Would you refinance?

[Steve S]

I need some advice about my home loan. We owe $112,000 on a house that has been appraised as worth $512,000. Our payments are $1800 per month on a 5.2% rate. We are bombarded by offers to refinance at a lower level to reduce our monthly payments to $670. Should we do this?

We are both in our 60's. I'm semi-retired and our children are grown. We love the location of our house but not so much the city as the winter rains have become difficult to endure. We have thought about retiring to a warmer place...I'm originally from Hawaii

[Phalex]

Refinance? No. Pay it off and hope to be able to sell it in a few years. (That's what I'd do.)

[PSPookie]

Depending on closing costs, your exact rates, etc. your payback period will probably be somewhere in the 1.5-2 year range for a 15yr. fixed. So, if you think you'll be in your house longer than 2 years then it's to your advantage to refinance.

I'm currently in the middle of a refi on my house

[joeyl]

what kind of rate drop would decrease a 1800 monthly to 670?

[PSPookie]

Originally Posted by Phalex

Refinance? No. Pay it off and hope to be able to sell it in a few years. (That's what I'd do.)

If you have the liquid cash (and your investing options have a lower yield than your refinanced mortgage rate), then sure.

[PSPookie]

Originally Posted by joeyl

what kind of rate drop would decrease a 1800 monthly to 670?

Maybe a change in the loan duration as well as a change in the interest rate. 15 fixed -> 30 fixed + maybe some points + lower rate.

Besides, the 670 is a teaser -- for the people who live in magic-land and don't have to pay taxes and have perfect credit and own at least 2 unicorns (but not more than 3).

[UncleJimmy]

Just want to share a bad experience I had when I re-financed a year ago. I bought a house that is on a small retention pond. When I bought it, I checked it out thoroughly to be sure it wasn't in a flood zone and I wouldn't have any issues with flood insurance. (it's incredibly expensive). Turns out after Katrina, the Feds started making sweeping, arbitrary changes to flood zone maps so basically anyone who was close to any body of water would be in a flood zone, regardless of elevation and other pertinent factors.

Soooo anyway, of course when I re-financed,
BAM! in a flood zone--please pay $1800 extra a year for flood insurance that offers no real protection. No way out of it.....Spoke with a few experts and I was assured that had I not re-financed the bank would be none the wiser. The extra cash went a long way towards negating the benefits of re-financing. It makes me sick to think of what it will cost me over the course of a 30 year loan..... be careful

[iamlowsound]

Originally Posted by Steve S

I need some advice about my home loan. We owe $112,000 on a house that has been appraised as worth $512,000. Our payments are $1800 per month on a 5.2% rate. We are bombarded by offers to refinance at a lower level to reduce our monthly payments to $670. Should we do this?

We are both in our 60's. I'm semi-retired and our children are grown. We love the location of our house but not so much the city as the winter rains have become difficult to endure. We have thought about retiring to a warmer place...I'm originally from Hawaii

Refinance and keep your payments the same. Pay it off way faster.

lowsound

[MEKer]

personally--I'd sell it, pay off loan, buy another house for cash (but down-sized) and be done with financing a place. Plus a chunk o'dough in the bank.You'd be a lot safer.

[duff beer]

Originally Posted by iamlowsound

Refinance and keep your payments the same. Pay it off way faster.

lowsound

Or increase the payments if you can afford to. The longer it takes to pay off, the more interest you will pay.

[joeyl]

Originally Posted by MEKer

personally--I'd sell it, pay off loan, buy another house for cash (but down-sized) and be done with financing a place. Plus a chunk o'dough in the bank.You'd be a lot safer.

yeah but if they move to Hawaii, they will need all the dough they can get their hands on, the real estate prices are brutal there...

[Bassamatic]

You have to be careful that all the re-fi costs don't take years to amortize - then you have gained nothing.

It also depends on how far you are into your current loan. If you are, say, 10 years into it, you are now paying a lot more of the principal instead of interest.

