When is it worth it to refinance?

Calculate out whether your present value interesting savings will be worth more than the costs in refinancing.

If the savings are less...no then it isn't worth it
If the savings are about even or slightly better....it wouldn't be worth it to me for the hassle
If the savings are significant..then it is worth it.

Where do you live? In the NJ/NY area they offer a $500 flat fee refinancing at a particular bank but even then you need the liquidity of a couple of months of mortgage to swing it.

I refinanced from 30 years - 5.6 to 15 years 4.1 about a year ago which effectively saved me $250K. I now have the opportunity to refinance again to 3.6% which would probably save me another $30K, but I do not have the liquidity nor do I have time for the hassle so I will probably stay put.

when you want to refinance, figure out your refinancing fees. using your last refi would be a good benchmark to see how much your fees would be.

If you can repay that with what you save within 2 years, no-brainer, do it.
if it's longer, then think hard about how long your staying in the house.

Quote from Iczer : My wife is pressuring me to refinance our house, even though we just did it in like Oct of 2009. So we're currently at 5%. It looks like the going rates are 4%. Is it worth it to pay the fees to refinance for 1%? That's also saying I find a good bank to refinance through. I'm currently using Wells Fargo and they gave me a good faith estimate at 4.25% and we'd be saving about $99 a month. But we'd also be putting the closing costs into the loan, which would be another $3500 or so.

A few questions:

1. Estimated loan payoff?
2. Home's value?
3. Type of current loan, i.e. FHA, conventional?
4. Does Fannie own your current loan?
5. Who is current mortgage servicer?
6. How long will you stay in the home?

The 4.25% seems high, but without knowing your LTV, can't be sure. I'm looking at a nation Wells Rate sheet and I show 3.75% fixed/30 yr on a $200K loan at 80% LTV. I also see 7/1 ARMS at 2.875%! That's almost free money!

Quote from General Ghoul : A few questions: 1. Estimated loan payoff? 2. Home's value? 3. Type of current loan, i.e. FHA, conventional? 4. Does Fannie own your current loan? 5. Who is current mortgage servicer? 6. How long will you stay in the home? The 4.25% seems high, but without knowing your LTV, can't be sure. I'm looking at a nation Wells Rate sheet and I show 3.75% fixed/30 yr on a $200K loan at 80% LTV. I also see 7/1 ARMS at 2.875%! That's almost free money!

GeneralGhoul:

Based on the Wells Rate sheet- could you check what would be the rate for a refi with the following:

Zip: 94539
LTV: 75%
Loan amount: 567,000

for 30 yr fixed?

Quote from General Ghoul : A few questions: 1. Estimated loan payoff? 2. Home's value? 3. Type of current loan, i.e. FHA, conventional? 4. Does Fannie own your current loan? 5. Who is current mortgage servicer? 6. How long will you stay in the home? The 4.25% seems high, but without knowing your LTV, can't be sure. I'm looking at a nation Wells Rate sheet and I show 3.75% fixed/30 yr on a $200K loan at 80% LTV. I also see 7/1 ARMS at 2.875%! That's almost free money!

1. Estimated loan payoff? around 171,000
2. Home's value? I haven't had it appraised since we've been here in 2008. But the original house price was 169,900. The housing market hasn't seem to have changed in my area. Houses are going for what they were years ago.
3. Type of current loan, i.e. FHA, conventional? VA ..30 year fixed
4. Does Fannie own your current loan? not sure?
5. Who is current mortgage servicer? Wells Fargo
6. How long will you stay in the home? Not sure on this either, I'd rather stay for a while to build some equity.

Maybe I'm not qualifying for the lower rates b/c of a VA loan? I don't see how that would affect things though. I'm looking to do the VA streamline refinancing.

Quote from PiratesSayARRR : Calculate out whether your present value interesting savings will be worth more than the costs in refinancing. If the savings are less...no then it isn't worth it If the savings are about even or slightly better....it wouldn't be worth it to me for the hassle If the savings are significant..then it is worth it.

well certainly that's the immediate qualification, but in most circumstances the decision isn't:
- will the refi pay for itself, but
- how long will it take the refi to pay for itself

The second question is trickier because you need to evaluate how long you anticipate owning the home.

The calculation can be complex - if you genuinely want to compare apples to apples, you have to consider the time value of money (e.g. inflation) as well as opportunity costs.

For most people I'd guess that a simpler calculation wouldn't be inaccurate - take what the whole refi will cost (assuming you are just refinancing the principal but not "cashing out") and divide by the difference in payment - that's your payback period in months.

Or, get an amortization calculator and put the 2 loans side by side. Where the principal on the new loan dips below the principal on the "old" loan is your payback. A good calculator will also give you a running sum of the interest expense, which should tell you directly how much you are saving.

Have you had an assessment? I see your projected LTV is 75% and your principal is high (almost $600k!).

Quote from mojomover : GeneralGhoul: Based on the Wells Rate sheet- could you check what would be the rate for a refi with the following: Zip: 94539 LTV: 75% Loan amount: 567,000 for 30 yr fixed?

I see Jumbo loan rates at 4% even for 75% LTV, but I must warn you that Jumbo loans are tough in CA right now, as investors don't want them. I would still call Wells and ask though.

Quote from Iczer : 1. Estimated loan payoff? around 171,000 2. Home's value? I haven't had it appraised since we've been here in 2008. But the original house price was 169,900. The housing market hasn't seem to have changed in my area. Houses are going for what they were years ago. 3. Type of current loan, i.e. FHA, conventional? VA ..30 year fixed 4. Does Fannie own your current loan? not sure? 5. Who is current mortgage servicer? Wells Fargo 6. How long will you stay in the home? Not sure on this either, I'd rather stay for a while to build some equity. Maybe I'm not qualifying for the lower rates b/c of a VA loan? I don't see how that would affect things though. I'm looking to do the VA streamline refinancing.

Yes VA loan @ 100% LTV would be higher, the 4.25% sounds about right, but going the VA streamline should keep your loan fees low, less than $1000 on average, so that $100/ month savings would be realized after only 10 months, well worth it.

Quote from General Ghoul : Yes VA loan @ 100% LTV would be higher, the 4.25% sounds about right, but going the VA streamline should keep your loan fees low, less than $1000 on average, so that $100/ month savings would be realized after only 10 months, well worth it.

Ok great thanks for the info. Any recommendations on banks to refinance through? I'm using Wells Fargo currently and they're quoting me with like $3500 in closing costs. That's insane.

Quote from Iczer : Ok great thanks for the info. Any recommendations on banks to refinance through? I'm using Wells Fargo currently and they're quoting me with like $3500 in closing costs. That's insane.

BOA used to have a great VA department, but I know their mortgage area took a huge hit with the layoffs, and I haven't used them for more than a year. I would contact the VA directly for a recommendation for your area, they are fairly responsive to veterans.

General,

Not sure what rate sheet you're looking at, but Wells doesn't have a national rate sheet. Each state is different. At 3.75% people would have to around 2.0 points in discount to get that rate.

Iczer,

VA at 4.25% with $3500 is way high. At 4.25% you shouldn't be paying any closing costs. What state are you in?

Also, since you are with Wells, Wells would probably be your best. You'll be able to do it without an appraisal since most lenders now are requiring one if you're not currently with them

Boomancini, Wells Fargo is the one who quoted me $3500 in closing costs already. I'm in Missouri.

General, I used to have BOA and they screwed me one year with an escrow shortage.