Home › Forums › Financial Markets/Economics › On a refinance with closing costs, would you just add it to your loan balance or not?
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HLS.
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April 15, 2012 at 11:29 PM #19700April 16, 2012 at 12:13 AM #741707
an
ParticipantI would go no cost or negative cost (i.e. getting paid to do refi). But if you must go with just no points, then I’d roll the cost into the loan as well. But I’m also in the camp that say we’ll see inflation and the $ will be worth less 10-15 years from now than today. So, no reason on to roll it in. The amount is tiny anyways, so you shouldn’t waste too much time pondering about it.
April 16, 2012 at 9:48 AM #741723HLS
ParticipantComparing the payment savings is not the correct way to decide on the benefit of ANY refi, but it’s what most people do.
Did you get their quote for 3.00% ?
It may not make sense to take the lower rate with a cost. The recovery period could easily be 7-10 years.In the long you will always save more money at the lower interest rate.
April 16, 2012 at 9:55 AM #741725bearishgurl
Participant[quote=HLS]Comparing the payment savings is not the correct way to decide on the benefit of ANY refi, but it’s what most people do.
Did you get their quote for 3.00% ?
It may not make sense to take the lower rate with a cost. The recovery period could easily be 7-10 years.In the long you will always save more money at the lower interest rate.[/quote]
I agree with this, esp since flu was thinking of replacing/upgrading his personal residence if he finds a good deal in the coming months/years. The +/- $3400 is just money down the drain if this happens, IMHO.
April 16, 2012 at 9:55 AM #741726ParticipantWelcome back HLS. I totally agree. Which is why I’ve been doing negative cost (getting money back) when I do my refi. When it takes 5-10 years just to recoup the cost, that’s a big risk to me. Especially if rate fall. Which it has been. Since I’ve been going with negative cost, it allow me to refi often. If I went with a 0 point loan, I’d be wasting money (for the cost) if I refi before the break even point. My take is, go with the negative cost if you think rate will fall (even slightly) or go with paying a point or two to get even lower rates if you think rate will rise. A no point loan is kinda middle of the road and just limit you on when you can refi without wasting money on the cost of the prior loan.
April 16, 2012 at 9:57 AM #741727Participant[quote=bearishgurl]I agree with this, esp since flu was thinking of replacing/upgrading his personal residence if he finds a good deal in the coming months/years. The +/- $3400 is just money down the drain if this happens, IMHO.[/quote]
He did say that he might just rent out his current house, so even if he replace/upgrade, it doesn’t always mean it’s money down the drain. Assuming rate rises from here on out.April 16, 2012 at 9:58 AM #741728Participant[quote=AN] then I’d roll the cost into the loan as well. But I’m also in the camp that say we’ll see inflation and the $ will be worth less 10-15 years from now than today. So, no reason on to roll it in.[/quote]
If you believe inflation will occur sooner rather than later, you should want as much debt as you can handle that will be paid back in future cheaper dollars.
If CD rates go back to 5%-8% or higher, it will have been foolish to have accelerated payments to pay off a 3%-4% mortgage.
The unknown is ‘when’It’s also a matter of responsibility and having something better to do with the cash.
Never underestimate the importance of liquidity/cash.There’s a big difference between being broke and having debt & having cash earning higher rates
of interest and having debt.April 16, 2012 at 10:11 AM #741729
CoronitaParticipant[quote=HLS]Comparing the payment savings is not the correct way to decide on the benefit of ANY refi, but it’s what most people do.
Did you get their quote for 3.00% ?
It may not make sense to take the lower rate with a cost. The recovery period could easily be 7-10 years.In the long you will always save more money at the lower interest rate.[/quote]
Welcome back HLS!.
Just the guy I wanted to speak to…Unfortunately, the credit union I’m talking to doesn’t offer a no cost/no point loan at any rate… And I looked around, I haven’t been able to find a 3% 15 year with no fee/no cost.
That’s why for comparison I took how much this loan would “cost” me, tacked it on to my outstanding balance, and compared that to an equivalent loan on my original loan balance without costs/points.
It seemed like me taking the 2.875 loan with cost would be the same as taking 3% loan without any cost in terms of monthly payments and total loan balance to pay. What else am I missing?
I haven’t been able to find a 3% 15 year no points/no fee loan. Most are about that around 3.125% or 3.25%…
April 16, 2012 at 10:31 AM #741733UCGal
ParticipantI’ll be the outlier here. I would pay cash for the closing costs.
But I’m weird. I abhor debt. I would not take any step to increase my debt. I’m working on paying off my mortgage in full. That seems to go against most PIGs mindset of leverage. But for me, it helps me sleep at night.
For me, it’s all about reducing my annual expenses… and mortgage is one of the biggest. If I can get rid of that – I can retire that much sooner. I dream of living like fellow PIG Earlyretirement…. debt free. It gives you career options because you’re no longer driven by paycheck size, but instead by personal satisfaction.
Like I said – I’m an outlier.
April 16, 2012 at 10:35 AM #741731CoronitaParticipantMy current loan is 3.375 and I’m about 7 months into it.
I paid a total interest of $7703 on the existing loan. My outstanding balance is 386037. My total loan balance is 506480 (including the 7 months I already paid).The new loan would cost $3253.
