Am I refinancing too many times? Any reason why I shouldn’t refinance?

[ninaprincess]

I bought a house two years ago and refinanced from 5.25% to 4.5% and then again from 4.5% to 3.875%.

Now my broker is calling me with 3.375% [was 3.875%]and no cost. I want to do it but not sure if it is worth it or if there is any reason I shouldn’t refinance again. Please advice.

[SK in CV]

Yes, there is a reason to not refinance again. The savings between your current loan at 3.875% and the new loan at 3.875% would be approximately zero.

[Coronita]

Each time you refinance, you extend your loan by X months, with Y additional interest payments.

Example.. If you had a 30 year loan, but refinanced 6 months later. You have to restart your loan…Your original loan would have finished 6 months earlier.

To come out ahead

1)You refinance with a lower rate (keeping in mind you said 0 cost)….Though you extend your loan, you total payments end up lower because of the lower rate, you paid less total interest.

OR

2)You get an almost same rate loan but get a nice cash rebate IN TODAY’s dollar for refinancing, and that rebate is “better” than how much addition months of interest you pay by restarting your loan. For example, if refinancing puts $20000 cash in your wallet via rebate today but adds $24000 additional interest over the life of your loan (30 years)…It still might be worth it since the $20k today most likely will be worth a hell of a lot more than $24000 spread over 30 years (with the ever inflating dollar)… It would be your call…whether you value having $20k now ,or rather save $24k over 30 years.
Especially might worthwhile if you manage your money well and can grow that $20k you get now (versus spending it…Hopefully, you’re not like most americans).

If you are currently with a 3.875% loan, you better be getting a nice rebate if you refinance again to 3.875%. It’s something to consider if you’re on a 30year loan..Because most of your payments during the start of the loan go to interest and not principal…

Generally, I consider refinancing if rates are .25% lower than my previous.. I’m on a 15 year BTW so my payments take more out of the principal than the 30yr.

[ninaprincess]

Sorry, I meant 3.375%.

[UCGal]

flu is right. You’re extending the loan. And the new loan is slightly less – because you’ve paid some (not much) principal down.

A better way to approach it is to refinance when you have a significant drop in rates (like your first and 2nd refi). Then make the SAME payment… so you shorten the length of the loan.

That’s what we did a few years ago – kept our payments the same, despite the new lower “minimum” payment… We knew we were able to make these payments. The extra amount is applied directly to principal.

We like seeing the principal go down so much, we increased our payments more. We’re now looking at paying our house off completely in less than 2 years. I’m loving the idea that I’m close to being able to write a check for the balance on the mortgage at any time. (I’d do it now, but it would wipe out my emergency funds.)

[ninaprincess]

If I still owe $348000 with 3.875% and $1655 monthly payment and refiance again at 3.375% and still making the same original payment of $1655 how many less # of payment will I make? Or how much of today’s money do I save? The math is too difficult. Do you have a program for this?

[Coronita]

[quote=ninaprincess]If I still owe $348000 with 3.875% and $1655 monthly payment and refiance again at 3.375% and still making the same original payment of $1655 how many less # of payment will I make? Or how much of today’s money do I save? The math is too difficult. Do you have a program for this?[/quote]

nina…It’s really not that hard…You got all the tools on the internet for you to do the grunt work…

I’ll try to outline it for you. Warning. I’m heavily medicated right now. So my thinking isn’t exactly clear… You can let other piggs correct me….

Go to your favorite interest rate calc.. I use the one on iGoogle…

1.Punch in $348000 as loan amount with 3.375% interest rate.
a)Your monthly would be $1,538.49
b)Your total loan amount would be $553,858.13

2.Punch in your old loan amount with 3.875%
a)Your monthly should be $1655
b)Write what your total loan amount would be lets say Y

3. Figure out how many months of payment you made on your previous loan .. Let’s say it was 3 months… Add up the interest only part of your first 3 months of payment using the amortization table…(This is money you kinda threw in the trash to the bank)

4. Subtract (2b)-(1b)-(3)

That’s roughly how much it benefits you to refinance…

Big assumption…This assumes both your previous loan and your current loan had no points or cost…
If your previous loan had points and costs, then subtract that from #4 too, because that amount is also in the trash… So roughly

(2b)-(1b)-3- (points or cost in previous loan)….

