Is there any reason NOT to refinance?

[Anonymous]

Anonymous wrote:4.5% on a 10 year arm is pissing money away. Refi. Even if it costs you $2 or 3k you'll make that back in a second with the rate drop

I agree. Plus, you have an ARM! Get the hell out of that, stat. If your payment is this big now, what will you do when your ARM adjusts to 10% or 15%? It can happen - just ask thousands of people who were foreclosed on b/c they could no longer make their payments after their rate adjusted. You don't want to join them in having your possessions thrown out on the street and your credit ruined for a decade or more.

[Anonymous]

Anonymous wrote:

Anonymous wrote:also when you refi you can deduct more on your mortgage because the interest gets paid up front.

So much awful advice and commentary in this forum. This isn't even true. If you refinance to a lower interest rate, you have less interest to deduct (not that anyone should be borrowing to get a deduction). Points on a refi aren't deductible in a refi, they must be amortized over the length of the loan.

Exactly. OP is confused as hell already, that much is obvious. If you don't honestly know what you are talking about it's probably better not to say anything.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Because nothing's free. They just roll the closing costs in with the rest of the loan.

There is a big difference between rolling the closing costs into the loan and a true no cost refi. Yes nothing is free, but if the choice is between, say, a 3% mortgage with a $3,000 credit for the borrower towards closing and 2.875% mortgage with $3000 in closing costs paid by the borrower, I think the smart money takes the 3% mortgage. There is a point--maybe around 10-15 years where the lower rate mortgage would pay off, but most of us either refinance or move within those 10-15 years.

No, honey. There's no such thing as a "true no cost refi." Those have higher rates of interest. Even 1/8 of a point over 30 years is going to cost a lot more than just paying some costs upfront. Please don't give advice in this area as you don't know what you're talking about and you could cause someone to make a serious financial error.

To be fair, her point is sort-of accurate. If you had to choose between a 3% mortgage with no upfront expenses and only plan on staying in your house for, say, 1 year, that might net out to slightly less than a 2.875% mortgage with a $3000 refi cost attached. For instance, excluding any costs, if you took out a 165K mortgage at 3% and paid it for 1 year, you'd would have spent $5,306.78 and would have a balance due of $161,263.37. That same mortgage at 2.875% would have cost you $5,084.53 and left you with a balance of $161,185.09. If the lower mortgage cost you $3000 to get, then you've spent $8,000 to have balance of $161,185, when you could have spent the $3,000 on principal reduction, and had a balance of $158,263. In this scenario, you are better off taking the higher no-refi-cost rate.

That said, I agree with you - I'd still opt for the lower rate (the spread between no fee and fee based is usually a lot more than 1/8th), so the payback period drops substantially.

[Anonymous]

Anonymous wrote:

Anonymous wrote:also when you refi you can deduct more on your mortgage because the interest gets paid up front.

So much awful advice and commentary in this forum. This isn't even true. If you refinance to a lower interest rate, you have less interest to deduct (not that anyone should be borrowing to get a deduction). Points on a refi aren't deductible in a refi, they must be amortized over the length of the loan.

I think she just meant that if you were 10 years into a loan your current interest payments are likely reduced relative to the amount, even at a lower rate, if you reamortized your loan to 30 years. That is to say, 10 years into a $450K loan at 3% you might be paying $800 a month in interest, if you refinanced that loan to 2.875% and re-amortized to 30 years, your interest payments in year one are higher so you'd temporarily enjoy a larger deduction.

That said, its still really shitty advice.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Because nothing's free. They just roll the closing costs in with the rest of the loan.

There is a big difference between rolling the closing costs into the loan and a true no cost refi. Yes nothing is free, but if the choice is between, say, a 3% mortgage with a $3,000 credit for the borrower towards closing and 2.875% mortgage with $3000 in closing costs paid by the borrower, I think the smart money takes the 3% mortgage. There is a point--maybe around 10-15 years where the lower rate mortgage would pay off, but most of us either refinance or move within those 10-15 years.

No, honey. There's no such thing as a "true no cost refi." Those have higher rates of interest. Even 1/8 of a point over 30 years is going to cost a lot more than just paying some costs upfront. Please don't give advice in this area as you don't know what you're talking about and you could cause someone to make a serious financial error.

You are awfully condescending for someone who seems to have problems with reading comprehension. I said in the very next sentence "yes nothing is free" and I said in the last sentence that at some point-- perhaps after 15 years-- the higher rate will cost more overall, but in my experience most people do not keep the same mortgage for 30 years.

You are free to spend your money how you want, but I can tell you I have refinanced about 6 times over the last 10 years, bringing my interest rate from over 6% to under 3%. I have spent less $1,000 in closing costs on those refinances, and I have saved almost $1,000 a month overall, and cut the total loan term as well. I am sure I make some dumb money mistakes, but a no-cost refi isn't one of them.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:also when you refi you can deduct more on your mortgage because the interest gets paid up front.

So much awful advice and commentary in this forum. This isn't even true. If you refinance to a lower interest rate, you have less interest to deduct (not that anyone should be borrowing to get a deduction). Points on a refi aren't deductible in a refi, they must be amortized over the length of the loan.

I think she just meant that if you were 10 years into a loan your current interest payments are likely reduced relative to the amount, even at a lower rate, if you reamortized your loan to 30 years. That is to say, 10 years into a $450K loan at 3% you might be paying $800 a month in interest, if you refinanced that loan to 2.875% and re-amortized to 30 years, your interest payments in year one are higher so you'd temporarily enjoy a larger deduction.

That said, its still really shitty advice.

How is that shitty advice? You will deduct more and pay less. I think it sounds like a win. Most people don't pay off their houses anyways.

[Anonymous]

I am refinancing -- I can pay nothing up front -- and save $230 a month -- or pay $3k up front and save $280 a month. It'll take me five years to make up that $3k.

[Anonymous]

OP back...
Mortgage balance is $510 K
Will stay in house at least 2 years, probably more like 4-5 years

[Anonymous]

Anonymous wrote:OP back...
Mortgage balance is $510 K
Will stay in house at least 2 years, probably more like 4-5 years

I think that's a good reason to do the "no cost" refi-- you don't have to worry about what your "payback period" is for the upfront closing costs (instead of a lump sum, you'll pay maybe $20 a month extra in interest, but that will be dwarfed by the hundreds of interest a month you'll be saving, if that makes sense).

[Anonymous]

You might be surprised at how little your monthly expense changes with a refi once you account for the impact on your payroll tax of the reduced mortgage interest deduction. Just run the actual numbers to see.

[Anonymous]

Anonymous wrote:You might be surprised at how little your monthly expense changes with a refi once you account for the impact on your payroll tax of the reduced mortgage interest deduction. Just run the actual numbers to see.

Can you please explain this more? Thanks

[Anonymous]

Anonymous wrote:

Anonymous wrote:You might be surprised at how little your monthly expense changes with a refi once you account for the impact on your payroll tax of the reduced mortgage interest deduction. Just run the actual numbers to see.

Can you please explain this more? Thanks

Not that PP (because I think it's an odd point) but basically the idea is that if you are paying 25% in income tax (for these purposes you can basically combine your state and federal rates) then if you save $100 in mortgage interest each month you will only end up with $75 in savings because you will now pay tax on that $100. It doesn't affect your payroll withholding (or payroll tax) unless you file a new w-4 but it will affect your refund in April. Some people don't like giving up tax deductions even if it means they are in greater debt.