I need to refinance my mortgage. Help please.....

[nomaco-10]

I bought my very modest home 9 years ago and paid 1/2 of the asking price down. The interest rate was %7.125. I know I can do better, but I've been waiting the last couple of weeks for the feds to drop the interest rate one more time.

Should I wait a little longer or should I go ahead and refinance now? How can I find the lowest interest rate, and can you give me some tips on negotiating the initial price to refinance?

Thanks in advance for any tips.

[WCGreen]

1. Two things...

I would normally wait since the fed is sure to drop interest rates next week...

But because mortgage rates have been creeping back up over the last few weeks because of uncertainty in the markets...

But if you have good credit and the value of your house hasn't slippe too much, you should be able to get a 20 year mortgage in around 5.5%...

[babylonsister]

2. Another question: what's the positives paying it off vs. refinancing?

I'm in a somewhat similar situation. We are trying to pay off a home, but is that the right thing to do? :shrug:

[Genevieve]

3. My financial consultant told me no --

never do that.

(Don't understand why it's not a good idea, though)

[nomaco-10]

4. I think it's because credit card debt....

interest rates are much higher than most mortgage rates.

[babylonsister]

6. We don't have cc. debt; we're trying to pay off a house. nt

[hfojvt]

8. many people do though - foolish though it is

and it would be better to pay off credit card debt than house debt.

[babylonsister]

13. No C.C. debt; we paid that off. No debt. The house is next, no?

So when DH retires, the 'big' bill is gone?

[Bobbieo]

15. I paid off my mortgage in December and what a relief!!!!

If you don't credit card debt. I'd go for it.

[sandnsea]

9. increased taxes vs interest deduction

You wouldn't want to end up losing in increased taxes the savings from paying off your house.

Mortgage interest is going to be cheaper than just about any debt, so putting it on your house can be a huge savings, provided you don't go into debt again.

My sister paid off her house about 5 years ago. Her financial advisors told her it was stupid, but she said she didn't care, she liked the idea of not having to worry about having a place to live. They have several hundred thousand in retirement, and her husband also opened a home business so they have those deductions now too.

[babylonsister]

14. Thanks. That's our thought, too. Our biggest 'debt' is our home,

so if it's paid off, we're going to be better off. We have no other debt but the monthly bills now, but I suspect a new vehicle is in our future. Not my 93 Toyota either. Ha!

[sandnsea]

16. See, put that new car on your house

The interest will be cheaper.

[flamin lib]

26. No, do not cash out equity to buy something else.

In Texas you can only lose your homestead for non-payment of the mortgage or taxes. Bankruptcy can't get it, debtors can't get it and nobody can touch it regardless of how far in debt you are. Borrow to buy a car, fall on hard times, and you could lose your house because you used the equity for the car and it isn't available to use for keeping your home.

Always guard the equity in your home. Never use it for anything but a true emergency. At least in Texas.

This advice is free, use it for what it is worth.

[sandnsea]

29. Homes here are several hundred thousand

If you've paid off a $200,000+ home, and want to buy a new car, then a $20,000 loan in order to take advantage of cheap mortgage interest is a sensible thing to do. Especially if you have several hundred thousand retirement money to pay it off if you lose your job for some reason. Using up all the equity is a different story.

[we can do it]

36. This Kind of Thinking Is Helping Cause the Mortgage Disaster

Borrow Borrow Borrow like there's no tomorrow

[suziedemocrat]

30. Because if you invest through him, he gets a commission.

Financial advisers hate it when people pay off their mortgages. They say when you take into consideration the tax deductions and money you could earn by investing, it's a bad idea.

I say booger....paying it off is a good idea unless you have other debt carrying a higher interest rate, or you don't have adequate savings. (12 months living expenses at least in savings.)

[CrispyQ]

31. Everyone says not to pay your mortgage off & I don't understand why.

We paid off our cc debt, our car loan & our house - in that order. It has provided us with options we would not have had if we had had a mortgage. I got a part time job & went back to school. When my husband was laid off, he was able to enjoy some time off before getting another job, & all the while I supported us on a part time job. We are now both back to work full time & save a significant amount every month.

I highly recommend it, but I don't know all your circumstances. However, it is very soothing to know that you actually own your house.

