Refinancing Question and Help

[Anonymous]

I have 323k loan @ 4.5% 30 year fixed which was taken June 2018 .(I have 22% equity in the home as of now and put 20% during the initial loan)

I am paying 300 per month as prepayment to reduce the principle and term 

Now since the rates are better started looking for refinance offers . I was hopingto get a better rate for 20 year refinance but after all the research i am not seeing much difference in rate between 20 yr and 30 yr . The real difference is only if i refinance to 15 year. I have two offers in hand 

1.My current Mortgage Lender is giving me 4% 20 year Refinance No Cost refinance 

2.My Mortgage broker is giving me 4.1% 30 year refinance no cost refinance (But different bank than the current one and i have to bring money to new escrow and get the old escrow to be refunded )

My goal is close the mortgage less than 20 years and increase equity with reduced intrest rate.

I am thinking towards take the 30 year offer (which save almost 0.4% in the rate and increase the prepayment from 300 to 400 to bring down the loan period ) - 

Question 

What's the best strategy to play the refinance now ?.

Are these no cost refinance is really no cost or should i be asking any specific questions to confirm no money out of my pocket ?.

Which option is better financialy ?.

[NC_Mtg_Loaner]

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@Anonymous wrote:

I have 323k loan @ 4.5% 30 year fixed which was taken June 2018 .(I have 22% equity in the home as of now and put 20% during the initial loan).......

I am paying 300 per month as prepayment to reduce the principle and term ......

Question 

What's the best strategy to play the refinance now ?.

Are these no cost refinance is really no cost or should i be asking any specific questions to confirm no money out of my pocket ?.

Which option is better financialy ?.

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How long do you plan to live in this home?

And, if you don't mind me asking, what other types of investments do you have?

[Shooting-For-800]

You have to do the math but it probably is not worth the headache.

Closing costs can really add up especially if you do not know that you will keep the house forever.

Paying off homes early are not near as easy at these low interest rates as they were in the past.

I would think about taking you current mortgage and making payments as if it was a 15 year or 20 year since it is simple interest.

This allows you to pay less interest without being forced into a higher payment requirement.

Make sure to do the math.

GL!

[Shooting-For-800]

Generally, a $0 closing true cost mortgage will be shorter (higher payment) or higher APR.

Nothing is free.

[Mortgage-Specialist]

I ran the amortization numbers. Based on how you're paying an extra $300 per month to principal, you are currently scheduled to pay your home off in 21 years 11 months (263 months)

Typically a no-cost loans means an inflated interest rate but in this scenario, assuming this exists and you went w a 30 yr at 4.1% and paid the extra $400 to principal, you would have your home paid off in 20 years 2 months (242 months)

So you would be eliminating 21 month of payments without your monthly payments increasing. This would save you roughly $32,330. 

[CreditInspired]

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@Shooting-For-800 wrote:

You have to do the math but it probably is not worth the headache.

Closing costs can really add up especially if you do not know that you will keep the house forever.

Paying off homes early are not near as easy at these low interest rates as they were in the past.

I would think about taking you current mortgage and making payments as if it was a 15 year or 20 year since it is simple interest.

This allows you to pay less interest without being forced into a higher payment requirement.

Make sure to do the math.

GL!

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+1

OP, I was going to suggest the same thing as @shooting-for-800. Just keep paying more toward principal as you’re doing. This way, if you get strapped for cash in the future, you don’t have a mandatory larger monthly payment. Also, IMHO, I would only refinance if I would be saving about 2points—.5 point is not worth it considering you will have closing cost again. 

[Shooting-For-800]

I would not go through closing if it was completely free for .5% reduction.  lol.

[NC_Mtg_Loaner]

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@Mortgage-Specialist wrote:

I ran the amortization numbers. Based on how you're paying an extra $300 per month to principal, you are currently scheduled to pay your home off in 21 years 11 months (263 months)

Typically a no-cost loans means an inflated interest rate but in this scenario, assuming this exists and you went w a 30 yr at 4.1% and paid the extra $400 to principal, you would have your home paid off in 20 years 2 months (242 months)

So you would be eliminating 21 month of payments without your monthly payments increasing. This would save you roughly $32,330. 

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BUT

Here's where the original "extra" question regarding your other investments comes into play....

Your rate of return of "investing" your extra money to pay off your mortgage early has an opportunity cost that is rarely taken into consideration BUT really should.    If you were to invest the "extra $400 per month in a mutual fund that were generating a 10% rate of return you would have compound savings in 10 years of $93k.   Even if you only earned 8% your savings would equal $83k

SO before you go all Dave Ramsey on your mortgage loan, be sure you are maxing out your savings and have a diversified portfolio becuase you might like to have an extra $50k down the road.

[Anonymous]

Thanks for all the help . Here is my other investment /income scenario etc 

401k - Max out (18.5/Year)

Spousal IRA - Max out (5.5k /Year I am not eligible for IRA so investing in Spousal IRA)

Stocks - 7-10K per year 

Safety net - 25K

Monthly Savings (after above all ) -2500 Per month (Currently this is going in 

Yearly Bonous (15K/Year )

[NC_Mtg_Loaner]

So then it appears you have a well diversified savings portfolio and that pre-paying your mortgage and the opportunity cost of spending money in that capacity isn't such a bad thing after all, but of course it's something to review and discuss with your financial advisor and tax preparer.