actually played around with the spreadsheet, you would notice that in the absence of any additional rebates, 22 months is roughly the cutoff for my loan balance at the time, where you would lower your monthly payments AND also not pay more total interest over the life of both loans. That 22 months extended to more months once the lenders started to get crazy and added free upfront rebate cash on top of that, effectively paying me to refinance to a lower rate and lowering my total interest.

That is not to say that refinancing even if your total paid interest goes slightly up in return for a much lower monthly payment is bad either. It depends on what you plan on doing with the extra savings in your monthly payment. I mean, with that savings in monthly payment, you could use it to pay down the principal portion of your new 30 year loan too, which would effectively lower your total interest paid on your new loan.

I just chose to keep things simple, refinance when both lower payments and total paid interest is break even or lower than before. (Well, at least until my financial situation changed for the better, and I didn’t feel comfortable leaving most of net worth in the stock market, so I refi’d to a 15 year and then eventually paid it off.)

So again, whether one should refinance or not, the answer is “it depends”.

Sorry for the long post. But unlike BG’s post, at least mine has a workable spreadsheet and data.

[Author]

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