I haven’t been able to find a 3% no point/no cost loan. Most start at 3.125 or 3.25% no fee/no cost.
Assumption is that regardless of whether I have a trade me up home in the future or not, this home will not be sold with 20 years. In other words, it’s going into my estate.
Edit. I posted a spreedsheet and just realized I goofed. Hang on…
Ok math gurus… I suck at this (yes, I’m an enginerd, but a lot of enginerds suck at practical math)..
Here’s an updated SS..
https://docs.google.com/spreadsheet/ccc?key=0AqhkqDXgQGvUdDB6TlpDLWx1VWlqbmZ4WjlXanJBX0E&pli=1#gid=0
From it, ignore the sections about 2.75% 2.625% and 3%.
Are my numbers off/wrong?April 16, 2012 at 10:38 AM #741735ParticipantFLU..
You said that ‘total loan balance is 506,480″
Do you mean total payments over life of loan ?Having a 15yr payment obligation may affect your ability to qualify for future loans (vs.a 30yr payment)
Many people have caused themselves hardship by getting 15yr loans in the past.15yr payments vs 30yr payments are about ~50% more.
It doesn’t always make sense though.** In the BIG PICTURE the value of time/money is not factored into the savings.
Saving $100 a month/$1200 yr/$18,000 over 15yrs
is not the same as paying the $100 more towards
your principal balance every month.**THE TRUE SAVINGS of any refi is to pay the same payment that you are making now but at a lower interest rate, your compounded savings will be much greater, If you can afford it.
April 16, 2012 at 10:43 AM #741736Participant[quote=HLS] . . . If CD rates go back to 5%-8% or higher, it will have been foolish to have accelerated payments to pay off a 3%-4% mortgage.
The unknown is ‘when’It’s also a matter of responsibility and having something better to do with the cash.
Never underestimate the importance of liquidity/cash.There’s a big difference between being broke and having debt & having cash earning higher rates
of interest and having debt.[/quote]Agree. And I also agree with flu if one can HANDLE the larger (or even MUCH larger) debtload without using their socked-away cash every month.
What’s the use of having a cash reserves if one might end up needing to deplete it gradually every month to satisfy their (now huge) debtload?
Why not just keep the lower payment on a lower amt owed, even it IS at a rate <1% than the prevailing mtg rate?
Not saying this is flu's situation as he doesn't appear here to want to take "cash out," just to roll +/- $3400 closing costs into a new mtg.
April 16, 2012 at 10:48 AM #741737Participant[quote=UCGal]I’ll be the outlier here. I would pay cash for the closing costs.
But I’m weird. I abhor debt. I would not take any step to increase my debt. I’m working on paying off my mortgage in full. That seems to go against most PIGs mindset of leverage. But for me, it helps me sleep at night.
For me, it’s all about reducing my annual expenses… and mortgage is one of the biggest. If I can get rid of that – I can retire that much sooner. I dream of living like fellow PIG Earlyretirement…. debt free. It gives you career options because you’re no longer driven by paycheck size, but instead by personal satisfaction.
Like I said – I’m an outlier.[/quote]
No, you’re not. Lots of us are running out of time in our “productive years” (READ: able to bring in sufficient income from work to “survive” with a mtg). I know MANY people who are mortgage-free and this buys them freedom that us mortgage-debt slaves don’t have. I wouldn’t mind at all being one of those people who only have to worry about taxes (most protected by Prop 13, lol), insurance and utilities!
April 16, 2012 at 10:49 AM #741738Participant[quote=UCGal]
But I’m weird. I abhor debt. I would not take any step to increase my debt. I’m working on paying off my mortgage in full. [/quote]Hiya,, we’ve had the conversation before. It’s not that you are weird, you are practical.
There is NOTHING WRONG with manageable debt.
You are so focused on ‘not having a mortgage’ that nothing else makes sense to you.If you had a T-BILL/CD that was paying 6%+ and your mortgage was 4%, it just doesn’t make sense to not carry the mortgage. (Obviously not an option at the moment)
You either have cash to service debt OR you have no debt (and less cash) But don’t fool yourself, it comes at a cost.
Money is just a product. If I can earn more with it than it costs me to get it, then I want to be in ‘debt’ until the day that I die.
April 16, 2012 at 10:51 AM #741739Participant[quote=HLS]If you believe inflation will occur sooner rather than later, you should want as much debt as you can handle that will be paid back in future cheaper dollars.
If CD rates go back to 5%-8% or higher, it will have been foolish to have accelerated payments to pay off a 3%-4% mortgage.
The unknown is ‘when’It’s also a matter of responsibility and having something better to do with the cash.
Never underestimate the importance of liquidity/cash.There’s a big difference between being broke and having debt & having cash earning higher rates
of interest and having debt.[/quote]
I don’t think anyone have a crystal ball, but looking at what happen in the past, it’s pretty safe to say that we will see inflation over the next 30 years. So, it makes perfect sense to pay back as slow as possible and use the depreciating value of your dollar to your advantage.I totally agree that there’s a HUGE difference between being broke and having debt & having cash earning higher interest rate to service the debt. Unlike UCGal, I’m not afraid of debt. However, I’m afraid of not having cash. My goal is to have my money work for me, instead of me working for my money. So, as long as I accumulate enough cash where the interest on that cash surpasses my debt & living expenses, then I’d call that retirement.
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