=====
http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=114x25901#34932

One of the posts in the thread above has a link to an interesting article that compares the economic meltdown of the Soviet Union & the US.

http://energybulletin.net/23259.html

snip... (emphasis mine)

Slide <9> One important element of collapse-preparedness is making sure that you don't need a functioning economy to keep a roof over your head. In the Soviet Union, all housing belonged to the government, which made it available directly to the people. Since all housing was also built by the government, it was only built in places that the government could service using public transportation. After the collapse, almost everyone managed to keep their place.

In the United States, very few people own their place of residence free and clear, and even they need an income to pay real estate taxes. People without an income face homelessness. When the economy collapses, very few people will continue to have an income, so homelessness will become rampant. Add to that the car-dependent nature of most suburbs, and what you will get is mass migrations of homeless people toward city centers.

[we can do it]

37. You Are Right, Its Loonacy Thinking An At Most 30 Cents on the Dollar Return

is a good deal to who? the banks? Check out you amortization chart and see how many THOUSANDS of dollars you save buy paying off early. Its not rocket science - we are fed so much total bs it just makes me angry. No debt = true freedom.

[babylonsister]

5. Even adding a few $!00's on our own vs. c.c.? nt

[Genevieve]

28. I don't know -- I wanted to pay for my co-op in cash ,but

my FC told me not to -
My brother told me not to as well.

I figure they know more than I do about finances.
I have a low interest rate on my mortgage 5.875%, fixed.

I still don't understand the benefit of doing it this way.

[we can do it]

38. Paying Any Extra Amount per Month Will Significantly Shorten Your Loan Time

and you will save thousands - we did it not too long ago and are in the process of doing it again -

[jobycom]

18. Generally the idea is to invest the payoff money

in something that pays compound interest, rather than paying off the loan. Say you have 25K to pay off the house. If you invest that 25K instead, the compound interest will add up to more than you would have saved in interest by paying off early and investing/saving the monthly payments over the next 10 years, or whatever the term would be. Refinancing for 20 years would give you an even bigger advantage, allowing you to invest the payoff money and the extra you would save with the lower payment, and your compound interest will add up to significantly more than the interest you would pay. And that's not including the tax deduction for mortgage payments.

The argument to counter that would be that there is risk in any investment, so you can't be sure you'll have a steady compounded interest on the entire sum. Interest rates can fluctuate, you can lose money even in safe investments, you may have to take a chunk out of savings in an emergency, etc. If you pay it off, you can be sure that you will save the interest on the loan, at least.

There's also the factor of inflation. In 20 years, the amount you are paying monthly will be tiny compared to the average wage, so the burden will be less than it is at the beginning of the term, and you will have had the use of your money all that time, hopefully compounding monthly or better. That can amount to significantly more than the saved interest.

An investment professional will want you to invest as much as possible, because that's how they make their money. A debt councelor might tell you to pay it off. Probably depends on who you talk to, and what your savings situation is in the first place. That's about as much as I know without refreshing my memory through research. :)

[TreasonousBastard]

22. He may be thinking of leverage...

Assume you buy a house for $200,000 with $50,000 down, then you sell it two years later for $300,000. Essentially, you just tripled your money in two years. (Yeah, I know those two years of mortgage payments, tax deductions, and whatever play into this, but we're trying to make it simple)

If you had paid cash, you only got $100,000 on your $200,000 investment, or 50%, and you lost whatever gains you would have gotten with the extra $150,000 you could have invested. If you're really smart, or lucky, what you make investing that 150 grand could pay your mortgage, or better.

So, yer typical financial guy will always tell you to NEVER tie up cash in an appreciating asset when you don't have to and always try to pay as little down as you can. If things go right, you always make more money using other people's money than using your own.

But, financial guys don't always think of your personal goals or interests. Even if you lose a couple of bucks in the long run, you might feel more comfortable not having that big mortgage payment every month if you're just looking for a home, not a real estate investment.

[we can do it]

33. That Is Totally Stupid Advice - It Only Benefits the Bank

You only get at the most 33% of the money you pay as the big "tax deduction" the banks and financial advisors keep pushing - TOTAL BS - would you give me a dollar and be satisfied if I handed you back 33 cents(or less?)

