Von Bongo

That rate is a little high on the conversion, today our rates for loans over 100K on 30 years is 6.25% with no points or origination fee. Most consumer transactions have no prepayment penalty. The difference from 6.625 to 6.25 is $0.25 per thousand per month so if you owe $100K it would amount to $25/mo in your payment. YOu need to look at the savings compared to cost and how long you will live in the house. Lets assume you have to get a new appraisal and title work along with misc costs and say it costs $900 total to refi, less the $250 you would be charged to convert makes your difference to refi over convert $650 divide that by $25/mo savings and you get 26 months before you break even, if you are going to stay there for 7 years and don't forsee rates going lower then the refinance is better than the conversion.

rainmn

Ok all you mortgage types, I have a simple question. At least I think it's simple. How much lower than my current rate would I need to find before it's worth it to refinance? Currently, I have around 200K at 7% on a 30 yr. fixed. Just trying to see if I can save myself some bucks with all these low rates I see flying around.

Von Bongo

Marty that is a great rate did you have to pay an origination fee? Or average closing costs on a jumbo are about $1000.

We sell to Nationwide, Principal, Washington Mutual and a few smaller ones and they aren't anywhere near that for a 25 year fixed on a jumbo, heck you can't touch that with Fannie or Freddie on a 25 year conforming with a half point. I would be interested to know more details.

Von Bongo

The way I work it with my customers is this:

It costs on average $800-$1200 to refinance, so lets take $1200 as an example. I can get you 6.25% today maybe 6.125, but lets be conservative. The difference from 7% to 6.25% is $0.50 per thousand borrowed per month. On 30 years for you it saves you $100 per month(200 X .50= $100) over your current loan. Divide the savings of $100 into the cost $1200 and it would take you 12 months to recover your costs so if you live there 13 months it's a benifit. Now we also usually look to see if we can shorten your term and keep you payment the same for example on a 20 year loan I can get 6% today so you have a principal and interest payment on $200k of $1434, how does that compare to your current payment (remember to exclude escrowed taxes and insurance when comparing payments, IE compare PI to PI, escrow amounts will not change.) Also when did you buy the house? Did you put down less than 20% and therefore have PMI insurance that you might also be able to get dropped?

There is no exact rate, the rule of 2% or 1% really aren't valid, you need to compare cost to savings and see if the benifit is worth it to you.

Hopefully this helps.

rainmn

Von bongo - that does help - thanks a lot. We just bought this house in December, and I pretty much guarantee we'll be here for a while. (Especially since I'm just now putting the final trimwork into the new kitchen.) Sounds to me like it's worth it.

Von Bongo

If it is that new, call your current mortgage comapny and ask about refinancing, many have a streamlined program for loans less than one year old and you may be able to save some closing costs!

ssherman

Von Bongo has pretty much hit the nail on the head with all replies.

I agree with the rule of thumb of 1% savings to justify re-fi is not accurate.

I had a situation yesterday to re-fi a guy from a 8.125 fixed 20 that he only had 10 years left on and to do a 10 year at a much lower rate. ( I htink I quoted like 5.75 but i cant remember) It didnt benefit him by the time i rolled in the third party expenses.

blackhawk

What I do for my customers that have a short time to go on their loan is take their monthly payment and multiply it by the number of payment s remaining. Then I take the proposed loan amount and multiply it by the number of payments. Subtract proposed amount from their current loan and compare it to the cost of the re-fi.

Here is an example I had saved on my computer from a past customer:

I have compared your current loan to the proposed loan. You stated that you current loan was for $70,000 at 7.5% for 15 years. This would mean that your principle and interest payment would be approximately $649. Your new principle and interest payment for 10 years would be $742.

Therefore, to pay off the remainder of your current loan would cost you approximately $93,456 ($649 x 144 months). The proposed loan would cost you approximately $89,040 ($742 x 120 months) plus $1200 in closing costs for a total of $90,240 .

So, you would save approximately $3216 ($93,456-$90,240) and have your home paid off 2 years sooner.



There are other factors that can be added but I like to keep it as simple as possible. In this case I recommended that he keep his original mortgage and just pay $742 a month and the $93 additional principle payments would allow him to pay it off sooner and save some money. Keep in mind this is old so it has nothing to do with the current rates. In fact, I should figure it again and call him!

jdnca1

How about 1 month Libor based ARM at 3.375% Interest only the first 10yrs. Can't beat it.

Steve_H

thanks Von Bongo and Blackhawk.

its a fixed rate at 4.75% as long as i transfer a balance of 25k.
no application fee or closing cost!
only thing i dont know is the term of the loan?
if its at least 48 monthes seams like a good deal.
might even borrow enough for a truck too.


Budman , sorry to jump your thread.