Refinance now – or wait?

[sdnerd]

Thanks for the input.

I have a 5 year IO loan in the 4.x range – with a little over a year left before it adjusts, that’s why my current monthly is low.

I had considered dumping (should have last year). What’s always stopped me is if we move out and rent we are going to be spending ~20k/yr on rent. Effectively it’s depreciating at nearly the same amount my rent cost would be elsewhere.

I’m guessing I could dump the place today for $225-230k (maybe?). After fees, I’d basically walk away from the table not owing anything, but not leaving with anything either. Decent hit, but not too bad considering I’ve livered here ~4 years which helps ease the down payment loss pain.

If I live here another 2 years before buying (Dec ’09), that’s ~40k in rent. If 2 years turns to 3, that’s $60k… etc. If my bottom here is $180k, and I am going to live here at least another 1-2 years would it really make sense to bail now if I can only sell for $220k? Especially if I don’t need to sell to buy a new home. I can ride the market out on this 1 bedroom. (Part of the reason I bought a 1 bedroom to begin with)

There’s also a cost in moving out, then buying and having to move again should I buy a year or two later.

Also I agree that Dec ’08 will probably be early, so I’m leaning towards early ’09. But even then I do not expect that to be the bottom by any means. At the same time, after a few years into marriage it’d be nice to settle in a nice home. Especially if kids come into the picture in the next couple of years. Even if there is still another 10-15% correction left to go at that point – again there is cost in waiting, renting, etc.

Not an easy decision, and it’s been racking my brain.

[SD Realtor]

I hear you. It is not an easy decision. Let me ask you this… your comments above indicate you have thought alot about this but have you actually put your estimated calculations on a spreadsheet to look at ALL the data? I know it is easier to kind of lump everything together and make an estimate but being more precise and putting all out on a sheet really helps to clarify. The key is to be anal in the organization.

The way I see it you have a few potential paths:

1 – Riding out the storm until it bottoms out, then selling and buying directly into the home you want to be in for several years.

2 – Selling the home immediately, then renting for a few years, then buying directly into the home you want to be in for several years.

3 – Selling the home in a year or two, then renting for a few years, then buying directly into the home you want to be in for several years.

4 – Refinancing the home now (or in a few months) then live in it until a specific time in the future at which point you will then buy another home you want to be in for several years.

I think that covers all possibilities right?

So the first thing you need to do is run through a rent verses your existing cost of owning to see if your out of pocket expense is really as bad as you say. Also make sure you ADJUST your existing cost of owning whenever your loan resets. The same is true if you refinance including the cost of refinancing. Of course don’t forget your HOA/Prop taxes, additional insurance if you carry it, etc…Just make sure you keep the rent verses buy calculation honest in both directions. Don’t forget to run a sample tax return for each case as well to see how it affects your taxes.

I agree that in your case it MAY be okay to keep the home, but I think you may find that the cash flow is going to run negative once you get into a more conservative loan program and add in all the other costs of owning. However if rents stay strong in the UTC area then you may be okay.

I know it is a tough choice but if you can run out the above scenarios a little more thoroughly then it may clarify things.

[SD Realtor]

I hear you. It is not an easy decision. Let me ask you this… your comments above indicate you have thought alot about this but have you actually put your estimated calculations on a spreadsheet to look at ALL the data? I know it is easier to kind of lump everything together and make an estimate but being more precise and putting all out on a sheet really helps to clarify. The key is to be anal in the organization.

The way I see it you have a few potential paths:

1 – Riding out the storm until it bottoms out, then selling and buying directly into the home you want to be in for several years.

2 – Selling the home immediately, then renting for a few years, then buying directly into the home you want to be in for several years.

3 – Selling the home in a year or two, then renting for a few years, then buying directly into the home you want to be in for several years.

4 – Refinancing the home now (or in a few months) then live in it until a specific time in the future at which point you will then buy another home you want to be in for several years.

I think that covers all possibilities right?

So the first thing you need to do is run through a rent verses your existing cost of owning to see if your out of pocket expense is really as bad as you say. Also make sure you ADJUST your existing cost of owning whenever your loan resets. The same is true if you refinance including the cost of refinancing. Of course don’t forget your HOA/Prop taxes, additional insurance if you carry it, etc…Just make sure you keep the rent verses buy calculation honest in both directions. Don’t forget to run a sample tax return for each case as well to see how it affects your taxes.

