JSM Posted April 15, 2009 Share Posted April 15, 2009 Current House Loan Owe 293K Interest 5.625% No PMI Mntly Payment $2270.00 Refinance using Obama Loan Plan Owe 305K (Includes 1.5% origination fee and closing costs) Interest 4.625% No PMI Mntly Payment $2057.00 Pro’s Saves $213 per month which would help No PMI w/ refinancing even though I would be at 83% loan to value Only req. to refinance is 12 continual mortgage payments Supposedly this is a standard loan, which won’t impact my Credit Score or the sale of the house in anyway if I need to resell. I was thinking of taking the $213 and making additional principle payments against the loan Only out of pocket is $400 processing fee Con’s Government says my house is worth 351K which I know is not true. My opinion is it is worth 275K. 12K addition on top of what I owe already (Over 30 years this equates to $22,210.83) Restarting of the loan again If I need to sell my house in a pinch, it is 12K less I would get at closing In general if I lose my job, regardless of what my payment is, 2057 or 2270 I’m screwed either way, I’ll need to sell it ASAP Comments No debt other than my house payment and one car payment ($378 per month) No savings other than my 401k and 1K in cash I'm thinking another 10 years in the house only Current loan is 30 year w/ 26 left, new loan would be 30 year Quote Link to comment Share on other sites More sharing options...
psdenno Posted April 15, 2009 Share Posted April 15, 2009 The big question in refinancing is always, "How long do you plan to live in the house before moving to another?". If what you save on monthly payments over that period of years is equal to, or greater than, what it costs to do the refi deal, go for it. How many people do you know who have actually payed off their home loan and own their house free & clear? The majority of us make payments forever. Dennis Quote Link to comment Share on other sites More sharing options...
Jon 74 260Z Posted April 15, 2009 Share Posted April 15, 2009 I wouldn't do this refi because you think it is worth 275k. This means that if you had to sell it now, you'd end up about 35k in the red. (I'm assuming the 293k is present balance on your loan, not initital value; also assuming 6% realtor fees, which is what they charge where I'm at -- might be different in your area...) Getting an Obama loan means that if you had to sell now, you'd be 47k negative. Call me "old school" if you want, but I think it's better to be 35k negative than 47k... Also, being 4 years into the loan, you're starting to get into the steeper part of the curve where your monthly payments begin to measurably reduce your principle. This is a slow, lousy way to build equity but it is working in your favor, and it doesn't depend on market conditions. Be careful about paying additional principle -- many loans say that if you do this, it is applied to your LAST payment. If your loan is like this, you are simply giving money to the bank, interest free, for 26 (or 30) years. Better to open a separate savings account, put the additional principle there, collect the interest and when your loan balance equals your savings account, pay off the loan. (Contingent, of course, on having the discipline not to tap into the savings account for go-fast parts for your Z, but it sounds like you're smart enough to know that.) Gee, the gov't is coming in and saying your house is really worth 30% more than what you think it is! Isn't that what got us into this mess in the first place??? Disclaimer: People have different comfort levels with debt and risk. There is no one "right" loan for everyone. I've just given my opinion for what I would do... Quote Link to comment Share on other sites More sharing options...
cygnusx1 Posted April 15, 2009 Share Posted April 15, 2009 IMHO: If your best guess is that you will be staying there for many years, refinance and continue to pay the original monthly bill of $2270. As long as the additional money goes towards priciple. I am no expert and I think each case is different. Read this as a counterpoint: http://articles.moneycentral.msn.com/Banking/HomeFinancing/DontRushToPayOffThatMortgage.aspx Quote Link to comment Share on other sites More sharing options...
amorfin Posted April 15, 2009 Share Posted April 15, 2009 If you refinance but keep making the same payment, it will only take you 5 years to have about the same balance as if you didn't refinance. So if you think you will be there for at least 5 years, but maybe longer than that, I say refinance but keep on making the same payment. And if you refinance and keep on making the higher payment, you will pay it off in 23 years... Quote Link to comment Share on other sites More sharing options...
JustinOlson Posted April 15, 2009 Share Posted April 15, 2009 Maybe a dumb question here, but why is your new loan greater then what you owe on your present loan? Are you going to pocket the difference as a emergency fund? Quote Link to comment Share on other sites More sharing options...
