Refinancing your home

Discussion in 'The OT' started by Mark Holtz, Sep 8, 2019.

Is refinancing your home an option in the future

Poll closed Sep 15, 2019.
  1. I'm a renter, not a home owner.

    0 vote(s)
    0.0%
  2. Refinancing is not on my radar.

    2 vote(s)
    14.3%
  3. Refinancing my home is under

    0 vote(s)
    0.0%
  4. I've already refinanced my home.

    4 vote(s)
    28.6%
  5. No mortgage--my home is paid off.

    8 vote(s)
    57.1%
  1. Sep 8, 2019 #1 of 72
    Mark Holtz

    Mark Holtz New Texan

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    The Buffalo News: With mortgage rates down, the rush is on to refinance
    15 Year and 30 Year historical fixed mortgage rates

    So, is refinancing on anyone's radar? When I got word that I would be relocating from California to Texas last November, I made sure I did everything to expedite purchasing a home, including getting pre-approved for a mortgage. Because of California tax laws, I couldn't touch money which I had set aside for a home purchase until I became a resident of Texas, thus I had to take out a 30 year fixed mortgage at 4.875%. (I don't believe in Adjustable Rate Mortgages (ARM)... they tend to tick too much).

    My plan was pay off a good chunk of the principal, then refinance the remainder into a 15 year fixed mortgage sometime next year after tax time. That plan was accelerated with the drop in mortgage rates this past summer. Now, I'm under a 15 year fixed rate at 3.25%, although it took almost two months to process, and the rate has dropped slightly since I first applied.

    Anyone else considering refinancing their home?
     
  2. Sep 8, 2019 #2 of 72
    James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    I am on my second refinance. The rate is good enough that I do not expect to need a third refinance. As interest rates dropped over the past decade it made sense to pay less in interest. If someone sold an ARM that was guaranteed to have an interest rate that went down and never go up it might be worth it. But having a marketplace that allows refinancing for lower fixed rates is good enough.
     
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  3. Sep 8, 2019 #3 of 72
    billsharpe

    billsharpe Hall Of Fame

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    My daughter refinanced a month or so ago -- got a lower rate, of course, and also changed from a 30-year to 15-year loan.
     
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  4. Sep 8, 2019 #4 of 72
    Mark Holtz

    Mark Holtz New Texan

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    From what I've heard, the interest rate has to be at least ¾% lower in order for the refinance to make sense and to recover the cost of the refinance. Looking at the historical rates for 15 year mortgages from Freddie Mac, the historical lowest rate for a 15 year fixed mortgage was 2.66% in April, 2013 as well as November-December, 2012. While it is possible for those rates to hit those levels once again in the near future, I think it will accompany by tighter lending requirements. 2.5% 15 year fixed? Doubtful.

    Of course, some of the older folks will recall when 30 year fixed mortgage rates hit the credit-card rates of 17.48% in 1982. :eek: Yeah, those were the days...
     
  5. Sep 8, 2019 #5 of 72
    lparsons21

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    8%? That’s low compared to the Carter years when mortgage rates were in the double digits. And 8%+ mortgages were the norm in the early 70’s.


    Sent from my iPad using Tapatalk Pro
     
  6. Sep 8, 2019 #6 of 72
    RAD

    RAD Well-Known Member

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    Right now no, but sometime, but 3 to 4 years form now yes. Reason is we have an interest only mortgage. Since we're in the social security age group, and we have no plans to worry about leaving an inheritance to our son (he had done quite well for himself) our financial planner said why bother trying to pay off the mortgage.
     
  7. Sep 8, 2019 #7 of 72
    James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    My lender's rates are the same as they offered when I refinanced in January 2016.
     
  8. Sep 9, 2019 #8 of 72
    SledgeHammer

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    If that's what you think, you don't really understand how they work or pay much attention to the "rate market". I've been on ARMs for the past, at least 15 yrs, and I've saved a great deal of money on them. As a matter of fact, my current ARM has a relock feature where you can relock it at any time, any number of times. If this trade war keeps pushing rates down, which I expect it will, I'm going to relock it... assuming I don't move which I'm also looking at.
     
  9. Sep 9, 2019 #9 of 72
    SledgeHammer

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    NO SIR!!! Get a low cost refi, and assuming you've whittled away at your principal, your refi will be amortized on your new balance, not your old one. Even if your new rate is the same, but you've whittled away at the principal and maybe even over paid, you can come out ahead. It all depends, you have to do the math. Ideally you over-paid now and then, paid off a new chunk of the principal AND get a lower rate :D.
     
  10. SledgeHammer

    SledgeHammer Icon

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    I'd recommend a new financial planner. Are you going to leave your house to your son? He'll have to pay off the balance. Interest only mortgages are a great way to flush your money down the toilet while having nothing to show for it. It's like leasing a car. You end up with nothing.
     
  11. SledgeHammer

    SledgeHammer Icon

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    I've had an ARM go down. After 15 yrs on ARMs, I've never really had one go up enough to where it'd make a big difference. Thanks to umm... the folks in charge, I'm not worrying about rates going up too much any time soon.

    Of course, that being said... it is important to use an ARM **WISELY**. Folks got in trouble in the financial crisis because they maxed out on ARMs and couldn't even afford a 1 - 2% rate increase. They all lost their homes. If you take an ARM where you can afford a small increase, but obviously you don't pay it... you're fine. ARMs have caps. You need to understand those.
     
