Payback on a Refi - when's it worth it?

#1
volinbham

volinbham

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#1
I'm considering a refi. Looks like the payback time if I switch to a 15 year is about 2 - 2 1/2 years. (Looking at payback of refi costs)

I'm basing this on a comparison of how much paydown I would have on the new mortgage vs how much I'd have on the old one + the difference between the 2 applied to principal on the old one.

If the last part is confusing, going to the 15 would raise my monthly by about $160 so I'm comparing what I would pay on my old one + that amount to what I'd pay on the new one.

Any general rules of thumb for payback of refi costs to make a go/no go decision?

moo-cho-grassy-ass
 
#3
#3
volinbham said:
I'm considering a refi. Looks like the payback time if I switch to a 15 year is about 2 - 2 1/2 years. (Looking at payback of refi costs)

I'm basing this on a comparison of how much paydown I would have on the new mortgage vs how much I'd have on the old one + the difference between the 2 applied to principal on the old one.

If the last part is confusing, going to the 15 would raise my monthly by about $160 so I'm comparing what I would pay on my old one + that amount to what I'd pay on the new one.

Any general rules of thumb for payback of refi costs to make a go/no go decision?

moo-cho-grassy-ass
Click to expand...

Do it and don't look back. My 15 year was sacrificed at the the altar when we had the twins. I needed twice the amount of living space that I had. I miss my 15 year more than the Tundra I had to trade in for the Suburban.

It was the best financial decision I'd ever made. Seeing the payments on the principle almost immediately was very fun.
 
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#4
#4
droski said:
what's the rate on the two mortgages?
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Current = 5.875 + a bit on a HELOC I'd roll in that makes the effective rate about 6.1 on a total of 109K

15 refi = 4.25; total payment over above goes up about $130.00

Estimated refi costs between 3 and 3.5K

On the new one, I'd reduce the principle about 5500 in the first year and in the old one + the extra 130 on principle I'd reduce it about 3800 in the first year.

After 2 years, I should have paid back the refi costs and will be ahead going forward.
 
#5
#5
seems like a no brainer unless you might be selling the house in the next couple of years.
 
#6
#6
volinbham said:
Current = 5.875 + a bit on a HELOC I'd roll in that makes the effective rate about 6.1 on a total of 109K

15 refi = 4.25; total payment over above goes up about $130.00

Estimated refi costs between 3 and 3.5K

On the new one, I'd reduce the principle about 5500 in the first year and in the old one + the extra 130 on principle I'd reduce it about 3800 in the first year.

After 2 years, I should have paid back the refi costs and will be ahead going forward.
Click to expand...

Whatever, have a little fun along the way.

YouTube - Looking Out My Back Door - Creedence Clearwater Revival

doo doo doo :)
 
#7
#7
droski said:
seems like a no brainer unless you might be selling the house in the next couple of years.
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I didn't think I'd be in it long but that was 8 years ago. I'm pretty confident I'll be there for at least 2 more.
 
#8
#8
the increase in your equity will probably be worth it even if you do sell it.
 
#10
#10
droski said:
the increase in your equity will probably be worth it even if you do sell it.
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Well that's what I was getting at - my equity won't really increase as a result of doing this for 2 years. That time will basically be paying of the refi costs (compared to just taking the monthly difference from my existing loan and applying it that principle).
 
#12
#12
Do it.

I refi'ed last year and with the lower payment I was able to put more towards the principle. Starting this May I will be coming out ahead. Looking at the ammortization schedule (if I continue what I am doing without change) I am saving myself about 7 years of payments and a boatload of interest on a 30-year fixed.
 
#13
#13
yeah. once again goes back to how long you want to own it. having a higher interest mortgage deduction for a couple of years isn't the end of the world.
 
#14
#14
droski said:
yeah. once again goes back to how long you want to own it. having a higher interest mortgage deduction for a couple of years isn't the end of the world.
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I love the deduction now, but I think I would love not having a mortgage even more.
 
#15
#15
rjd970 said:
I love the deduction now, but I think I would love not having a mortgage even more.
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4.25% mortgage with the interest deduction means you are borrowing effectively at what around 3%? I bet i can do far better than 3% after taxes investing the money over the next 15 years.
 
#16
#16
volinbham said:
Just realized I plopped this thing in the Politics section.

Obama sucks
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just give it to the state, take your loss, and join a public employees union. you'll be a lot happier once Obama is doing your thinking for you.

or

do what droski says
 
#17
#17
have you talked to the current lender about wiping them out to see what they will do for you on rate to keep you around. Might be a means of avoiding refi costs altogether. Seems to me Wells Fargo is also offering some sort of easy refi with no refi costs.
 
#18
#18
rjd970 said:
Do it.

I refi'ed last year and with the lower payment I was able to put more towards the principle. Starting this May I will be coming out ahead. Looking at the ammortization schedule (if I continue what I am doing without change) I am saving myself about 7 years of payments and a boatload of interest on a 30-year fixed.
Click to expand...

I hear you but the difference for me is that the refi will raise my mortgage payment - not lower it. What I'm comparing is taking the equivalent increase and applying it to the principle of my current loan.

droski said:
yeah. once again goes back to how long you want to own it. having a higher interest mortgage deduction for a couple of years isn't the end of the world.
Click to expand...

That's kinda where I'm at. The payment change won't make a big difference in my monthly cash flow but I'm a bit more liquid with the current situation than committing to a bigger fixed payment. My interest deduction will drop about 1500 with the new loan.

Bottomline, I know it saves me if I stay beyond 2 years (relatively likely) but the savings aren't huge and it locks up about 130 - 150/month that I might be able to do something else with (e.g. retirement savings)
 
#19
#19
BigPapaVol said:
have you talked to the current lender about wiping them out to see what they will do for you on rate to keep you around. Might be a means of avoiding refi costs altogether. Seems to me Wells Fargo is also offering some sort of easy refi with no refi costs.
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Haven't but it's a good idea. Loans are split. Mortgage is with BoA now (courtesy of the Countrywide Acquisition) and the HELOC is with my current bank.

I'll contact BoA to see what they'll do. Have heard from a few lenders that my current bank (Compass) will not subordinate a HELOC so I'll have to wipe it (should anyway).

I'm guessing if I was working from a higher base (total is just over $100K) the savings would make this a more obvious choice.
 
#20
#20
volinbham said:
I hear you but the difference for me is that the refi will raise my mortgage payment - not lower it. What I'm comparing is taking the equivalent increase and applying it to the principle of my current loan.
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Gotcha. Then yeah, it is what droski said. All a matter of how long you are going to own the house. It isn't worth it if you are going to sell in a couple of years.
 
#21
#21
volinbham said:
Well that's what I was getting at - my equity won't really increase as a result of doing this for 2 years. That time will basically be paying of the refi costs (compared to just taking the monthly difference from my existing loan and applying it that principle).
Click to expand...

My CPA, wifey, says that you have a WINNER! If you can recoup in 24 months, DO IT.
 
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