Should I refinance?

[Anonymous]

Hello,

First time poster here, bear with me!

We have a house we bought in 2012 for $165k.  The market has obviously increased quite a bit since then, and Zillow and RedFin both estimate our house at about $240k.  I'm not sure how much it would appraise for, I'd guess closer to $225k.  

Our rate right now is 3.25%, our payment is about $1,080, we owe just over $144k and it is a 30 year loan.  We are paying PMI because it was a USDA 0% down loan.

I'm wondering about refinancing.  It looks like we can refinance for another 30 year for about 3.9%, but it would lower our monthly payment to under $700/month.

Alternatively, we could do a 15 year for about 3.2% and our monthly payment would be around $1,020. 

I've done this all through online quotes and estimates so I know it isn't all that accurate, but if that is a ballpark, does it make sense for us to refinance?  We are relatively comfortable with our current mortgage, so we could keep it the same and be just fine, but having some more breathing room would always be welcome.

I don't know anything about the costs of refinancing, other than lender fees, appraisal fees, and maybe a title/escrow fee?

Does it make sense for us to refinance?

Appreciate in advance!

[Anonymous]

I would never refinance into a higher interest loan.  That makes no sense to me.

I also would never refinance into a lower interest loan if the points and fees add up to making it cost more.

If you can refinance to a lower interest loan inclusive of points and fees, go for it.

I know a lot of folks who had cash-out refis in the past 10 years.  Not all of them are homeowners anymore.  On the flip side, refinancing to lower your payment but raise your interest rate just means you are buying your own house for more money from yourself, but the bank takes the profits.

[NC_Mtg_Loaner]

refinancing is crazy if you ask me.

[Shooting-For-800]

Never refinance to get a HIGHER interest rate.

PMI is not expensive on that size mortgage and you can strip it when you have 20% equity.

Are you sure your new payments are including all the same things minus PMI?

Are you including closing costs?  Points?  

I would NEVER refinance at a higher rate unless I was deperate for cash out and could not get a good fixed rate 2nd mortgage or equity line.

Call your mortgage company and inquire about getting a new appraisal to strip PMI.

Enjoy your great current interest rate.  10 years ago you could have been at twice that.

[me12345]

The USDA "PMI"  or Guarantee Fee as the USDA calls it, is very low, and raising your interest rate by .75% would be counter productive even with the removal of the Guarantee Fee.

Thanks,

[Anonymous]

Thanks for advice all. It seemed like it might make sense to refinance into a 15 year to pay the loan off 10 years earlier with a similar interest rate, but I suppose not if all fees offset savings?

Thanks again!

[me12345]

How much is the "PMI" that you are currently paying per month?

[Anonymous]

I believe the fees will eat up savings.  You can PROBABLY pay off your current 30 year in 15 years just by adding an extra payment mid-month -- if the terms of your loan allow this.

I would definitely call the bank and ask what it would cost to remove PMI from the current loan.  Then roll the PMI payment into an extra payment.

[Shooting-For-800]

you dont have to refinance to pay as 15 year mortgage.  with your interest rate, it is not even worth the effort in most cases.

unless you are not paying interest on ANYTHING else, there is no real reason to pay a mortgage at 3-4% faster.

Worse case: borrow at 30 and pay at 15 when you can 

Send in $450 extra each month to pay off in 15 years; $900 to pay off in 10 without refinancing anything.

When your wallet gets tight, you have the option of NOT sending in the extra since your payment is really $1k and not $1.4k or $1.9k

[me12345]

I'm estimating that the USDA "Annual Guarantee Fee" is about $70.00 per month. (This is for the life of the loan with USDA)  If you accelerate your current payments so that you pay it off in 10 years (Your plan if you refi with a 15 loan) then you would pay about $8,000.00 over the next 10 years....If you could refi at the same 15 year rate (3.25%) AND if you are going to stay in the home for at least 10 years, then you would be money ahead in the long run, because it wont cost you $8,000.00 to do the refi.

If it wasn't for the USDA Guarantee Fee, I would say make the extra payments and pay it off in 10 or 15 years, but eliminating the additional fees tips the scale towards the refinance.

ONCE AGAIN ONLY IF YOU ARE GOING TO BE IN THE HOME FOR 10 YEARS OR MORE.....

Thanks,