Is there any reason NOT to refinance?

[Anonymous]

I bought a house about 2 years ago and I am a first time home-owner. My current mortgage rate is 4.5+% and is on a 5 yr ARM. I am not underwater on mortgage (home prices in my neighborhood have gone up) and put down 20% so no PMI. But frankly payments are very big and take up a lot of my take home income. So I am considering refinancing esp. since rates are low now.

But here's what I don't know, is there any reason NOT to refinance? Or least try to see if I could get a refi approved?

[Anonymous]

Oops..think it's actually a 10 yr ARM (you can tell I'm no expert on this stuff).

[Anonymous]

Depends on how long you are planning to stay put. You will need some time to recoup your closing costs for a refi. Also, it resets your mortgage to another 30 or 15 years or whatever your refi is for.

[Anonymous]

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

[Anonymous]

I would look for a no cost refi-- maybe check out Eagle Bank (in a no cost the bank gives you a credit to cover closing costs in exchange for you accepting a slightly higher interest than what you could get if you paid closing costs).

The only reason ever not to refinance is that it starts your repayment clock again (so you will have 30 years more of payments, instead of 28) but that's not much of a concern at the beginning and even if it is you can take the savings on interest and make additional principal payments and the loan will be paid off around the same time anyway.

[Anonymous]

Keep the advice coming...this is helpful.

[Anonymous]

I wouldn't do the no cost ones. It's usually a pretty awful deal. You save $2,000 but pay 5 times that over 30 years.

It all depends how long you plan on staying in your current home. Post that, and your loan amount, and its simple math for us to tell you

[Anonymous]

Anonymous wrote:I wouldn't do the no cost ones. It's usually a pretty awful deal. You save $2,000 but pay 5 times that over 30 years. It all depends how long you plan on staying in your current home. Post that, and your loan amount, and its simple math for us to tell you

How so?

[Anonymous]

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

[Anonymous]

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.

[Anonymous]

We did a no cost refi on our condo and it was a great deal for us. Bank credited us for all closing costs in exchange for a slightly higher interest rate (less than 1/4 of 1 percent). So our new loan balance is the same as our old loan balance (no closing costs were rolled over into the new loan because the bank credit covered those costs). It was a smart move for us because at the time of the refi, we knew we weren't going to be staying in the condo for long - it would have taken us longer than we planned to stay to recoup closing costs, and the impact of the slightly higher interest rate would be negligible since we wouldn't be paying that higher rate for any length of time. So it really all depends on how long you will be there - if you know what your closing costs will be on the regular refi, and what the rate differential would be on the no cost, you can do the math and figure out what would be best for you. But definitely a good time to refinance.

[Anonymous]

Anonymous wrote:Depends on how long you are planning to stay put. You will need some time to recoup your closing costs for a refi. Also, it resets your mortgage to another 30 or 15 years or whatever your refi is for.

Actually that's not true. We have refinanced several times and have set the payment period each time to stay on track for 30 years. So if we'd been paying for 5 years we refi-Ed for 25. Except the last time we did a 15 year because the rate was lower and we plan to stay in the house that long.

[Anonymous]

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

[Anonymous]

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.

[Anonymous]

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.