Drax240z Posted April 15, 2009 Share Posted April 15, 2009 My question, why the heck are your interest rates so high? I thought US interest rates were dropping like a rock, much like ours. I'm at 1.75% on mine at the moment, which is abnormally low, but more than 4.5% sounds like a lot to me right now. Quote Link to comment Share on other sites More sharing options...
Evan Purple240zt Posted April 15, 2009 Share Posted April 15, 2009 My question, why the heck are your interest rates so high? I thought US interest rates were dropping like a rock, much like ours. I'm at 1.75% on mine at the moment, which is abnormally low, but more than 4.5% sounds like a lot to me right now. My god, 1.75% seems like fantasy talk. Quote Link to comment Share on other sites More sharing options...
Jon 74 260Z Posted April 15, 2009 Share Posted April 15, 2009 (edited) Yea, that 1.75% also sounds like a teaser rate on an ARM... Justin has a good point about what is happening with that 12k difference in the loan amount. Even if the delta is banked as an emergency account, I personally still wouldn't do the Obama loan since he's underwater. I'm not the type to go further underwater but, as that MSN link says, it is cheap money. Some people have a high risk tolerance and some will even make money by going further underwater with a cash-out refi like this one appears to be -- I'm just saying I'm not going to be one of them. FWIW, I agree with most of what that MSN link said IF it had a caveat that you have a loan-to-value ratio of 80% or lower. When you're around 110% LTV as JSM is, I'm not so sure that article's advice is applicable. YMMV. Edited April 15, 2009 by Jon 74 260Z typo Quote Link to comment Share on other sites More sharing options...
Drax240z Posted April 16, 2009 Share Posted April 16, 2009 I got in at the perfect time, bank prime - .75%, and rode the interest rates down over 3% in the past year. Even if I went with a new mortgage up here right now it would be at 3.75-4.15% fixed, or variable at 3.3%... Quote Link to comment Share on other sites More sharing options...
JSM Posted April 16, 2009 Author Share Posted April 16, 2009 I've decided not to do this because of exactly what "Jon 74 260Z". The math doesn't make sense in the long run. The 12K difference is a 1.5% origination fee plus all the closing cost rolled back into the loan. I can continue to make the payments even struggling. If I were to lose my job, I couldn't pay either payment. Quote Link to comment Share on other sites More sharing options...
misterZ Posted April 16, 2009 Share Posted April 16, 2009 I've decided not to do this because of exactly what "Jon 74 260Z". The math doesn't make sense in the long run. The 12K difference is a 1.5% origination fee plus all the closing cost rolled back into the loan. I can continue to make the payments even struggling. If I were to lose my job, I couldn't pay either payment. Smart move.. I too agree with Jon. What little equity (if any) you do have would be a wash and you'd be starting over on the principal for 1% finance reduction? Albiet, with the additional money you'd drop on the principal w/ the new loan rate would eventually catch up; however, you have a good rate as it is and I feel it's a little too risky with the state of the economy right now. The biggest mistake young folks make refinancing a house is rolling their other loans, i.e., vehicle, boat, etc into the new loan and now those assets are tied to the property and could stand to lose everything on a foreclosure. Quote Link to comment Share on other sites More sharing options...
Jon 74 260Z Posted April 16, 2009 Share Posted April 16, 2009 Oh, this is just great! All these people agreeing with me... I'm gonna be the "responsible party" if things go south and JSM ends up homeless. Geez, he'll probably end up stalking me and planning some sort of revenge, Virginia Tech style. (Does anyone know if he owns any guns?) Not sure if I can handle the pressure... Quote Link to comment Share on other sites More sharing options...
ckolander Posted April 16, 2009 Share Posted April 16, 2009 I happen to agree that re financing is generally a bad idea. I have seen way to many people that are close to me ruin everything by refinancing. Personally, I managed to destroy my credit so everything I have bought in the last 3 years(2 cars and a mobile home) have been cash. Quote Link to comment Share on other sites More sharing options...
misterZ Posted April 16, 2009 Share Posted April 16, 2009 Oh, this is just great! All these people agreeing with me... I'm gonna be the "responsible party" if things go south and JSM ends up homeless. Geez, he'll probably end up stalking me and planning some sort of revenge, Virginia Tech style. (Does anyone know if he owns any guns?) Not sure if I can handle the pressure... LMAO... you gave good advice Jon; everything here should be taken with a grain (or two) of salt. The best advice is for JSM to talk to a financial consultant or trusted (experienced) friend if he's on the fence. I bought my house in `93 @ ~7.5% and never refinanced but got a boat load of equity in it--actually considering an addition. Quote Link to comment Share on other sites More sharing options...
