To Refinance or Not?

[Anonymous]

Hi Everyone-

My husband and I have cleaned up our credit cards over the last year.  With that in mind, I am wondering if I should refiance our two auto loans to get a lower rate.  Here is the info:

Auto #1 Truck $10,000 left 3 years @ 9.64%

Auto #2 Car $12,000 left 3.5 years @ 7.99%

At the time of purchase our scores were around 620-650 and now they are 720-740.

I am a little worried about the inquiries because we are applying for a construction loan in Fe 2009.

Any help would be great!

[MattH]

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@Anonymous wrote:

Hi Everyone-

My husband and I have cleaned up our credit cards over the last year.  With that in mind, I am wondering if I should refiance our two auto loans to get a lower rate.  Here is the info:

@Anonymous #1 Truck $10,000 left 3 years @ 9.64%

@Anonymous #2 Car $12,000 left 3.5 years @ 7.99%

At the time of purchase our scores were around 620-650 and now they are 720-740.

I am a little worried about the inquiries because we are applying for a construction loan in Fe 2009.

Any help would be great!

---

On www.bankrate.com are various calculators where you can enter the exact numbers for original loan amount, rate, term, etc., and compute how much could be saved by lowering the rates to a given value.  Whether it's worth doing a refi depends not only on the old and new interest rates but also on how long you've been paying the loan, because if you are for example two years into a three year loan then you have already paid about 88 percent of the total interest and thus cannot save much more interest by refinancing.  Run the exact numbers for your situation.

[Anonymous]

With a big purchase coming up you might not wish to take the hit for the inquiry and the new accounts.  Or maybe you would want to hold off until after you are approved for the construction loan.

It would pay for itself shortly, though.  My refinance cost $15 to get a new title and with credit unions offering rates under 5% that would pay for itself in the first month.  Before you get too far make sure you compare the amount you owe to what the vehicles are worth.  Most lenders won't want to refinance if you owe more than the car is currently worth.  I would opt not to refinance at this moment and instead make extra payments, at least until Feb..

[Anonymous]

IGNORE the other advice......with all home loan purchases you can easily explain the inquiry to refinance the cars!!!!!!!!

Do it now because it will greatly affect your DTI and within 3 months the scores rebound.......

I have talked to everyone I know about buying a home and if you have a valid explanation for the inquiry they dismiss it.

Good Luck!!!!!

Edited:  If you want  more advice post this question on the mortgage forum and let the experts reply. (this is where I read the aforementioned advise)

Message Edited by 1111mel on 11-11-2008 10:17 PM

[Anonymous]

The reason I brought it up is the top tier of mortgage rates start for those with mid-scores at 720 (as of July, maybe it changed with the current credit situation).  This is per the mortgage expects on the mortgage board.  A new account just cost me 7 points.  If one of their middle scores is right at 720, 7 points makes a big difference.  That's a lot of interest over the life of a large loan, much more than someone would save refinancing the two car loans in the original post.  You can explain the inquiry itself but I doubt they will just pretend your score was 10 points higher and give you the best rate because you can explain an inquiry.

And on the DTI note, a payment on $10,000 for a 3 year loan at 5% would be $300.  If you haven't been making extra payments on the loan, the payment is probably around $320-$330 currently.  $30 isn't a huge difference in DTI. 1% if you bring in $3000 and .8% if you bring in $3500..

I guess I tend to waiver on the conservative side.  If you need help with DTI before you get the construction loan, then by all means, refinance.  Otherwise, wait 3 months until the loan is secured with the best rate possible.  What will it cost you, $90 over 3 months per loan to wait to refinance until after the construction loan is obtained?