If you can get 3.375 no cost, and your previous loan was 3.875…It makes sense to refinance. Because your loan balance will be lower the long run and your monthly is also lower… Win win..

[Coronita]

So nina… Since your original loan is 3.875 and your current loan is 3.375…

You have a few options. You could do the traditional refinance with no points/no cost and get the lowest rate… Or you can do what I think AN does and what Xboxboy does…

What they do is the get a loan with a slightly higher rate, but then the bank gives them back negative points. IE the bank gives them cash back today for taking the higher rate… It also make sense if you want to do something with the money (like invest it or such)….You’re in a nice predicament in that you have a .50% difference. So you can do both. You can get a lower rate, have total smaller loan balance, and get a negative point rebate…

For instance if you decide to refinance at 3.5%, your monthly payment will still be lower than your original loan, your total loan will be lower, and you will get some cash back too (albeit maybe not that much)…

Yes, nina… You can have your cake and eat it too. 🙂

[ucodegen]

[quote=flu]For example, if refinancing puts $20000 cash in your wallet via rebate today but adds $24000 additional interest over the life of your loan (30 years)…It still might be worth it since the $20k today most likely will be worth a hell of a lot more than $24000 spread over 30 years (with the ever inflating dollar)… It would be your call…whether you value having $20k now ,or rather save $24k over 30 years.[/quote]I would avoid the cash out/cash back refi. It allows the finance companies to bump the interest rate up by about 0.5%. There was a copy of the rate sheet for Countrywide out somewhere. I don’t have time to look for it right now.

[ucodegen]

[quote=ninaprincess]If I still owe $348000 with 3.875% and $1655 monthly payment and refiance again at 3.375% and still making the same original payment of $1655 how many less # of payment will I make? Or how much of today’s money do I save? The math is too difficult. Do you have a program for this?[/quote]Need some additional info. What was the original principle (original amount you owed on the loan). How many years/months left on the loan? Anything else rolled into the payment? A quick calc came up with same that ‘flu’ at 1538.49/month on the new interest rate. I reran at the original interest rate of 3.875 and got a payment of $1636.43, so there is a discrepancy. Is the rate you are quoting calc’d as a year API or monthly interest cost? Anything else rolled in? I turned the calc around and calc’d how long the loan would last if you did a payment of $1655 at the new interest rate, and it was 26.6 years (would need to double check though).

[Coronita]

[quote=ucodegen][quote=flu]For example, if refinancing puts $20000 cash in your wallet via rebate today but adds $24000 additional interest over the life of your loan (30 years)…It still might be worth it since the $20k today most likely will be worth a hell of a lot more than $24000 spread over 30 years (with the ever inflating dollar)… It would be your call…whether you value having $20k now ,or rather save $24k over 30 years.[/quote]I would avoid the cash out/cash back refi. It allows the finance companies to bump the interest rate up by about 0.5%. There was a copy of the rate sheet for Countrywide out somewhere. I don’t have time to look for it right now.[/quote]

I think there is a difference between cash-out versus just asking for an interest rate that’s higher than prevailing.

For example, if the current interest rate is 3.375, you ask for 3.5..The lender will rebate you -X points because you took out a higher interest rate…

[desmond]

[quote=flu]I’m on a 15 year BTW so my payments take more out of the principal than the 30yr.[/quote]

Yea, but you keep starting that 15 years over and over……………..

[ninaprincess]

Original Balance: $352,000, 3.875%, 1655.23 payment.
Current Principal Balance $346,062
Loan Set up in March but I have made some small principal reductions.

[Coronita]

[quote=desmond][quote=flu]I’m on a 15 year BTW so my payments take more out of the principal than the 30yr.[/quote]

Yea, but you keep starting that 15 years over and over……………..[/quote]

But my overall cost goes down so does my payment… Heh heh. And it’s on the bank’s dime.

[spdrun]

If you can repay early without penalty, what’s the difference? It’s actually nice to have the flexibility of a longer time-frame/lower payment even if you don’t use it.

Since the Bernanke Bucks are available, may as well use ’em.

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