When to Refi?

Financial Planning - Financial planning in general. (Moderated) 

  Yahoo!   Google   Windows Live   del.icio.us   digg   Netscape

Subject Author Date When to Refi? Bill Woessner 01-09-2008  Re: When to Refi? Paul Michael Br... 03-02-2008
Posted by Bill Woessner on January 9, 2008, 12:30 am Before I go any further, I have to come clean. I fully realize that I'm about to ask how to time the market. But surely there must be conventional wisdom here. My wife and I bought our house in 2005 with 10% down, 80% mortgage and 10% home equity loan. The mortgage is 30-year at 5.375% and the home equity loan is 20-year at 6.125% (but with somewhat unusual amortization). All things considered, this is a pretty good situation. However, I can't help but notice that interest rates for 15-year mortgages are flirting with 5% and they look like they're headed lower. So I worked up a spreadsheet assuming some current rates from Navy Federal (4.625% interest rate with $10K in closing costs). It looks like we can break even in less than 3 years which is pretty good. But I can't shake the feeling that, if we just wait a few more months, we can get an even better deal. At this point, it appears all but certain that the Federal Reserve will cut interest rates at the end of the month. That doesn't directly affect mortgage rates, but I think they're somewhat correlated. This leads to the question: When do you pull the trigger? Honestly, I'd be content with the current rates. We'll definitely be in the house for 3 more years so that's not an issue. But I don't want to be kicking myself 6 months down the road if rates have dropped another 1/2%. Are there signs to look for that rates have bottomed out? I'd appreciate any advice you can offer me. Thanks in advance, Bill Woessner Posted by Paul Michael Brown on March 2, 2008, 1:05 pm > My wife and I bought our house in 2005 with 10% down, 80% mortgage and > 10% home equity loan. The mortgage is 30-year at 5.375% and the home > equity loan is 20-year at 6.125%. A 30-year fixed rate loan at 5.375 percent is excellent, and about 50 basis points below the going rate these days. 15-year loans are running about 5.25 percent currently, which means that the original poster is unlikely to find one at his dream rate of 4.625 percent. And even if he does he'll probably have to pay some points and there are always closing costs to consider. Far better, it seems to me, would be to pay down the second loan. That would accomplish the same goal (building equity) but without incurring transaction costs. Even a few hundred a month would make a big difference. Precise numbers can be calculated using the handy and free financial calculators found at: www.hughchou.org -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Similar Threads Posted Refi-Money out question February 3, 2008, 6:50 am refi 1st mortgage & heloc?? May 25, 2008, 12:05 pm Refi-ing when House Appraises below Principal Remaining March 2, 2008, 7:09 pm