Should we ReFi if we plan to payoff soon?
December 3, 2012 10:26 AM   Subscribe

ReFi Filter: Should I pursue a HARP 2.0 refi? Snowflakes inside.

I'm receiving solicitations for refinancing my mortgage currently at 6-ish% with 26 years remaining. The current loan is for $171,300 30yr fixed originated in 2008. That was a refi to pull some equity out of the property. We originally bought the place in 2002 for $137,500 with the loan amount of $126,000.

The property is large and we created a separate lot and built a 2 bedroom house that we rent out for $800/month. We own this free and clear.

There's a very good chance that we might sell this rental and pay the whole loan off in the next 5 years. I'm sort of stuck on the part where we keep reseting the 30 year period each time we refi and how a possible full pay-off factors in.

The HARP 2.0 offers are coming in at 2.6% - 3.5% no appraisal and no upfront fees. In addition to the unsolicited offers, the mortgage broker that we used for the original loan and the 2008 refi is also inquiring if we're interested. Working with this broker in the past has been a worthwhile and positive experience.

Hopefully this is enough info for your feedback. I'm a bit befuddled.

posted by humboldt32 to Work & Money (4 answers total)
I know that wehn we looked into the Streamlined Re-Fi on our Fanny Mae Mortage, that they were willing to amoratize the mortgage based upon where we were in the payoff.

That said, you can re-fi for 15 years, or 20, or 25, whatever floats your boat. (lower term = lower interest.)
posted by Ruthless Bunny at 10:33 AM on December 3, 2012

While you can refinance for a shorter period of time, your "30 year" note is only 30 years if you pay the minimum payment amount.

What I did is refi to a 30yr lower rate, and then pay way more than the "normal" amount every month. That way, I have my lower interest rate, and with the overpayments I can pay it off much faster than 30 years, but still have the option of lower minimum payment amount there in case I run into financial difficulties and have to tighten my belt for a while (losing my job or suddenly having to replace both furnaces in my 2 family or something.
posted by rmd1023 at 10:48 AM on December 3, 2012 [1 favorite]

I've done the same things as rmd1023. I just refinanced at a fixed rate of 3.625% with no closing costs (all costs covered by the lender). By making extra payments every month I will pay off the loan in 24 years, the same duration as previously, and still save $150/month.

But I was only coming down from a rate of 4.75%. If I'd been coming down from a rate of 6% I'd have saved about $300/month. And this is with all costs covered by the mortgage company, nothing out of pocket except property tax prepayment, which I'd be paying in any case.
posted by alms at 11:14 AM on December 3, 2012

The Mortgage Professor has a handy calculator that will tell you where your break even point is on a refinanced loan. For obvious reasons, you don't want to refi and pay associated fees/costs if you're going to pay off the loan too soon. You can run the numbers in a few different ways to see how much better or worse off you'll be if you take a no-out-of-pocket refi instead of paying the costs out of pocket.

That said, if you're presently paying more than 6% interest and you can get a no-fee refi down to 3% you're in the money from day one. (although you could be even better off if you paid upfront and were keeping the loan long enough)
posted by wierdo at 2:49 PM on December 3, 2012 [1 favorite]

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