[hfojvt]

7. Well, it's what I did

paid off my 5/1 ARM in less than 4 years, but that was not one lump sum payments, just four years of very large payments. I can see a couple of drawbacks from a financial advisor standpoint. Say you have $40,000 and use it to pay off your house (to make up some figures). Unless you have the discipline to save the dollar amount of your house payments over the next six years, then you will have lost that nest egg. All or part of it.

But to me, paying off a house loan is like an investment that pays 5.5% which is better than most CDs and just as secure. Re-financing typically involves some fees too, and you would be saving that money by paying off the house. A financial advisor would probably tell you that you could put that $40,000 in a mutual fund or a variety of mutual funds and make from 8-12% but I am always skeptical of that. I am guessing that most mutual funds have taken a beating over the last six months, and have not really done that well over the last seven years. That's the conservative in me though. I prefer a safe 5.5% investment over a riskier 8% investment. I also don't like giving the corporate world use of my money. Your net gain between 5.5% and 8.5% is only $100 a month, some of which would be eaten up by brokerage and re-financing fees. On the other hand, a recesssion is generally a good time to buy stocks and mutuals if you get in somewhere near the bottom.

[ConcernedCanuk]

11. definitely - having your dwelling secured is a great move.

.
.
.

Then the world can go to shit, and you still have a home.

I've been a renter all my life, not by choice.

I've moved over 40 times so far, 4 times in the last 4 years.

I envy anyone that owns their home,

and being free from a bank would make it almost heaven in my mind.

Moving is a bitch.

And expensive.

[Captain Angry]

21. It's about assets.

If the home is your current residence, why would you pay somebody else so that you can live there. It's not an investment, it's a tool. One that keeps your stuff dry.

Paying off a home means that the only cash outflows that you have are for property taxes and maintenance.

Interest is free money you're giving some bank for the privilege of living in the building you're in. The tax deduction on that interest isn't worth the lack of control. In the first few years of a long mortgage where most of the payments are just cutting the interest down, yes, the tax refund is fun. But, that is still just a fraction of the money you gave away.


If it's a second home, rental property type of thing, a loan is something to consider then. Let's do some math.

If you buy a home outright (no loan) for $100,000, and make $10,000 a year from renting it out, your return is 10%.

If you put down $20,000 and borrow $80,000, make $10,000 a year from renting it out, your return is 50% - mortgage payment. You leveraged your $20K downpayment to have control of a $100K asset.

Basically, there's all kinds of ways of looking at it. I can't think of any positive reason to pay somebody so that you can live where you do, if you don't have to.

[we can do it]

39. Very Well Put

;-)

[sendero]

23. It depends on your overall financial situation...

... if after paying the house off you will have plenty of liquid assets (to weather a difficult time such as an illness or being out of work), then I think it is a good idea to pay off your house. If paying off your house will leave you with little financial "cushion", then I would wait.

The size of the cushion needed varies, but most planners would say 3-6 months living expenses at least.

The reason some folks think it is a bad idea to pay off your house goes something like this: If your interest rate is say 6%, their reasoning is that you should be able to make more than 6% on those fund by investing them.

Problem is, in this particular environment, the risk you have to take to make 6% is pretty high. The chances that you can safely invest that money and make more is dicey at best.

All in my humble opinion, I am not a trained financial planner.

[flamin lib]

25. When your mortgage is new, the first ten years or so on a 30 fixed,

the income tax deduction is very attractive. Look at it like having the mortgage interest rate reduced 25%-30%. The cost of your money paying the mortgage is likely less than or close to the inflation rate.

However, the older the mortgage loan is the less you pay into interest and the less "return" you get in tax deduction. Investors generally turn properties every five years to keep the tax breaks at their highest.

If you re-fi for a shorter time, say 10-15 years, the interest re-loads and your payments should remain close to the same depending on the size of the loan and interest rate. Shorter loans mean lower interest rates.

You can find out what your FICO score is at www.myfico.com. It'll cost $50 but all the "free" FICO score sites are bogus. You get what you pay for. With your FICO you can get a close estimate of what a lender can do.

I'm not a mortgage expert and don't play one on TV, so talk to 3-4 lenders and get an idea of what they can do for you. DO NOT let them pull credit reports until you decide to proceed with the loan because it can hose up your FICO score.

