Should We Refinance?

Steve S · #1 09-13-2010, 10:35 AM

Hi,

I have a question about refining a house. We have been in our house for 19 years, owe $133,000 on 5.35% and a second mortage that we owe $22,000 on at 2.74%. Our monthly payment is $1900.

Should we refinance at 4.5% for 30 years or keep it like it is? Our bank says that they won't sell their loans and our montly payment will drop to $760.

My wife and I both work full time and she wants to retire.

Kosko · #2 09-13-2010, 11:04 AM

I'm absolutely no expert, but I'd say go with the method that pays it off the fastest for the least amount. If you want to finance the house to buy a boat, don't... but, if you absolutely need the money to pay down large interest debt (massive credit card debt), I think it can be worth it.

FritoBandito · #3 09-13-2010, 11:05 AM

It depends on how much money your currently making (as a couple, provided you stay married) vs how much you will make as a couple when your wife retires (will she take a significant drop in monthly income). How old are you? Is paying off the home a priority or do you intend to make payments forever (which alot of people are comfortable with). How much is your home currently worth? Are you underwater? Do you plan on staying there or move up/down in the near future? No offense but your question is kinda a loaded one and it's more than just a monthly payment question.

iamlowsound · #4 09-13-2010, 11:06 AM

I wouldn't, you are adding years and extra thousands onto your mortgage.

lowsound

elgecko · #5 09-13-2010, 11:16 AM

Maybe...but not at a 30-year term. Have you looked into 15-year?

()smoke() · #6 09-13-2010, 11:20 AM

if you are disciplined, refinance for the lowest fixed-term rate you can get, with no early payoff, then just keep paying $1900 a month (ie, the $760 plus additional principle) and pay it off early...if you shop for the right closing terms, you'll save money in the long-run by paying less interest, and still have it paid off, potentially even before the date you'll have it paid off under your current loan.

MJ5150 · #7 09-13-2010, 11:40 AM

What are your retirement plans? How soon does your wife want to retire?

-Mike

**baba** · #8 09-13-2010, 11:43 AM

I'm skeptical about the bank's claim that they won't sell your loan as this seems to be common practice. Either way, unless I'm missing something, this doesn't have any bearing on your loan terms and therefore wouldn't be a factor when considering the loan.

Steve S · #9 09-13-2010, 11:50 AM

Quote:

Originally Posted by FritoBandito

It depends on how much money your currently making (as a couple, provided you stay married) vs how much you will make as a couple when your wife retires (will she take a significant drop in monthly income). How old are you? Is paying off the home a priority or do you intend to make payments forever (which alot of people are comfortable with). How much is your home currently worth? Are you underwater? Do you plan on staying there or move up/down in the near future? No offense but your question is kinda a loaded one and it's more than just a monthly payment question.

Our house is valued at $535,000, my wife grosses $4,000 per month and I, $3,000. I'm 61 and she is 59. She's just tired of working which she's been doing since the age of 15. We have no bills and our kids are 29 and 25. Our house is getting too big for us, going up and down the stairs is a chore. I'd like to move somewhere smaller.

time & groove · #10 09-13-2010, 02:15 PM

Yes, I say refi. Another option is to borrow 155k with a 15 yr loan at 4%? Your payment will be around $1150. About the opposite numbers of your Plan A. I think the real question should be "Do I sleep better with a smaller payment/longer term or larger payments/shorter term?" Either way, that $700-1100 reduction in payments could supplement any loss of income should your wife retire, or possibly provide even more money to invest now. I just turned 50 and am waiting to pull the trigger on a 15yr fixed that will increase my payment $400. That cuts nine years off an existing fixed rate 1st and eliminates an adjustable 2nd with 17 years remaining. I'll have to scale back on savings now, but will sleep better with no mortgage/trust deed payment when I retire.

iamlowsound · #11 09-13-2010, 03:01 PM

Quote:

Originally Posted by Steve S

Our house is valued at $535,000, my wife grosses $4,000 per month and I, $3,000. I'm 61 and she is 59. She's just tired of working which she's been doing since the age of 15. We have no bills and our kids are 29 and 25. Our house is getting too big for us, going up and down the stairs is a chore. I'd like to move somewhere smaller.

Can you sell the house, pay off the mortgage, and buy a smaller place with the left over cash?

lowsound

m0nst3r · #12 09-13-2010, 04:38 PM

Here are a few options for you:

1) You can sell your house and buy a smaller one, since you would like to move somewhere smaller, or rather, a one-story house. If your house is worth 535K, you might be able to take the cash you get from selling the house and buy a new one outright. If you have extra cash left over, you can invest that and make it work for you in a way such that it supplies extra monthly income for you guys.

