250K 30yr Conv @ 5.5...Plan on staying in the home for 10+ years....What do rates need to drop to to make it worthwhile ? Market is Oklahoma

Concerned Dad,

We definately don't have enough info to give you a good answer.  We don't know how long you have been in your current mortgage.  We don't know what you qualify for.  We don't know if you have a Fannie/Freddie loan, an FHA loan, a VA loan, a USDA loan, or some other type.  We don't know what your home is worth.  There are other factors that need to be taken into consideration as well.

I would recommend speaking to a mortgage professional in your area.  You could find one under the Directory tab above.  I am sure that you could find someone who would be able to take your application and put everything into perspective for you to make a well informed decision.  What may be worthwhile to one customer may not be to another and only you can decide once you are presented with the options available to you.

Generally, you want to re-coup your closing costs in a reasonable period of time through a payment drop.  Reasonable could be 2 years for some, 4 years for others.  You want to be in your home beyond the breakeven point. Kent gave some great advice.  More information will get more precise answers.  I use a 1% savings in the note rate as a benchmark.

Maybe this will help...We closed in july. My FICO is 830 (if i remember correctly). Home appraised for 340K..Freddie Mac..... 

If you roll in closing costs and refi 253k at 4.875% your new principle and interest payment would be $1338.90 per month.  Compare that to your current p&i payment and see how long it takes to recover the 3k closing costs.

Dad,

Ken is right, much depends on how long you have been there and what your goals are. What is the right amount to trigger a refi?It differs for everyone. Some people will refinance if it saves them $50/mo, others need to see $100 or more. It depends on your financial situation at the time. Do you want to see the balance go down or have more money in your pocket monthly? etc..

With many of my clients I don't just automatically put them in a new 30 yr fixed. If you have been in the home for 4 yrs at 5.5%, I will show the client a 25 yr fixed at the lower rate. This usually still lowers your payment but does not 'restart' the amortization clock back to 30yrs, in which case you pay much more int. all over again and it also cuts a year off of their original term, thus saving interest paid. The 20 yr fixed also works perfect too. It depends on your situation.

Ask yourself what is most important at this stage, monthly cash on hand or building equity? If having more money in your pocket is what you and your family need and you do have a substantial chunk of equity in the home alreay a new 30 yr at 4.875%-5% with only $1700 in closing costs (lender and title fees)is not a bad solution if it frees up over $100/mo for you, you will recoup that cost in less than 2yrs. If your goal is to pay off the home before you retire or to have a low balance in the 10+ years you will stay, then entertain a new 20 or 25 yr fixed loan at a lower rate.

Dan

thanks for the advice...I thought fees would be much higher...Around 4K....I think what i seek is the best rate and have the as much equity as possible by  retirement age. I am 48.  Financially secure. (for now lol).  We closed on the new home when rates spiked up a few months ago. Felt like my lender didnt offer the best advice for my fico. I negotiated all the way to closing.  I will try to find a lender in the okc area to gather some info from....

My current plan is pay one or two extra payments a year...That should knock it down close to a 20 yr loan...Correct..???   

After calculating ammorization i will seek out a local professional...thanks for all your advice.

Yes, that's about right.

Thanks,

Dan

I'm surprised no one has asked you yet what was the sales price, in order to determine what the loan to value would be...please advise so as to get a better prespective if the refinance would be valuable to you.

sales price 340K

Louis,

He stated in his first reply the home appraised for $340K and he owes $243K, and he closed in July, so 72%LTV. A .5% lower rate on a 30 yr that just began makes sense.

Based on this info your loan to value at 73.52%, and your plans to remain in the home for 10 years or more, you should diffinately benefit with a refinance, Since you are paying more than minimum payments, I would reccommend the 30 years and pre pay the difference if you like, or redirect that to other savings vehicles i.e. IRA, if you are doing that already but not fully funding it, or depending on your age are able to take advantage on the "catch up" you may want to consider that instead as you will still be saving money either way, but with the IRA you could defer taxes as well, unless of course you go ROTH IRA.

Louis

appraised value versus sales price along with seasoning not always an automatic as for what ever reason may have appraised more that the sales price and based on when he purchased the new lender will more than liklely prefer to use the new appraisal value, or the sales price which ever is less.

Dan Larkin:

I will show the client a 25 yr fixed at the lower rate. This usually still lowers your payment but does not 'restart' the amortization clock back to 30yrs, in which case you pay much more int. all over again and it also cuts a year off of their original term, thus saving interest paid. The 20 yr fixed also works perfect too. It depends on your situation.

Dan has a good idea here, but I advise a little differently.  A 20 or 25 year mortgage will usually have a rate no more than 1/8 better than a 30 year mortgage.  This basically means that the only difference between a 20 or 25 year mortgage and a 30 year is the higher minimum required monthly payment.  If you pay the same amount per month on the 30 year mortgage as the required payment on the shorter term mortgage, you will pay it off in the same time frame.  The 30 year allows you to have a lower payment if your circumsatnces change.  You never know when you might need that money because of a job loss, unexpected repair bill, or the like.

If a customer looks at a 15 year term, the interest rate is usually much better than that of a similar 20-30 year mortgage.  This would provide you with a significant savings in interest and this benefit may offset the necessary higher minimum payment.

Agreed Ken, but history tells me most people fall back to just paying what's on their statement and rarely consistantly pay the 'overage' to equal a 25 or 20 yr Amort. So by actually putting the new loan at one of these amortization periods it becomes a 'forced' savings plan. But, you are right that a new 30 yr gives them the 'option'.

Dan

Dan Larkin:

Agreed Ken, but history tells me most people fall back to just paying what's on their statement and rarely consistantly pay the 'overage' to equal a 25 or 20 yr Amort. So by actually putting the new loan at one of these amortization periods it becomes a 'forced' savings plan. But, you are right that a new 30 yr gives them the 'option'.

Dan,

The discipline issue is a concern for many of my customers as well.  I advise them to set up an automated payment through the servicer or through their bank with the higher payment.  This way, they have the option of suspending the higher payment down the road if that is needed.  I think this is a far better alternative for those that may not have the discipline or would just forget to pay extra.

Then there are folks who dont understand a cost benefit analyis on refinancing at all.  I had a borrower with $708,000 FHA mortgage at 6.25, was staying in house for the long haul.  Saving over $600/month.  23 months for recoup and $211,000 savings over the life of the loan.  Just didnt find it worth it have to pay the MIPFF again, even after the rebate from old.

If this borrower attempts to streamline after November 18, he will be kicking himself.

I say, if it makes sense, go for it!!!