Mortgage refi - when to lock in?

[LBW]

I wish I had a magic ball to predict the future!

Out current mortgage is 6.25%, and we're planning on being in our house for at least 3 more years and probably longer. With mortgage rates so low, it makes sense to refi. I'm looking for the lowest possible rate, knowing that will mean paying points, because I know the monthly savings will pay the refi costs in ~24 months.

My bank (USAA - love them!) currently has a 4.5% rate available if you pay 2.375% in points. Closing fees (including the points) will be just over $11,000. I really wanted to pay less than $10,000. Total costs were closer to $10,000 last week, but I wasn't ready to lock in. Now I am, but hesitate because the costs are higher.

I'm indecisive enough with small decisions. I hate having to play this rate game.

[lil_acorn]

given the rates now, I would not pay for points and that closing fee sounds really high. Typically they say you should refi when the rate goes 1 full percentage point below your current rate.

[KrisM]

We are looking into refinancing to extend our loan term to lower our payments. We'll likely lock in today at 5.125% for a fixed rate, zero points loan. It lowers our interest rate by .25% and if we continue to pay the same amount we're paying now, we'll only extend the loan by 2 payments, so it's worth it to us.

So obviously I don't know how long you've had your loan or the amounts or anything, but if you're going to save over $450 a month by refinancing, it sounds worth it to me. Even catching up at the end by paying more months than you were originally (if this is how you're doing it), you'll likely be good.

[o_mom]

What are the fees without the points? We ReFied in Dec with $300 in closing costs - no points (if you are in IN, OH or KY I can pass on the lenders name) which means we broke even this month. Rates have dropped a bit more and we are watching to refi again in the next few months if they go down again, which is possible given the job losses we are seeing. Most rates I have seen are sitting at 5.125% with no points.

[niccig]

Can someone give me a quick lesson on points? We're thinking to refi too, and have a mortgage broker looking at our situation. I'm still waiting to hear back from him, as he said some the new/impending legislation could make things more beneficial to us.

only $300 in costs...wow.. Friends just paid $6,000 as part of their refi. and they save $450 a month.

[hollybloom24]

We got 4.875% for a 20 year fixed through Sovereign Bank (Massachusetts). We just closed this week. No points, no closing costs. Even the $300 application fee was refunded at closing.

A 30 year fixed was 5.125%.

I agree with lil_acorn - in this economy I wouldn't pay closing costs no matter how much you love your current bank!

[hollybloom24]

When you pay points you are paying interest in a lump sum upfront to get a lower rate on your mortgage.

Each point costs 1% of the mortgage amount, so for a $400,000 mortgage a point would be $4,000.

[happymomma]

We are in the process of refinancing this month. The paperwork is done so we are waiting for finalizing. Just got a call from my mortgage guy and we are now locking it in at 4.99% with no closing costs for a 30 year fixed loan. We decided to go with the no closing costs b/c then if the interest rates go down even further, we can then refi without cost. If we paid for closing it would be about $2k - $3k and we would probably get a better rate. But for now, I'm happy with not having to pay that extra amount in closing. We will also get our $450 that we paid for our appraisal back at closing. So it really didn't cost us anything. HTH

[o_mom]

Can someone give me a quick lesson on points? We're thinking to refi too, and have a mortgage broker looking at our situation. I'm still waiting to hear back from him, as he said some the new/impending legislation could make things more beneficial to us.

only $300 in costs...wow.. Friends just paid $6,000 as part of their refi. and they save $450 a month.

Closing costs vary by region - we have some of the lowest around, but even this bank was 1/4 of the cost through our CU with the same rates.

With points, you basically pay a lump sum to get a lower rate.

For example, if the no points rate is 5.25%, you might get a lender that offers 5% if you pay one point. If your loan amount is $100,000 (to make it simple), you would pay 1% or $1,000 in return for the lower rate. After 10 years of a 30 year mortgage, you would have paid $970 less in interest with the lower rate, at which point you would (roughly) break even and beyond that you would be saving money. You have to calculate it for each situation and see when the break-even point is to decide if it is worth it to pay the points.

