Best Refinance Scenario

ace329mt · Joined: 27 Dec 2007 Posts: 1 1.47 Dollars($)

I have 1st and 2nd interest only mortgage with a bank at $355,000. I looking to refinance to fix rate loan. I have fico score in the 800's. I do not want to come out of pocket on the refinance. I've been in the house for about year and half. I have no intention of moving for the next 10 years or so.

I've gotting three loan scenario ranging from 5.75 to 6.125. If go with lower rate my cost for the lower rate is higher.

What is best scenario to go with?

Here are the quotes:
- $355,000 @ 6.125 = $2182 pmt (fees $3635)
- $355,000 @ 6.000 = $2163 pmt (fees $5191)
- $355,000 @ 5.750 = $2134 pmt (fees $10,165)

larry · Joined: 27 Jun 2007 Posts: 3328 473.40 Dollars($)

Hi ace329mt,

Welcome to the forum.

For 6.125 % rate you have to pay lower fees but in the long run I think 5.750 % rate will be more beneficial for you as you are planning to stay in the house for long time. So I think you should go with 5.750 % rate.

Feel free to ask if you have any questions.

Best of luck,
Larry

banker0679 · Posted: Thu Dec 27, 2007 6:25 pm Post subject:

I would go with the 6% or 6.125%.

Rates may drop in the near future and you'll kick yourself for wasting money!

brad · Posted: Fri Dec 28, 2007 5:37 am Post subject:

I would shop around a little more. I have been locking 30yr loans at 5.875% for the past 2 weeks and just charging the normal fees which are half of what you have been offered.

I am going to guess that you received that offer from a big bank? Just sounds a little high to me.

ckalvesmaki · Posted: Fri Dec 28, 2007 6:50 am Post subject:

The difference in the monthly payment is about 50 dollars a month and almost 7k in fee's to go with the lower rate.......The higher rate and lwer fee's makes sense.

gmakerley · Posted: Fri Dec 28, 2007 3:02 pm Post subject:

i am in agreement with cedric - spending additional cash to reduce your interest rate a little bit is not a good value. you can always eliminate interest charges by merely paying additional sums on your principal balance each month.

rick · Posted: Fri Dec 28, 2007 8:02 pm Post subject:

Look at the difference in interest you'd be paying each month. For each one-eighth of lower rate, you save $36.98 per month. Then you have to ask what is your break-even point? For example, to go from 6.125 down to 6.0, it costs you an additional $1,556 in fees (presumably you are buying down the rate). $1556/$36.98 = 42 months. So, it would take you 3 and a half years to break even. Most people think that is too long, and I would agree.

Now, to drop to 5.75%, and save an additional $73.96, you would have to pay an additional $4,974. Your break-even would be $4,974/$73.96 = 67 months. That would appear to be too expensive. In other words, the lender's pricing model makes it too costly to buy the rate down further.

Based on the limited info in this scenario, I would opt for the 6.125%.

However, I agree with Bradley above - there may be better choices out there for you. Find out what the "Wholesale Rate" is (where the mortgage broker makes no money), and see what the Loan Origination Fee is. That will allow you to compare between mortgage brokers and see who has the better deal.

Not to be self serving, because I couldn't do your loan anyway, but if you go to my webpage, I provide an Interest Rate and Prices spreadsheet tool which might be what you're looking for to do these calculations for you.

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