  12. James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    The rate increasing by 1-2% (for example a 3% loan going to 4 or 5%) would not be good. I would not consider paying 33-50% more in interest a "small" increase (whether or not I could afford it).

    The bottom line, whether one prefers a fixed rate loan or an adjustable rate, is to do the math as it relates to your own situation. I know what my loan payment will be until my house is paid off. The only thing that could change that is if I refinance. 0% more in interest. That fits my needs.

    As for RAD, I understand the "interest only" concept. As long as the value of the home is greater than the balance due his son will sell the house, pay the balance and walk away with a few dollars. As stated, the son doesn't need the house (and if RAD wants to give his son an inheritance he can do so now - while RAD is still living in the house).
     
  13. Mark Holtz

    Mark Holtz New Texan

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    Looking at historical mortgage rates for Freddie Mac.... in November, 2018, the rates were as follows:

    30 year fixed - 4.87% (close to what I got.... 4.875%)
    5 year ARM - 4.11%
    15 year fixed - 4.28%

    As of June, 2019, the rates were as follows:

    30 year fixed - 3.80%
    5 year ARM - 3.45%
    15 year fixed - 3.24% (close to what I got... 3.25%)

    From what my understanding, ARMs have a fixed mortgage rate period (usually for 3, 5, or 7 year terms), then start adjusting within a range. They are good if you don't expect to stay in that home for longer than that fixed term, or plan on refinancing within that term, and believe that the interest rates will go down within that term. The trend at the time I applied for pre-approval was that mortgage rates were going up. Of course, what happened afterward? The rates dropped. Of course, refinancing to a 15 year fixed was always my strategy. Part of that strategy was also that the move to Texas from California was a one-time deal. I have no desire to move again.

    Like I said previously, I don't believe in Adjustable Rate Mortgages (ARMs). They tend to tick too much. For some folks, it may be the perfect vehicle for their circumstances. Just, not for me.
     
  14. SledgeHammer

    SledgeHammer Icon

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    Interest only loans are generally a bad idea since you aren't paying off the balance and are essentially just paying "rent". They are even worse now that the SALT deduction has a low cap, so you don't even get the same tax benefit. The son will just inherit the debt and the parents are flushing their money down the toilet with nothing to show for it.
     
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  15. SledgeHammer

    SledgeHammer Icon

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    Historically, a 5/1 ARM has been 1 - 2% lower then a 30 yr fixed. On a $300k loan, you'd be paying $200 - $400 less interest per month.

    On a 5/1 ARM, the rate is fixed for 5 yrs and then adjusts once a year. They have caps on how much they can adjust UP per year, and have a lifetime cap on how HIGH they can go. They can also adjust down. There are no caps on the down side other then 0% I guess lol.

    There's really too much going on in the world to support much higher interest rates.
     
  16. RAD

    RAD Well-Known Member

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    No we are not planning on it, basically not planning to leave him anything. As I said, he’s done very well for himself and doesn’t need anything from us. So why bother paying down the principle on the residence when that money we can be using now? And unlike a car lease you use as an example, the value of our house continues to increase vs a car which continues to decrease.
     
    Rich likes this.
  17. RAD

    RAD Well-Known Member

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    Our mortgage is less then half of the value of the house, which in the Austin market continues to increase. So he will be making a profit on the house, won’t be left with any debt. Sorry, we don’t see why paying an extra $600-$700 a month now to pay down a mortgage on a house that we will be dead and in the ground before it’s paid off when we can use that money now for vacations etc. as I said, we’re not worrying about not leave the kid anything, he’s got a savings account with $1M+ in it, (which is he safety next in case all the money he’s got in the markets tank).
     
    Last edited: Sep 10, 2019
  18. James Long

    James Long Ready for Uplink! Staff Member Super Moderator

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    People can't get "historical" rates. We can only deal with the rates that are available today, which for Mark and I (people who went with a 15 year loan) is less that the ARM rate and cannot go up. The likelihood that the ARM will go down five years from now is minimal - and there is no reason for me to pay higher interest rates today for an ARM.

    When I was young and broke the 30 year mortgages looked good ... and "historically" ARMs had much cheaper rates. But I don't live in the past (other than the fixed rate from 2016 that I will enjoy without wondering what my interest rate will be in 2021). Caps on annual and total increases are good ... but 1-2% per year or 5-6% over the life of the loan is too much risk. I am happier with a lower fixed rate.
     
  19. Rich

    Rich DBSTalk Club DBSTalk Club

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    The poll in this thread shows more people have paid off their mortgages than any other category. I wonder if more folks here have done that rather than have a mortgage...might be an interesting thread.

    Rich
     
  20. SledgeHammer

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    Not anywhere I see, it's not. Comparing a 5/1 30 to a 15 yr fixed is not equivalent. Even still, I'm seeing a 15 yr fixed is 3.19% and a 5/1 is 2.94% and a 30 yr is 3.69%. What I meant with the "historical" comment is that historically there has been a bigger spread between ARMs and fixed and of course a 15 yr is almost twice the monthly of a 30 yr ;). Better to put that 2x monthly to work for you. There are 100% safe checking accounts that pay 3% - 5% and if you can tolerate some risk, the market pays a heck of a lot more then that.

    Plus, since my ARM has a relock feature for $295, I'm keeping an eye on certain folks continuing to tank the economy and drive interest rates lower.
     
    Last edited: Sep 9, 2019

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