I agree that in your case it MAY be okay to keep the home, but I think you may find that the cash flow is going to run negative once you get into a more conservative loan program and add in all the other costs of owning. However if rents stay strong in the UTC area then you may be okay.

I know it is a tough choice but if you can run out the above scenarios a little more thoroughly then it may clarify things.

[SD Realtor]

I hear you. It is not an easy decision. Let me ask you this… your comments above indicate you have thought alot about this but have you actually put your estimated calculations on a spreadsheet to look at ALL the data? I know it is easier to kind of lump everything together and make an estimate but being more precise and putting all out on a sheet really helps to clarify. The key is to be anal in the organization.

The way I see it you have a few potential paths:

1 – Riding out the storm until it bottoms out, then selling and buying directly into the home you want to be in for several years.

2 – Selling the home immediately, then renting for a few years, then buying directly into the home you want to be in for several years.

3 – Selling the home in a year or two, then renting for a few years, then buying directly into the home you want to be in for several years.

4 – Refinancing the home now (or in a few months) then live in it until a specific time in the future at which point you will then buy another home you want to be in for several years.

I think that covers all possibilities right?

So the first thing you need to do is run through a rent verses your existing cost of owning to see if your out of pocket expense is really as bad as you say. Also make sure you ADJUST your existing cost of owning whenever your loan resets. The same is true if you refinance including the cost of refinancing. Of course don’t forget your HOA/Prop taxes, additional insurance if you carry it, etc…Just make sure you keep the rent verses buy calculation honest in both directions. Don’t forget to run a sample tax return for each case as well to see how it affects your taxes.

I agree that in your case it MAY be okay to keep the home, but I think you may find that the cash flow is going to run negative once you get into a more conservative loan program and add in all the other costs of owning. However if rents stay strong in the UTC area then you may be okay.

I know it is a tough choice but if you can run out the above scenarios a little more thoroughly then it may clarify things.

[SD Realtor]

I hear you. It is not an easy decision. Let me ask you this… your comments above indicate you have thought alot about this but have you actually put your estimated calculations on a spreadsheet to look at ALL the data? I know it is easier to kind of lump everything together and make an estimate but being more precise and putting all out on a sheet really helps to clarify. The key is to be anal in the organization.

The way I see it you have a few potential paths:

1 – Riding out the storm until it bottoms out, then selling and buying directly into the home you want to be in for several years.

2 – Selling the home immediately, then renting for a few years, then buying directly into the home you want to be in for several years.

3 – Selling the home in a year or two, then renting for a few years, then buying directly into the home you want to be in for several years.

4 – Refinancing the home now (or in a few months) then live in it until a specific time in the future at which point you will then buy another home you want to be in for several years.

I think that covers all possibilities right?

So the first thing you need to do is run through a rent verses your existing cost of owning to see if your out of pocket expense is really as bad as you say. Also make sure you ADJUST your existing cost of owning whenever your loan resets. The same is true if you refinance including the cost of refinancing. Of course don’t forget your HOA/Prop taxes, additional insurance if you carry it, etc…Just make sure you keep the rent verses buy calculation honest in both directions. Don’t forget to run a sample tax return for each case as well to see how it affects your taxes.

I agree that in your case it MAY be okay to keep the home, but I think you may find that the cash flow is going to run negative once you get into a more conservative loan program and add in all the other costs of owning. However if rents stay strong in the UTC area then you may be okay.

I know it is a tough choice but if you can run out the above scenarios a little more thoroughly then it may clarify things.

[SD Realtor]

I hear you. It is not an easy decision. Let me ask you this… your comments above indicate you have thought alot about this but have you actually put your estimated calculations on a spreadsheet to look at ALL the data? I know it is easier to kind of lump everything together and make an estimate but being more precise and putting all out on a sheet really helps to clarify. The key is to be anal in the organization.

The way I see it you have a few potential paths:

1 – Riding out the storm until it bottoms out, then selling and buying directly into the home you want to be in for several years.

2 – Selling the home immediately, then renting for a few years, then buying directly into the home you want to be in for several years.

