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Debt Relief – Insolvency – Bankruptcy Information » Mortgage Refinancing » I am having cold-feet about refinancing my mortgage, what do you guys think?

I am having cold-feet about refinancing my mortgage, what do you guys think?

I am a first-time home owner and I have been in my house just under three years. I have good credit and I have never missed a mortgage payment. Recently my lender contacted me about the new HARP program urging me to refinance. I let them send me a good faith estimate and it looks like I do qualify for this refinance.

Here are my details – after our 10% down-payment, our loan came out to $200,700. Our fixed interest rate is currently 6.375% and we pay approximately $1,570 a month including taxes, insurance and PMI. At our current payment rate we will be down to 78% base in about 2 years so we can look forward to a dropping that ~$80 PMI payment then.

The GFE has us locked in at 5.375% fixed which would drop our payment by about $140 a month and reset our mortgage @ 30 years.

Now, at our current payment we have payed approximately $57,000 in monthly mortgage payments but have only knocked about $6.2k off of the principal. Just typing that makes my knees weak. I understand that the front end of the life of a mortgage is paying heavily into the interest and a good chunk of that monthly payment goes into other things such as property insurance, PMI, taxes etc. but
I am not sure how i feel about resetting and “losing” those 3 years of payments. Our principal is currently at about 194,000.

The refinance will cost me about $4,100 with 500 due upfront and the rest rolled into the loan. so in other words we are almost right back to that 200k initial loan just with a reduced monthly payment.
Is this too much of a loss of ground or is it likely to be worth it in the long run? From my math we would make up that money in about 30 months and we will probably be in the house another 5 years before we start trying to sell. So part of me feels like it makes sense, but if we reset the loan now, are we essentially “losing” that $50,000? I know that probably isn’t the right way to think about it but it is what it is.

I know 6.375 is high and according to today’s numbers over at bankrate.com 5.375 is reasonable – especially going with the HARP program and having to do a traditional refinance full with appraisal etc – but please let me know what you guys think of this offer and if you have any other comments or suggestions.
thanks so much!
Thank you guys for so much great advice so far! I can’t believe I forgot to mention that I am in North Carolina – Durham, and the market value of my house has indeed gone up quite significantly since I purchased the home. Just under 10%. at least so I’m told by the county and my lender…
Thank you guys for so much great advice so far! I can’t believe I forgot to mention that I am in North Carolina – Durham, and the market value of my house has indeed gone up quite significantly since I purchased the home. Just under 10%. at least so I’m told by the county and my lender…

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4 Responses to "I am having cold-feet about refinancing my mortgage, what do you guys think?"

  1. Age of Reason says:
    Personally I would not refinance. You answered your own question. To save 140 a month you are losing 4100 + 6200 already paid toward principle. Suggest you just stay with current mortgage and add an extra 100 or 200 each month earmarked toward principle. This could knock 10 yrs off your mortgage. Doing in early in the loan has the most benefit
  2. Arbor Mortgage says:
    One way to make this work out better for you would be to take $100 of that $140 savings and add it to your payment each month. So, you are paying $100 extra principal every month (still saving $40). On a $200,000 mortgage at 5.375%, paying just $100 extra each month will shave 5 years off your mortgage and save $41k over the life of the loan. You would be well ahead in interest savings, plus eliminate an extra 2 years from where you are now. Use this calculator to play around with extra principal payments and see where exact numbers lie.

    http://www.dinkytown.net/java/MortgagePayoff.html

  3. Froufrou says:
    Arbor and Age gave good answers. I have also heard that one extra payment a year – just one – will knock off 7-10 years on a 30-year loan.

    Keep in mind what the FMV of the house is, not just what you have put into it. If the market is down and the house is worth less, by all means skip the refi.

  4. KL says:
    The rate would have been a bit high if it was last week, but pricing got worse recently so the interest is about right. As for the closing costs, I can’t say if they’re reasonable w/o knowing what state you’re in.

    Your nerves seems to center around losing the 3 years you’ve paid in. Here’s the solution:

    1.) Have your loan officer amortize the payment as if the mortgage was based on a 27 year amortization. Anyone can do this if they have a financial calculator. The loan should not have a prepayment penalty so when you make the payment, pay it as if it’s a 27 yr. term. Even better, see what a 20 yr. loan payment would be (the rates on a 20 yr. are usually better than a 30 yr.) Though you may not reduce your monthly payment, if it stays similar to what you’re paying now you’ll save A TON more money this route. Lots and lots of interest savings :-)

    2.) DO NOT wrap in any of the costs. Ask the loan officer to set the new loan amount to match the payoff and bring in the rest. If you can’t, have them look at slightly higher rates that will pay you back a credit towards closing costs (if they say they can’t they’re full of it.) Sometimes going with a higher rate with less in costs makes more sense if you have to wrap the costs into the loan amount.

    I hope this helps…I’m a loan officer by the way!

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