The other factor is that points paid at closing on a purchase are usually deductible in the year of purchase, so you would deduct that $1000 the first year for a tax savings. For a re-fi, they are deducted over the life of the loan, so you could only deduct 1/30th each year (30 yr loan). In the case of a re-fi, most times points are rolled into the mortgage because of this, so you would actually get a $101,000 mortgage in the example I gave.

[niccig]

Thanks everyone for the quick lesson on mortgage points. I really don't know enough about this stuff.

[ThreeofUs]

Sounds high to me, too. You can also call them up and negotiate.

[boogiemom]

We closed last week on a refi for 4.75%, no points and low closing costs (maybe $2000 including all prepaids, etc). It was thru Metlife Home Loans. Your numbers sound quite high. Good Luck! We had 6.15% before the refi and it is amazing the difference it makes in the payment!

[LBW]

Thanks, everyone. Closing fees are about $2700 - $1400 of that is title insurance. (The rest of the costs are the points.) For those of you with no or low closing fees, did your mortgage co pay the title fees?

I wonder if I should use a mortgage broker. Is that what most of you did? I've only ever gone through my bank.

[Mommy Of A Little Angel]

We refinanced in January at 5% for a 30yr fixed rate. No closing costs or points. I love USAA but I say they seem a bit high. They are great to talk to so it can't hurt to call and see what they say. Definitely shop around a bit because I am sure there is a lot of competition out there.

[emily_gracesmama]

We just re-fi'd and had total fees of about around $3200, 1300 of that was title, no pts and got 5.125% There are websites that can tell you what is negotiable on the good faith estimate and what is pretty standard from lender to lender, I did it with a broker I know so costs were definitely minimized, one thing I will say is one good faith estimate I got totally lowballed my title and worked 1/2 point in hidden in other stuff, so you have to do your research.

[khm]

I wish I had a magic ball to predict the future!

Out current mortgage is 6.25%, and we're planning on being in our house for at least 3 more years and probably longer. With mortgage rates so low, it makes sense to refi. I'm looking for the lowest possible rate, knowing that will mean paying points, because I know the monthly savings will pay the refi costs in ~24 months.



I know it's hard, but try not to think about this as a "game". ;) All situations are different and it isn't always the end all be all to get the lowest rate when upfront costs like that are involved.

We refi'd from 6 to 5 and I'm thrilled. Yes, we could have possibly squeeked lower, but we also could have done worse. We did not pay a cent for points. Our total costs were under $400 (mainly for the appraisal). We save about $170 per month with the new rate. We could have probably done the points thing because we do plan on being here for the very, very long haul. But, you just never know, so we didn't want to lose that money now, just for the "maybe" of an even lower rate.

I don't think it makes sense at ALL to pay $11k if you can't say with relative certainty this this is your "forever" house. or at least somewhere you'll be for quite some time. Three years... nope. If you pay that much now and leave in three years..... you did NOT save that much money by not just going with the non-points rate.

If you lower your rate without the points, and leave in 3-5 years, all is well.

It can't hurt to shop around. You might very well end up going with your current bank, but you'll feel better knowing you truly did your homework and are comfortable with what you ended up with.

[o_mom]

The title insurance on our refi is for the lender only and was $175 - we have title insurance for us paid by the seller from the purchase, which was $860-ish last summer.

Our lender has flat closing costs, so we basically pay $250 + $50 recording fee and they pay everything else.

[Momof3Labs]

The points/fees are way too high, I agree. If you stay in the house 3 years, that's $305/month of savings on your mortgage payment just to recover the $11,000. Anything over that is truly going in your pocket. Obviously, if you stay there, say, 10 years, your savings are much higher.

If you find a rate around 5% with much lower closing costs (say, under $2000 - even less is better), I think that the math will work out much more in your favor if you stay about 3 more years.