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Mortgage Refinance question

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A friend is looking to reduce his monthly mortgage payment.

 

Right now paying 4.75% and looking at 4.125%. He is three years into the mortgage and knows that most of that has been thrown out the window (interest). Would it be worth it for him to drop a lump sum to reduce the borrowing total so that it will reduce his monthly payment? It should also reduce his total interest payment drastically right?

 

He is looking at the Valley National Bank’s $499 no hidden fee refinance deal and asks me what I think. Why is it so cheap and what is the catch? Looking at the rates, I could only say that theirs is a fraction higher then national average, and over time that small fraction would make up the costs (plus some) of their fees. Am I right? Anyone have any experience refinancing with them?

 

I kind of like this idea. Even if he had lost the past 3 years payment to interest, he would eventually save significantly by reducing his total interest payment by lessening his borrowed total, right?

 

Anyone tried any other way to reduce their monthly?

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Hey there,

 

I just did a refi from 4.875 down to 4% no cost out of my pocket. Was also about 4yrs in on the mortgage. No issue with appraisal at all.

Reduced the pymt by $200...going to stay in the house for long time...or at least until the kids are gone in 20yrs.

 

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Valley National is pretty good bank in my opinion.

 

They are local and hold their loans, meaning, they aren't sold to the large national banks like Wells or Chase.

 

I always understood a good rule of thumb that you needed a 2% drop in interest to justify a refinance.

 

Mortgages and home ownership are generally LONG term obligations.

 

All to often I see people refinance time and time again and it seems as if they are doing nothing but treading water.

 

Sure, his payment is going to go down, but he's also just added another 3 years onto his long term obligation. He can gain that back by prepaying, but absent that, he's now looking at 33 years of loan payments (the 3 he just made plus a new 30 years worth).

 

It's really impossible to say one way or another.

 

How long does he intend to stay at this house?

 

And are there any other fees involved? I know they 499 no hidden fee's, but that may just be bank fee's.

 

Is he going to need a new survey? New Title Insurance? Etc.

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Just for reference I am in the middle of a refi right now. It's gonna run about $2200 in closing costs, not points, that's all appraisal, title work, application fee, etc. Rate is 3.85% on a 20 year fixed down from 5.7% on a 30 year loan. Savings is about $300 per month, and the loan is paid off if 20 years with no early payoff penalty.

 

So much of it depends on your cash situation....how much you have in hand, how much you can afford monthly, and how much cash you will need for other things.....college tuition, retirement, new fishing boat!

 

I do agree with KOQ's treading water analogy. I have a friend who has refied 3 times in 5 years. Seems silly to me, but he thinks its worthwhile.

 

On paper though, a $499 refi sounds cheap, and as long as there are no additional costs, and as long as he is okay with initiating a new 30 year loan that is seems like a no brainer. Maybe a shorter term loan is an option for him??? 25 or 20 years??

 

Good luck to him.

 

Alan

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I worked there as a branch manager years ago. Long story short, too many chiefs and not enough indians. I left after 2 months. :laugh:

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Valley National is pretty good bank in my opinion.

They are local and hold their loans, meaning, they aren't sold to the large national banks like Wells or Chase.

I always understood a good rule of thumb that you needed a 2% drop in interest to justify a refinance.

Mortgages and home ownership are generally LONG term obligations.

All to often I see people refinance time and time again and it seems as if they are doing nothing but treading water.

Sure, his payment is going to go down, but he's also just added another 3 years onto his long term obligation. He can gain that back by prepaying, but absent that, he's now looking at 33 years of loan payments (the 3 he just made plus a new 30 years worth).

It's really impossible to say one way or another.

How long does he intend to stay at this house?

And are there any other fees involved? I know they 499 no hidden fee's, but that may just be bank fee's.

Is he going to need a new survey? New Title Insurance? Etc.

 

Looking their site, they state:

No appraisal fees. No settlement fees.

No title fees. No underwriting fees.

No commitment fees. No credit report fees.

No processing fees. No flood certification fees.

No recording fees. No tax service fees.

No survey fees. No points.

 

Like bdisanto, he's got young kids so I would imagine that he would want to stick around for a long time. Your rule of thumb is good to follow by, but couldn't the three years payment be caught up by the savings of lower rate over 30 years? Example bdisanto shaved off $200 a month for next 30 years would be more then what he paid past three years. Hmmm but not by much. I guess you are right about the benefit of being closer to the 2%. But if he can reduce the payment by $500/m with some money down on the refinance, thenit would be worth it right?

 

Thanks KOQ, all

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There is a plethora of financial calculators out there that can help crunch the numbers to see if it makes financial sense.

 

While it almost always seems like it makes sense to reduce your monthly payment and get a lower rate, you also have to calculate what it "costs" to do that.

 

Run his loan at the current rate and see what the total dollar amount of interest he's going to pay over the loan.

 

Then do it again with the new loan, and see what he's going to pay.

 

Granted, he's only 3 years into the current loan, so it will probably be close. If a person were 10 year in it would make less sense given the spread of 4.75 to 4.125 is so close.

 

My point is that it doesn't always make sense to refinance to just lower your interest rate.

 

The longer the person is committed to living in the house the more sense it makes.

 

 

 

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I worked there as a branch manager years ago. Long story short, too many chiefs and not enough indians. I left after 2 months. :laugh:
OK, so as employers they suck. But as far a being a customer, they have been pretty good to me. I can't complain.

 

 

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They charge for everything on deposit accounts. Check your statements. Lending wise they aren't that bad. All the higher ups have been waiting for years for Jerry to sell the place. He missed his oppurtunity IMO.

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Use this Excel file to run numbers on your own:

 

[ATTACHMENT=4847]Mort Amort Table.xls (81k. xls file)[/ATTACHMENT]

 

I left some default #'s in there, but just change the mortgage amount, yearly interest rate, and total payments up top and it will spit out the numbers.

 

Only other thing is if you pick a loan term other than 360 months, you need to change the summation formulas in cells E5 and G5 to only include the shorter term in the Principal and Interest columns to reflect the actual totals in those cells.

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They charge for everything on deposit accounts. Check your statements. Lending wise they aren't that bad. All the higher ups have been waiting for years for Jerry to sell the place. He missed his oppurtunity IMO.

 

Lucky, so there turnaround time is pretty fast? And how can they afford a $499 fee?

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Thanks Steve, that is pretty dead on! I'll hang onto that if you don't mind.

 

Be my guest........file is nothing special, just one I came up with to calculate my re-fi's.......it allowed me to see the numbers in more detail than most of the on-line calculators (i.e. exactly how much would be paid off at any point thru the loan term), which I needed cause at one time I was doing something a bit funky with a re-fi. Was just a matter of putting the right formulas in the right cells to create the table.

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