Compare all the interest you now owe on your current loan with all the interest you will owe for your new loan. You might find out that they are close enough that the closing costs wipe out the savings.

If you DO decide to re-fi - it is SAFER in these times to go for the 30 year loan and pay it off as fast as you can adding extra to the payment. That way you can always fall back on a smaller payment if things get worse in the future. If you are in a 15 year loan, you have the higher payment no matter what happens.

NOTES 1. - what was your original loan? You must have financed a lot more than $112K for it to be $1800/month.
2. 5.2% is a good rate. The standard rule of thumb is to consider re-financing ONLY if you can drop 2% or more.
3. You must be a long way through your loan - how many payments are left?

EDIT - OK - it seems that your original loan must have been around $330,000 and you have less than half left. I am in the same ballpark with my home. The issue is that you are now paying off more principal and less interest.

ALSO - there is NO WAY you can get payments of less than $800 unless you can get a rate less than 3%. There are a lot of "come ons" in the re-fi business to get you hooked into the process and then it is bait and switch.

There are many online mortgage calculators - go play with some for a while to see what is going on. You can lower your payments, but you are NOT going to save money at this point, IMHO.

[tastybasslines]

What about a reverse mortgage? I'm not THAT knowledgeable about it, but, I believe that the mortgage amount gets locked in (protecting against decreases in home value) and pays you instead. And unless you are DEAD set on keeping the house in the family, why not take the extra money and use it for more vacations, and more of enjoying life?

If you took a reverse mortgage, you will both likely not outlive it, and can still have equity if you decided to sell it. I haven't done the math but 400K of equity in a mortgage, sounds like you could have a beefy extra monthly income without worry.

[fdeck]

Here's a new pitfall for those wanting to get a mortgage: Honest appraisers.

U.S. housing faces extra drag - low appraisals - Yahoo! News

"Appraiser independence is a piece of the solution to the mess we are in right now," said Austin Christensen, president of AMCLINKS, a national appraisal company, who says appraisals were too high before AMCs were in the picture.

"Now that you have no pressure on appraisers to arrive at the appraisal, I think they are coming up with accurate values, more so than ever before."

Demuro agrees. He says that five or six years ago, if he couldn't bring in a high appraisal, the realtor or mortgage broker would not give him work again.

That doesn't happen any more, he says.

"I don't have the added stress of thinking about, 'I may lose this client. I may not be able to pay my bills next month because this appraisal is not going to come in and they're going to get upset'," he said.

[bassrique]

Why go for a lower payment when you could be getting paid?

[PSPookie]

Originally Posted by fdeck

Here's a new pitfall for those wanting to get a mortgage: Honest appraisers.

U.S. housing faces extra drag - low appraisals - Yahoo! News

No joke. I've paid off 30% of my house, well my original loan, in the last 7 years. Now we're refinancing but we'll get stuck paying PMI because the value of the house has dropped enough to put us just under 20% equity.

Ah the irony. We got a 7 year ARM and a HELOC to avoid paying PMI the 1st time around and now that we've paid down our loans considerably we're looking at getting hit with PMI. Ridonkulous, but whatcha gonna do?

[Quickie]

Refied 3 times....then the bottom dropped out.....ahhh...the good ol days.

[ssbass]

Originally Posted by Steve S

I need some advice about my home loan. We owe $112,000 on a house that has been appraised as worth $512,000. Our payments are $1800 per month on a 5.2% rate. We are bombarded by offers to refinance at a lower level to reduce our monthly payments to $670. Should we do this?

We are both in our 60's. I'm semi-retired and our children are grown. We love the location of our house but not so much the city as the winter rains have become difficult to endure. We have thought about retiring to a warmer place...I'm originally from Hawaii

NO

[PSPookie]

Originally Posted by ssbass

NO

Very enlightening.

[ssbass]

Originally Posted by PSPookie

Very enlightening.

Thank you