Any members in the Mortgage field? (1 Viewer)

We are on target to pay off our 30 year loan in 15 years. About halfway there now. I'm wondering if refinancing could get it done sooner or cheaper.


I'm not in the mortgage biz, but my guess is most likely not? With a refinance you're going to pay the closing costs all over again plus most mortgages are designed where the first half of the mortgage is heavily weighted to you paying interest rather than principal.
 
Assuming you have no prepayment penalties on your current loan, the only way refinancing will accelerate your payoff date is of the rate is lower (and by enough to offset any costs involved in the refinancing).

That’s pretty simple and obvious, but most people who refi are extending their term back out to 30 years, which can bring monthly payments down even if it doesn’t actually save nominal or real dollars over the life of the loan. To most people, lower monthly payment = saving money.
 
most mortgages are designed where the first half of the mortgage is heavily weighted to you paying interest rather than principal.

This is only if you are paying the original amortization schedule. If @Tommy is on pace to pay off his 30 year loan in 15 years, then he is prepaying - every dollar of prepayment is 100% principal.
 
Assuming you have no prepayment penalties on your current loan, the only way refinancing will accelerate your payoff date is of the rate is lower (and by enough to offset any costs involved in the refinancing).

That’s pretty simple and obvious, but most people who refi are extending their term back out to 30 years, which can bring monthly payments down even if it doesn’t actually save nominal or real dollars over the life of the loan. To most people, lower monthly payment = saving money.

There is no prepayment penalty but they sent me a letter recently saying that if I send extra principal after the 1st, I still pay interest on the current balance until the 1st of the next month. So my understanding is I can only send in the extra principle on the 1st with my regular payment for it to be worth it. I think I just confused myself. LOL
 
Here is part of the letter they sent. FWIW, my loan doesn't have PMI or MIP anymore. Should this still apply?

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This is only if you are paying the original amortization schedule. If @Tommy is on pace to pay off his 30 year loan in 15 years, then he is prepaying - every dollar of prepayment is 100% principal.

Correct, the issue here is that Tommy is considering a refinance. When you do that, the old loan is wiped out and a new loan is created (I believe?) so you'd be back at square 1 as far as paying more interest upfront as part of your regular mortgage payment (and anything beyond that could go straight to principal). But that might skew with what he has now (i.e. his current regular payment is likely more towards principal than it would be if he refinanced). Tack on thousands in closing costs and I'd have to see the full numbers with a refinance to make heads or tails of it.
 
Here is part of the letter they sent.

View attachment 264593

Basically what they're saying is that any prepayment won't come off the principle in terms of calculating your interest until the first of the month. So if you make a prepayment on the 15th, you'll technically still pay the interest amount on that prepayment until it is applied 15 days later. So for example, if your interest rate is 4% and you prepay an extra $1000, you'll end up paying about $3 in interest for the month by paying sometime after the first of the month (as opposed to on the first of the month).
 
28 years in the business

You will save money if any costs you pay are recaptured quickly by your interest cost savings.
There are also (real - not smoke and mirrors) ways to do a no-cost refinance.

You also don't have to extend your loan term and can refinance to a shorter term or simply the remaining term of your current loan.
Any benefit will depend on the difference in rate from what you are paying not to what would be available for a new rate.
In addition, there might be an opportunity to save additional money on mortgage insurance depending on your loan to value.

Based on what you just posted, your loan is an FHA loan. That method of calculating interest when a prepayment was made is no longer applicable as the letter indicated by showing that date range.
 
If you make steady payments you in effect already have a 15 year loan and will pay identical interest to a 15 year loan at same rate.

The benefit comes in if you can get lower rates because of switching to 15-year, which is generally true that 15-years have lower rate than 30-years because lower risk. Biggest factor is what interest rates were when you originated. I did the same math on mine last year, and the interest rates had gone up enough that it wasn’t going to be much savings, definitely not enough to cover the refi closing costs.
 
Well, if you’re going to pay the interest trough the end of the month factor that into your prepayment and prepay on the date specified. Sounds like they’re finding a way to maximize their take. I wonder whether that’s in your mortgage or just their interpretation/policy?

Lisa and I financed down to a 15 year mortgage when we had about 18 years left, and just paid our mortgage off recently. Was at 3.5 interest, but with the interest deductions being limited (SALT), we might as well save the interest alltogether.
 
Tommy, you can go online and use a mortgage calculator. Plug in what you have now and put in the added principle payments. Then put in a new loan with the new interest rate and additional principle payment if that applies. You should be able to run an ROI and see which one benefits you.
 
Basically what they're saying is that any prepayment won't come off the principle in terms of calculating your interest until the first of the month. So if you make a prepayment on the 15th, you'll technically still pay the interest amount on that prepayment until it is applied 15 days later. So for example, if your interest rate is 4% and you prepay an extra $1000, you'll end up paying an ~$3 in interest by paying sometime after the first of the month.

What they are saying is that if you make a prepayment (or payoff the loan) after the 1st of any month, the interest cost for that period is based on the current balance for a full 30 day period (which excludes any prepayment you may have made in that month).
It's a more significant cost if you are paying off the loan. Interest is charged for 30 days no matter what day you paid it off.

ie.
With a conventional loan, if you pay off the loan on the 5th of the month, you are only charged an additional 5 days of interest in the payoff amount
With an FHA loan originated prior to 1/21/15, you will pay a full 30 days additional interest in the payoff amount.
 