JMortensen Posted April 16, 2009 Share Posted April 16, 2009 The biggest mistake young folks make refinancing a house is rolling their other loans, i.e., vehicle, boat, etc into the new loan and now those assets are tied to the property and could stand to lose everything on a foreclosure. Uh... what? I haven't actually refinanced, but I thought when you did that you paid the loans on the vehicle, boat, etc, and just had a higher principle owed on the mortgage. They're not giving you a 30 year car loan, they're giving you a home loan that is (for instance) 15K more than it would otherwise have been. The problem with the recent refi's is that the market prices were so inflated that people could borrow more than the house was worth literally and then when the market corrected they owed a LOT more than the house was worth. For example, if you have a $600K house and car loans, etc and you refi'd for $700K and then the home value dropped to $400K, now you owe $300K more than the house is worth. People were leveraging themselves way beyond what they should have because they had the "knowledge" that the market would just keep going up and they could refi again in a couple years and pay off what they owed. When the market corrected, suddenly they couldn't refi themselves out of a jam anymore. The other deal was the ARMs where people had interest only payments, and sometimes they weren't even paying all of the interest. So again, if you have a $400K house and you aren't even paying the interest on the loan for the first 5 years or so, then at the end of the 5 years you might owe $450K (for example). At the end of the 5 years your payments bump up to interest plus principle, but now the loan is for $450K instead of $400K, and in the meantime the house value might have gone down to $300K. Nobody will refi a $450K loan on a $300K house, so again, up ♥♥♥♥ creek without a paddle. If I have this wrong, please tell me. This is how I understand the refi and ARM issues to have played out. Quote Link to comment Share on other sites More sharing options...
Drax240z Posted April 16, 2009 Share Posted April 16, 2009 Well I refinanced, and have spent almost a year at <3% now, after getting out of a 5.8% mortgage. I had to pay a penalty up front, but I've made that back about 2X over at this point. It's not always bad, but timing is everything. Quote Link to comment Share on other sites More sharing options...
attworth Posted April 16, 2009 Share Posted April 16, 2009 I'm just having a hard time convincing myself to even get a first home loan with my wife. Everybody keeps saying NOW is the time. Sure doesn't feel like it to me. I know if I owned my own home, and refinancing was an option - I definitely wouldn't go for it right now. Quote Link to comment Share on other sites More sharing options...
misterZ Posted April 16, 2009 Share Posted April 16, 2009 Uh... what? I haven't actually refinanced, but I thought when you did that you paid the loans on the vehicle, boat, etc, and just had a higher principle owed on the mortgage. Essentially, that's the principal behind it, dependent upon the type of refinancing you do; if it's a debt consolidation that you plan to take any positive equity you have to pay off your other loans along with the first (prior) mortgage, in some instances (based on credit rating I'm sure) the bank pays off all the loans, gives you the difference (if there's anything left) and could still put a lien on those other assets that were paid off... so I'm told. Kinda like, "you own it but can't sell it (without our permission) and if we don't get our money we're going take it from you". No loan officer Z drivers around? Quote Link to comment Share on other sites More sharing options...
JSM Posted April 17, 2009 Author Share Posted April 17, 2009 Oh, this is just great! All these people agreeing with me... I'm gonna be the "responsible party" if things go south and JSM ends up homeless. Geez, he'll probably end up stalking me and planning some sort of revenge, Virginia Tech style. (Does anyone know if he owns any guns?) Not sure if I can handle the pressure... Nah, it's all good. I got similar advice from people at work too. Quote Link to comment Share on other sites More sharing options...
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