On the other hand, if you're close to retirement you may need the cash flow from not making the principal and interest payment. It's a personal decision that should be based on your needs.

[we can do it]

40. Please Explain What Is Attractive In Losing 70% of Your Cash

[spooky3]

34. it depends

1) Do you have other debts that charge higher interest and are not tax-deductible? If so, financial advisers usually say it's better to pay those off first.
2) Do you have adequate emergency savings and are you on track with retirement savings? If not, financial advisers usually say you should, before paying off a house early.
3) Do you have other places to invest that will bring you a guaranteed interest rate that matches your mortgage interest rate? In my case, this answer is no, because I am not a big wig financial genius. It seems like every possible investment is going down rather than up, and all have more risk than reducing my home debt. So, in my case, I have chosen to put most of my "extra" money toward my mortgage. At least I know I am reducing my debt. About 6 months ago, I thought the market was bottoming out (WRONG!) and started putting money there instead of toward my mortgage, hoping to get some long term capital gains, since the tax rates are so low on those. What a mistake (at least so far). Yes, I know that mortgage interest is deductible, which reduces its cost to you, but you have to pay tax on most investment income, which reduces its income to you. In normal times you can find stocks to invest in and gains will be taxed at a much lower rate. So this is why many advisers will tell you to put any extra money you have here, rather than reducing your mortgage. However, stocks and everything else have been going down for months, pretty substantially, and in my opinion, they are going to keep going down for at least 6 more months while the subprime, etc., messes get sorted out. Where the market will go in the future is obviously not something anyone can predict with certainty.

Hope this is useful food for thought.

[Captain Angry]

10. Some questions/statements...

1: How much longer do you have on the current mortgage, and what length are you looking to refinance into?

2: Keep in mind that the Fed Funds Rate, which is what will likely be cut again is not related directly to mortgages. The FFR is used for overnight lending between banks. Mortgages are much longer instruments, which is why they can be so much higher than the ~3% we've seen for the FFR.

3: Did you get screwed into signing something with a prepayment penalty? If so, 7.125% fixed may be worth staying with. My sister-in-law got into a loan with an un****ing real prepayment penalty. Something like a $25,000 fee for refinancing out of that mortgage. Be careful.

4: How is your credit rating? Have you pulled your free credit report for the year? If not, go get that. It's free, from all three bureaus. Read all three very carefully and ensure there are NO mistakes. Don't fall for credit protection or whatever from those organizations, they're trying to take your money. Just take the free reports, and if you've got fresh ink and plenty of paper, consider printing them out. You only do it once a year, so it's a good idea to have something you can actually read.

5: Do you have a second mortgage or home equity loan?

That's off the top of my head. We'll see what else pops out when you answer.

[nomaco-10]

17. I have 21 years remaining and am looking at a .....

15 year refinance. I have a locked in FHA loan. Credit rating is near perfect. No second mortgage and zero credit card debt, but my earning potential is now at risk because of a serious and lengthy illness. I have never missed a pmt., nor have I ever been late, not even once.

I am thinking I should be considered a low risk for refinance, and would hope I would have the bargaining power to negotiate a nominal fee, but need tips. THANKS

[Captain Angry]

20. Ok, let's see...

Your credit score will not reflect anything about your illness. (I hope you get better.) :-)

The FHA was only the way around having to pay mortgage insurance. You won't have that problem since you'll have so much equity in your home for the refinance as well.

Making up numbers, let's say your original 30 year mortgage was $100,000. You've payed down 10 years of it, which was mostly interest. You're probably down to $80 or $75K left to refinance from that original $100,000. Your home has probably gone up in value to $150K, so you'll still only be financing 50% of the value of the home.

I think you'll be fine.

Just be very firm. I want a fixed rate loan. I want to know what fees will be charged as far as points/closing fees. I will not sign anything that has a prepayment penalty.

So, there shouldn't be much negotiation involved. You'll go in, they'll pull your credit records and your deed information from the current holder. They'll pop it into a spreadsheet and tell you what your new mortgage payment would be. According to bankrate.com, it looks like the national average for a high quality fixed rate 15 year mortgage will be in the 5.5% neighborhood.

