What to ask or know before mortgage refinancing?

[Greg]

I got a call from the folks who did our mortgage, offering refinancing. The end result for us would be that our monthly payments would be lower, and we'd be resetting the 30-year clock. There are a whole 45 cents due at closing, though this needs to be run past the underwriters and a credit check perform before anything is locked in.

Is there anything I need to ask or know before we proceed with this?

[kj4btkljv]

I'd ask if they will accept pennies for that 45 cent closing cost...



Jeff

[AlphaDog]

I think there's a way to do an Excel spreadsheet for this.

The question I'd have couldn't be answered by someone else. OK, so the monthly payments would be lower, but the clock would be reset. How long have you had the mortgage? Is this really a better deal financially in the long run? Only you can answer that, because you have all the numbers. If you have a mortgage with a particularly high interest rate, you can come out ahead. However, if the difference between the current interest rate and the new rate isn't much, you might come out paying more. Like I said, you've got all the numbers. Now, if you reset that clock with a lower rate and continue to pay the same amount each month, I'd say you'd definitely come out ahead, because any excess will go directly toward principle.

[GGD]

Calculate the total of the remaining payments at the current rate with what's remaining of the current 30 year clock.

Then calculate the 360 months of the new monthly payment.

Then ask yourself who's getting the better deal out of this, me or the bank.

That's a good starting point.

[JoeH]

Or run the numbers with your 30 year mortgage replaced by a 15, 20, or 25 year one. They usually have a lower interest rate, especially the 15 and 20's, compared to a 30 year mortgage, so may be actually better in the long run for you.

[cbelt3]

What joeH said. Resetting the clock back to 30 benefits them in the long run, and costs you, also in the long run. do you *really* want to be paying on your mortgage 30 years from now ?

One of the mistakes we made a decade ago was buying a bigger house with a 30 year mortgage. I'll be making house payments until I'm 75. It was insane/ stupid. Of course, it was *supposed* to be shared with my late father in law, the deal was all agreed upon, and he backed out of it after we closed. So instead of a paid off house, I've got the Forever mortgage. Crap.

[Mike Sellers]

How much equity do you have in the house? Has it dropped in value since you bought it? Some banks are being pretty brutal about appraisals right now. We refied back in January from 6% down to 4.75% and it went pretty smoothly.

Getting a home equity line back was a nightmare though because the two big banks we were dealing with took forever and both appraised our house at 60k less than the refi appraisal. We finally went with a local bank who accepted our refi appraisal and had it done in under two weeks vs. the months of foot-dragging from the big banks.

[Black]

The biggest one right now is the appraised value.

It might come back 20, 50, 80k less than what you need to pay off the current loan and then they'll want you to pay up the difference or no deal.

If there are any up-front fees, kiss 'em bye bye at this point if you don't want to put money in. OTOH with 2 recent deaths in the family I suppose there's some chance there's some cash around.

Personally, I don't think of a mortgage as something to be paid off-- basically you're renting it from the bank but you have the freedom to paint the walls black and install a fur sink and an electric dog polisher if the spirit moves you. Eventually you'll probably sell, so whatever you can do to lower your monthly payment is the way to go.

[M A V I C]

First you need to know what the fees are. Next, you need to do as others have said and find out if it ends up costing you more.

If you've only had the house a couple years, a refinance may be the way to go. But much more than that, and you've paid down a good chunk of the interest and very little of the principal. Refinancing is a way to reset that interest clock so you end up having to pay a bunch of it a second time.

If you've had it a while but have a high interest rate, a modification may be the way to go. There are multiple plans for this. Some are free, some are not but still less expensive than a refinance. You are likely better off getting your current loan modified to a lower interest rate than refinancing it.

[Black]

On the topic of loan modification-- article from today's paper.

http://www.chicagotribune.com/business/c...8545.story