Should we consider refinancing?

Hi,

My wife and I just bought our first home about a month ago.  The loan was for ~$136k (78% LTV) @ 5.625% for 30-yr fixed.  Our credit scores are fairly high (middle score was 760 before acquiring loan) and we have a low debt ratio. With interest rates dropping so much, should we consider refinancing?  Would we even be allowed to do so since the ink has barely dried on the original mortgage?  In doing our calculations pre-loan, 1/8% difference saved us about $10 a month for 30 yrs.  So if we could get high 4's we would be saving nearly $100 a month.

Any thoughts or advice would be much appreciated.

Thanks!

Ken

Hello Ken, with your new loan, something to look at would be if you would now be going over 80% LTV.  With you just closing on your home a month ago, most new lenders would still use your purchase price as the current value.  If costs on the new loan are more than 2%, you would be over 80% LTV, and now would have to factor in mortgage insurance.  Which would effect your monthly savings calculations.  FYI, there are different MI options, that could work in your case, if need be.  Best advise, would be, as per where you live, try to obtain an idea of what costs would be on your possible new loan. 

Ken,

Depening on what state you are in will dictate closing costs. For example Florida's closing costs are much higher than Illinois.

Ken, like Michael above pointed out different states have different costs.  In Texas, on that loan size you would have about $4000 in closing costs and should be able to get a high 4% mortgage, like 4.875%.  If that will reduce your payment by $100 per month, then your break even point would be 40 months.  If you are planning on staying in this home for that long or longer, then you should consider a refinance. 

So, to give you the best advice, let us know what state you are in and i am sure their is a mortgage professional on this site from that state that can give you an idea of the costs, then figure out the break even point, but it does look like you should consider it. 

Your closing costs can be rolled into new mortgage, so since you are at 78%, you could probably roll all costs into loan and still be under 80% so you will have no MI.  If rolling the costs in takes you over 80% then i would advice you to bring some money to close to keep the loan amount under 80%. 

good luck and post back with some more details.

Thanks for the advice guys.  I am in NC.  Closing costs the first time around were in the neighborhood of 4k, but we paid some points to lower the rate. 

I guess refinancing would only really make sense if rates got in the mid to lower 4s.

I still find it odd that we haven't even made our first payment yet, and I'm thinking about refi. :)

Thanks again for your thoughts!

Ken

Hi,

I'm in NC. Rates today were at 4.875 for 30year fixed but there are costs associated with the rate.

One important thing is to make sure you're already approved with the lender so you're in the position to 'lock' the rate. Lenders are now requiring that you are approved with them before locking in the rate. If the rates drop then you'll be in the position to pull the trigger. Putting in an application will be no cost to you.

Thank you for visiting MND

Robert

Ken,

There is a distinct chance rates could continue to fall.  Like Robert said, most lenders are starting to require an application before locking the loan.  Get the loan into your mortgage professional and wait for the rate to make sense.  If it never does, then there should be no cost to you and you can stick with your current loan.  Your decision to refi should depend on your long term plans for your home and how long it takes to make up the cost to refi with monthly savings.