You should ask the potential lenders to whom you speak, to calculate the amount you'll spend with their loan (including all fees) and have them compare it with you staying in your remaining 21 years at the higher interest rate. You could just pay down the 21 years sooner by adding payments directly to the principle. If you do that, you are paying more interest in the mean time, but you're not paying fees to cut interest.

I mean, if you spend $3500 or something to refinance your loan, and it's only going to save you $4000 in interest, I don't know if it's worth the hassle.

The nice thing about keeping the current loan and overpaying is that if you find yourself in a month or two where you would prefer to not send extra, you don't have to. But if your payment increases because you're locked into a 15 year loan, you're stuck.

Just some thoughts. :-)

[nomaco-10]

24. Thank you so much......

you've given me some really helpful info regarding points/closing, pre pmt. fees, calculating and the loan fee against the remaining balance. I knew to demand a fixed rate.
I just saw that interest rates will drop this tuesday between 1/2 to a full percent. My next question is, once the feds cut the interest rate, how long will it take to see that reflected in a new refinance mortgage loan?
Second question, I had intended to go to three places, my credit union, my local bank (Regions) and my current mortgage holder (US Bank) to get three quotes. Is that the right thing to do, the right places to go? Other recommendations?
The thing about my current loan holder, is that they will not allow me to have a homeowners insurance deductible above $1,000.00. If I could have a $3,000-$5,000 deductible, it would slash the price of my policy drastically. Also, I shouldn't have to pay PMI since my house is one half paid for, should I?
Thanks for all your help.

[Captain Angry]

27. More stuff.

I wouldn't expect the interest rate change to trickle directly into the mortgage rates. You can always call your favorite lender and ask them what they think it is, since they deal with it daily. And last I heard, the interest rate cut futures were in the quarter-point range. I wouldn't get too excited about 25 basis points. Go to the lenders you like with low closing costs, and have them work up a spreadsheet for you. Have them highlight every single charge or fee, and the bottom line total cost to you for refinancing the home. Make sure it's worth the hassle.

On deductibles, I'd only increase the deductible if you have that $5,000 in cash in the bank to cover that deductible.

And once you have 20% equity, PMI is not required. So you shouldn't have been paying it due to your FHA loan in the first place, but the 50% equity in your original pay down covered that.

Check solid national lenders in your area. They're all a little shaky, but a bank you saw show up only a couple of years ago may not be the place you want to work with right now.

Last thing, as an aside, if you live in/near a flood plain, keep in mind that your homeowners insurance doesn't cover flood damage. You have to get flood damage from the Federal Government. I found that out the hard way when I bought my first house, and ended up with 4" of water in the basement after an amazing storm. One of the ones that makes national news because you can watch cars floating down the street.

[we can do it]

41. If You Have An FHA Loan, You May Still Be Paying PMI, Make Sure You Are Not

This and the 2% lower rate will save you some money. Don't forget, that if you pay even a little extra towards you principle each month you will pay off faster, and save more money.

[hfojvt]

12. I'd wait until at least Tuesday when the FED is expected to cut rates again

The only other advice would be to shop around and see if you can get an estimate on the fees involved. Another possibility would be if you have high interest credit card debt or an auto loan to cash out some equity during the refinancing and use that money to pay off other debts.

[jobycom]

19. Check out bankrate.com

You can search or sort loans by best interest rate, lowest APR (which factors in finance costs), and all kinds of other factors, and can compare numbers on a grid, as well as comparing to the national averages. They also have Fed news and other news you can use about trends and expectations. You can include credit unions from across the country, and might be surprised at what you'd be eligible for. A few years back the best rate I could find was through Pentagon Federal Credit Union in DC, which required armed forces background or something to do with the Pentagon. Bankrate.com, though, had found an organization open to the general public that you could sign up for and qualify for Penfed, so I did, and got a great rate.

One of the most useful sites on the internets.

[nomaco-10]

32. Thank you all for some very helpful advice. N/T

[joansurvivors]

35. Lender

Hi nomaco-10-

There are several factors that determine interest rate: Credit Score, Loan to Value (the amount being borrowed compared to the value of your home), etc. Refinancing is not always the best option, but we can usually determine that with a few questions and answers.

I work for a Federal Saving Bank that lends nationwide. If you would just like to talk with a banker, please give me a call toll free 1-877-254-9706.