Tommy, you can go online and use a mortgage calculator. Plug in what you have now and put in the added principle payments. Then put in a new loan with the new interest rate and additional principle payment if that applies. You should be able to run an ROI and see which one benefits you.

True - just be careful with the calculator you choose. Many are structured to consider "Payment" savings as savings that apply to recouping your refinance cost.
It's another smoke and mirrors calculation. Your true "savings" will be any interest cost savings since payment difference is just a function of the term you choose.
 
What they are saying is that if you make a prepayment (or payoff the loan) after the 1st of any month, the interest cost for that period is based on the current balance for a full 30 day period (which excludes any prepayment you may have made in that month).
It's a more significant cost if you are paying off the loan. Interest is charged for 30 days no matter what day you paid it off.

ie.
With a conventional loan, if you pay off the loan on the 5th of the month, you are only charged an additional 5 days of interest in the payoff amount
With an FHA loan originated prior to 1/21/15, you will pay a full 30 days additional interest in the payoff amount.

I completely understand. In the case of sending in a prepayment, the "penalty" for sending in a prepayment on an FHA loan originated prior to 1/21/15 after the first of the month is equal to one month's worth of interest on the amount of the prepayment. So in my example, sending in an extra $1000 after the first of the month results in paying about $3 extra in interest (for a 4% loan) as compared with sending it on on the first of the month.

As you said, for a loan payoff, the "penalty" would be much more significant because it would be the full month's interest on the entire payout.
 
So I'm in the exact same position as @Tommy, I have a 30 year loan and am on target to pay off in 15 years. I talked to them about refinancing and essentially took away the following points:
- The interest rates on 15 year loans are less than on 30 year loans (but not necessarily vastly different)
- The refinancing costs can be similar to the closing costs you paid when you bought the house (a lot of money!)

This was about 6 months ago and the expectation was that rates were gonna go up so when they did the calculation, it only saved me $20 a month so I thought it wasn't worth it. I prefer having that flexibility to lower my payments if I need the money in an emergency.

Now after the Fed saying they're unlikely to raise rates this year, it may be worth having another look.
 
Heaven Forbid. That means the economy is shite again, we don’t need that!!!!!

I was just kidding, though that's what it would take for me to refinance at this point. We got lucky and moved in 2013 when rates were pretty much at the bottom and scored 2.75% with no points on a 15 year fixed.
 
I have been watching the rates lately. I am coming up on a year since my world changed and I promised myself not to make any rash decisions for one year. This Sunday is one year and I will probably be downsizing soon. Here in Texas a 15 year rate is still in the 3s. I think I will be looking at a 10 year note on my next home. I think those are currently in the low 3s
 
I was in the biz for many years. Lots of good advice ITT that I don't need to repeat, but let me know if you'd like some help with doing or simply reviewing the calculations.

As an aside, this week I received an offer to refinance my mortgage for a lower rate under TARP. Sounded too good to be true, and indeed it was. I found the terms on the back of the letter in what seemed to be 1- or maybe 2-point type (i.e., really really tiny). The enticingly low rate was for a 5-year adjustable loan, and the fees/points must have been significant because there was a sizeable difference between the rate and the APR. Folks, in the words of Sergeant Phil Esterhaus, "Let's be careful out there."
 
I don't know how the system works today, but I know that there used to be a way to get a refund from the mortgage insurance premiums paid on FHA loans if you refinance. That might be worth looking into if it can help offset any refinance costs.

Also, don't let anyone pull your credit just to see if they can get you a better rate. Credit pulls can be costly demerits on your credit score, particularly when they are not tethered to a new loan that resulted from the pulls. You should be able to get a pretty good idea of what rates and fees you would qualify for when shopping for a new loan. From there, as others have mentioned, it's just a matter of doing the math to see if it will save you money over the life of the loan.
 
I don't know how the system works today, but I know that there used to be a way to get a refund from the mortgage insurance premiums paid on FHA loans if you refinance. That might be worth looking into if it can help offset any refinance costs.

Also, don't let anyone pull your credit just to see if they can get you a better rate. Credit pulls can be costly demerits on your credit score, particularly when they are not tethered to a new loan that resulted from the pulls. You should be able to get a pretty good idea of what rates and fees you would qualify for when shopping for a new loan. From there, as others have mentioned, it's just a matter of doing the math to see if it will save you money over the life of the loan.

With the most recent updates on FHA Refinances, there are no more refunds of MIP Premiums except for a pro-rated credit against the cost of new MIP IF you do another FHA refinance. At that, the refund evaporates after three years.

Rules below:
  • For any FHA-insured loans with a closing date prior to January 1, 2001, and endorsed before December 8, 2004, no refund is due the homeowner after the end of the seventh year of insurance.
  • For any FHA-insured loans closed on or after January 1, 2001 and endorsed before December 8, 2004, no refund is due the homeowner after the fifth year of insurance.
  • For FHA-insured loans endorsed on or after December 8, 2004, no refund is due the homeowner unless they refinanced to a new FHA-insured loan, and no refund is due these homeowners after the third year of insurance

There are not too many FHA loans originated before 2004 left because the planet refinanced in 2008/2009. :LOL: :laugh:
 

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