2) You could refinance for 30 years, lower your monthly payments to $760, and live there long enough to recoup the costs, which is only a few months depending your closing costs. If you live there for a few years, you can get a smaller home with the cash you get from selling your house + the extra cash you'll be saving per month.

3) If you are absolutely sure you are going to move within the next 5 years, you could get a 5/1 Adjustable Rate Mortgage. This will bring your APR into the 3% category, and you'll have super low monthly payments for the next 5 years. The savings will easily be recouped within a few months since the difference in monthly savings will be huge. When you're ready to move, you can use the cash from selling your home and the cash from your monthly savings to buy a new one.

The differences between option 2 and 3 are the window of time you have to make your choice to move or stay and the APR. Once the 5 years is up, your interest rate on the ARM will jump all over the place. It could even jump to the point where you can't afford the payments and you end up losing your home. Use this option only if you are sure you are going to move within the next 5 years.

4) You could refinance for 15 years and lower your payement by a few hundred dollars a month. You'll end up paying a lot more interest if you end up staying in your home for the full 15 years, but you'll have that option and make lower monthly payments, which will be nice when your income level drops.

5) You could do nothing and stay in your home. Since you guys are at the retiring age, you'll be able to dip into your 401k, IRA, 403b, etc without penalty. I'm also assuming you will be getting social security, so that might be enough to get you guys by through the next 11 years. Keep in mind that if you guys end up buying another home and owning it outright, none of this money will go to a mortgage.

Good luck.

Truktek2 · #13 09-14-2010, 04:00 AM

I was always told it's not worth to refinance unless you are dropping at least 2 percentage points. any truth to that?

MEKer · #14 09-14-2010, 06:10 AM

Whatever you do--do not trust the economy to keep an Adjustable Rate Mortgage in a decent range. Very dangerous. You cannot afford to act as tho we are in normal fiscal times with normal fiscal pressures.

Me? I'd sell it, get to zero on debt and get a smaller home with a payment of no more the 25% of your income based on yours alone.
Safety first since we are on a bad path fiscally in this country.

sneha1965 · #15 09-14-2010, 06:10 AM

It depends on how much the money costs and how long you plan to live there. I refinanced a year ago because I hope to be at the same job and location for over ten years.

Jim Campbell · #16 09-14-2010, 06:16 AM

Quote:

Originally Posted by Steve S

Hi,

I have a question about refining a house. We have been in our house for 19 years, owe $133,000 on 5.35% and a second mortage that we owe $22,000 on at 2.74%. Our monthly payment is $1900.

Should we refinance at 4.5% for 30 years or keep it like it is? Our bank says that they won't sell their loans and our montly payment will drop to $760.

My wife and I both work full time and she wants to retire.

what i did was finance over the longer period but made the higher payments anyway,which injects directly to the principal.....instead of shortening the term the required payments keep going down,so you can continue to over pay,which keeps lowering the payment,but affords you the flexibility to pay the lower amount should there be a reduction in income down the road.....

PSPookie · #17 09-14-2010, 06:20 AM

Quote:

Originally Posted by ()smoke()

if you are disciplined, refinance for the lowest fixed-term rate you can get, with no early payoff, then just keep paying $1900 a month (ie, the $760 plus additional principle) and pay it off early...if you shop for the right closing terms, you'll save money in the long-run by paying less interest, and still have it paid off, potentially even before the date you'll have it paid off under your current loan.

This. You can make your 30 year into a 15 on your own but you still have the option of paying less if you run into hard times.

Quote:

Originally Posted by sneha1965

It depends on how much the money costs and how long you plan to live there. I refinanced a year ago because I hope to be at the same job and location for over ten years.

And this. No sense in refinancing if you're going to be out of there in a year. You're probably looking at somewhere around 4-5 years as a break-even point once you factor in closing costs. Stay longer than 5 and you profit from the lower rate. Stay less and you just wasted money on closing costs

wuzfuz · #18 09-14-2010, 07:50 AM

Steve, reading your circumstance was like looking in a mirror. 11 years to go vs. starting over with 30 more. You've been paying for 19 years...you realize that's 49 years, right? I decided to hang tough with the higher payment and be done in 11. There's always the arguement that you can pay more principal and pay down early. That's never been in me. I vote for sticking with your current mortgage. Of course, everyone has their opinions, obviously it's your decision. Good Luck.

funkydjembe · #19 09-14-2010, 08:08 AM

I haven't paid mortgage in years, only interest. But here houses are going up in value. $500,000 is still $500,000 in ten or fifty years. For me, that extra $600 a month is nice for traveling expenses

PSPookie · #20 09-14-2010, 08:39 AM

Quote:

Originally Posted by funkydjembe

I haven't paid mortgage in years, only interest. But here houses are going up in value. $500,000 is still $500,000 in ten or fifty years. For me, that extra $600 a month is nice for traveling expenses

If you're only paying interest then you're really just renting.