3 – Selling the home in a year or two, then renting for a few years, then buying directly into the home you want to be in for several years.

4 – Refinancing the home now (or in a few months) then live in it until a specific time in the future at which point you will then buy another home you want to be in for several years.

I think that covers all possibilities right?

So the first thing you need to do is run through a rent verses your existing cost of owning to see if your out of pocket expense is really as bad as you say. Also make sure you ADJUST your existing cost of owning whenever your loan resets. The same is true if you refinance including the cost of refinancing. Of course don’t forget your HOA/Prop taxes, additional insurance if you carry it, etc…Just make sure you keep the rent verses buy calculation honest in both directions. Don’t forget to run a sample tax return for each case as well to see how it affects your taxes.

I agree that in your case it MAY be okay to keep the home, but I think you may find that the cash flow is going to run negative once you get into a more conservative loan program and add in all the other costs of owning. However if rents stay strong in the UTC area then you may be okay.

I know it is a tough choice but if you can run out the above scenarios a little more thoroughly then it may clarify things.

[(former)FormerSanDiegan]

What is the index and margin on your existing loan when it re-sets ? What is the maximum rate this loan could go to ?
It is likely capped at the initial rate plus 5%. A max rate of 9.x% isn’t that bad. Consider that you have a couple hundred K that you earn interest at market rates. You have a loan that eventually when the fixed period ends is an adjustable loan that adjusts with market rates, but is capped.

I suppose you could re-fi at a fixed rate of around 6.25% and your Debt-to-income ratio would be something like 10%.
10% of your income for your mortgage ? That’s the equivalent of a car payment for some folks.

Since you have 200K saved up and make 150K per year, this loan is relatively small potatoes. I wouldn’t get too hung up on it. You can take some interest rate risk here.

If I were in your shoes I would enjoy my ultra cheap payment for another year and then consider refinancing when you are within 6 months of reset. Who knows, maybe your reset rate will be lower than today’s fixed rates.

[(former)FormerSanDiegan]

What is the index and margin on your existing loan when it re-sets ? What is the maximum rate this loan could go to ?
It is likely capped at the initial rate plus 5%. A max rate of 9.x% isn’t that bad. Consider that you have a couple hundred K that you earn interest at market rates. You have a loan that eventually when the fixed period ends is an adjustable loan that adjusts with market rates, but is capped.

I suppose you could re-fi at a fixed rate of around 6.25% and your Debt-to-income ratio would be something like 10%.
10% of your income for your mortgage ? That’s the equivalent of a car payment for some folks.

Since you have 200K saved up and make 150K per year, this loan is relatively small potatoes. I wouldn’t get too hung up on it. You can take some interest rate risk here.

If I were in your shoes I would enjoy my ultra cheap payment for another year and then consider refinancing when you are within 6 months of reset. Who knows, maybe your reset rate will be lower than today’s fixed rates.

[(former)FormerSanDiegan]

What is the index and margin on your existing loan when it re-sets ? What is the maximum rate this loan could go to ?
It is likely capped at the initial rate plus 5%. A max rate of 9.x% isn’t that bad. Consider that you have a couple hundred K that you earn interest at market rates. You have a loan that eventually when the fixed period ends is an adjustable loan that adjusts with market rates, but is capped.

I suppose you could re-fi at a fixed rate of around 6.25% and your Debt-to-income ratio would be something like 10%.
10% of your income for your mortgage ? That’s the equivalent of a car payment for some folks.

Since you have 200K saved up and make 150K per year, this loan is relatively small potatoes. I wouldn’t get too hung up on it. You can take some interest rate risk here.

If I were in your shoes I would enjoy my ultra cheap payment for another year and then consider refinancing when you are within 6 months of reset. Who knows, maybe your reset rate will be lower than today’s fixed rates.

[(former)FormerSanDiegan]

What is the index and margin on your existing loan when it re-sets ? What is the maximum rate this loan could go to ?
It is likely capped at the initial rate plus 5%. A max rate of 9.x% isn’t that bad. Consider that you have a couple hundred K that you earn interest at market rates. You have a loan that eventually when the fixed period ends is an adjustable loan that adjusts with market rates, but is capped.

