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Refinance now??
- Thread starter Belchfire1
- Start date
I remember talking to you last year. It all depends on the person's scenario. Lets say you owe $500k on your existing mortgage and you have two options(THIS IS JUST a HYPOTHETICAL SCENARIO)
OPTION 1: $500k with 1 point cost for 2.5%, which will bump your loan amount up to $505k if you bake into your loan. Monthly principal and interest payment would be $1995 on $505k loan amount
OPTION 2: $500k with zero points/zero fees for 2.625% loan amount. Loan balance stays at $505k. Payment is $2008 on $500k loan amount.
OPTION 2 is $13 more per month than Option 1. Option 1's breakeven point is $5000/13 equals 384 months(more than the life of the loan). Hence, Option 2 is a better move than OPTION 1. Average sales-oriented loan officers will try to sell you on OPTION 1 using the interest rate as the dangling carrot bait. Hope this makes sense.
Depending on loan amount, LTV, property type, Credit...15 year fixed should be high 1's to low 2's
If you want, I’ll intro you to my mortgage banker I worked last month. She got me what I think was a good rate and I think all the fees I paid were all that recording tax and title fee stuff
Not major bank, but a true lender, not a broker
I don't understand. Don't you need to consider total interest paid over the life of the loan? The breakeven isn't just how long it takes to recoup the fees. After 10 years of payments the borrower in your example pays $5K less in interest with the 2.5% loan which is the true breakeven for the two loans. Paying $13 more per month results in the borrower paying more interest over the loan. That is what I do not understand. Why is that beneficial?
Using your hypothetical example, the 2.625% no fee borrower pays ~$10K more in interest over the life of the loan. You still come out ahead if you pay $5500 to the 2.5% loan. Obviously, if you refi before 10 years then the borrower doesn't win.
In this rate market, your recoup time should be zero. We used to say 2 years is the max recoup time. The difference interest paid over a 30 year span is $9600, which is nothing over 360 months. Plus, you're writing off that mortgage interest on your taxes anyway.
Let’s say you’re 10 years into a mortgage
And refi for a 30 year
That’s 10 more years of interest
Doesn’t that play into it and make it more complex math?
This is about what is most beneficial to the borrower. I don't see how paying more interest to the bank is a better deal.
Cause you’re paying nothing out of pocket and if you calculate interest it basically becomes even.
And like he said interest is written off.
It’s all completely dependent on market, how long you keep, and other variables
No you can pay off your 30 year mortgage in 10 years or less if you want to. Conventional fixed mortgages have no prepayment penalty. The days of subprime loans pre 2008 are long gone.
Nothing gets paid out of pocket either way. It gets rolled into the loan.
$5K is not even. The end result is the bank wins and you lose when you take the higher interest no fee loan.
$5K in fees is absurd no matter what kind of creative math you use. Keep shopping around if that's what's offered.
Yes. But you have to shop around and do the math. Don't listen to what someone selling you a mortgage tells you. Do the analysis yourself.
I was quoted 2.625% no fees or 2.5% with $3500 in fees. The breakeven for 2.5% with fees is just over 4 years in terms of interest paid + fees. That doesn't even account for the extra $43 per month that I would be paying for 2.625%.
I agree that the rates over time can cancel that out. What I'm getting at is that in this competitive market, you can probably get both a very low rate and none-to-minimal fees.
Ask your financial advisor and present him these two exact scenarios. 100% guarantee he/she will say take OPTION 2.
There is no chance any competent financial advisor would ever tell you to go for a higher payment and pay more in interest over the life of the loan to avoid fees. The math doesn't make sense.
Cause a majority of people don’t stay 10 years.
Further- investing that 5000 with dollar cost averaging of an extra 10 dollars over 10 years leaves you way better