I suppose you could re-fi at a fixed rate of around 6.25% and your Debt-to-income ratio would be something like 10%.
10% of your income for your mortgage ? That’s the equivalent of a car payment for some folks.

Since you have 200K saved up and make 150K per year, this loan is relatively small potatoes. I wouldn’t get too hung up on it. You can take some interest rate risk here.

If I were in your shoes I would enjoy my ultra cheap payment for another year and then consider refinancing when you are within 6 months of reset. Who knows, maybe your reset rate will be lower than today’s fixed rates.

[(former)FormerSanDiegan]

What is the index and margin on your existing loan when it re-sets ? What is the maximum rate this loan could go to ?
It is likely capped at the initial rate plus 5%. A max rate of 9.x% isn’t that bad. Consider that you have a couple hundred K that you earn interest at market rates. You have a loan that eventually when the fixed period ends is an adjustable loan that adjusts with market rates, but is capped.

I suppose you could re-fi at a fixed rate of around 6.25% and your Debt-to-income ratio would be something like 10%.
10% of your income for your mortgage ? That’s the equivalent of a car payment for some folks.

Since you have 200K saved up and make 150K per year, this loan is relatively small potatoes. I wouldn’t get too hung up on it. You can take some interest rate risk here.

If I were in your shoes I would enjoy my ultra cheap payment for another year and then consider refinancing when you are within 6 months of reset. Who knows, maybe your reset rate will be lower than today’s fixed rates.

[HLS]

If you only plan on staying for a few more years and then selling, getting a 30 fixed today would be a waste.

From your profile, it sounds like you can qualify for any loan that you choose. You could refi into another 5 YR loan today and buy yourself 60 more months of security.

Your payment will be higher than what you have today. The interest might be deductible. It’s like paying for insurance. Is it worth it to you or do you want to gamble ?

Choosing a “no cost” loan today will not add anything to your balance and lock in a longer fixed period than one year. You still have a relatively cheap payment.
If rates do go lower, you can refi again.

If the condo complex is a high % of tenants and going that direction, refi sooner rather than later.
Also, once you drop below 20% equity, the refi rate will be higher. Sounds like you are close to that point now.

[HLS]

If you only plan on staying for a few more years and then selling, getting a 30 fixed today would be a waste.

From your profile, it sounds like you can qualify for any loan that you choose. You could refi into another 5 YR loan today and buy yourself 60 more months of security.

Your payment will be higher than what you have today. The interest might be deductible. It’s like paying for insurance. Is it worth it to you or do you want to gamble ?

Choosing a “no cost” loan today will not add anything to your balance and lock in a longer fixed period than one year. You still have a relatively cheap payment.
If rates do go lower, you can refi again.

If the condo complex is a high % of tenants and going that direction, refi sooner rather than later.
Also, once you drop below 20% equity, the refi rate will be higher. Sounds like you are close to that point now.

[HLS]

If you only plan on staying for a few more years and then selling, getting a 30 fixed today would be a waste.

From your profile, it sounds like you can qualify for any loan that you choose. You could refi into another 5 YR loan today and buy yourself 60 more months of security.

Your payment will be higher than what you have today. The interest might be deductible. It’s like paying for insurance. Is it worth it to you or do you want to gamble ?

Choosing a “no cost” loan today will not add anything to your balance and lock in a longer fixed period than one year. You still have a relatively cheap payment.
If rates do go lower, you can refi again.

If the condo complex is a high % of tenants and going that direction, refi sooner rather than later.
Also, once you drop below 20% equity, the refi rate will be higher. Sounds like you are close to that point now.

[HLS]

If you only plan on staying for a few more years and then selling, getting a 30 fixed today would be a waste.

From your profile, it sounds like you can qualify for any loan that you choose. You could refi into another 5 YR loan today and buy yourself 60 more months of security.

Your payment will be higher than what you have today. The interest might be deductible. It’s like paying for insurance. Is it worth it to you or do you want to gamble ?

Choosing a “no cost” loan today will not add anything to your balance and lock in a longer fixed period than one year. You still have a relatively cheap payment.
If rates do go lower, you can refi again.

If the condo complex is a high % of tenants and going that direction, refi sooner rather than later.
Also, once you drop below 20% equity, the refi rate will be higher. Sounds like you are close to that point now.

[Author]

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