Comments on: Mortgage Loan Refinance Breakeven Points

By: San liu

San liu — Sun, 25 Jul 2010 05:35:35 +0000

Anyone recommend a good lender that have good rate that does no closing cost loan? Thanks

By: Moneyedup

Moneyedup — Fri, 23 Jul 2010 02:45:27 +0000

I would say these are the lowest mortgage rates you will see in a long time. You are right in saying that you should only refinance if you can truly get a better rate out of it, and the downfall of making the wrong decision is that you are locked in until you break even.

By: Financial Samurai

Financial Samurai — Thu, 22 Jul 2010 05:52:47 +0000

Very good post. Essentially, you want to divide the cost by the INTEREST savings cost, not the total cash flow since some of it goes to principle.

By: Derek

Derek — Wed, 21 Jul 2010 17:55:01 +0000

when I first looked into buying a house in 2004 everyone said “these are the lowest rates ever, definitely buy now because they will go up soon.”

When I looked again in 2006 I heard “these are the lowest rates ever, definitely buy now because they will go up soon.”

When I actually bought in 2007 I heard “these are the lowest rates ever, definitely buy now because they will go up soon.”

When I refinanced in 2009 I heard “these are the lowest rates ever, definitely refinance now because they will go up soon.”

Now today I am hearing “these are the lowest rates ever, definitely refinance now because they will go up soon.”

I agree with the poster above who suggested only refinancing if you can do a true no cost refi and get a better rate. Otherwise you end up paying points and locking yourself in for a period of time to “break even”

By: Justin

Justin — Wed, 21 Jul 2010 14:07:50 +0000

@ Maury: What good is taking out a huge loan to hedge inflation? If you are just going to put that money in the bank, that money will become cheap dollars, and there’s no ultimate benefit. Unless you are suggesting taking that money and going on a spending spree, I don’t see the point.

By: Maury

Maury — Wed, 21 Jul 2010 02:32:25 +0000

Man… I locked in a rate and bought a house back in December at 4.75% with no points. I thought I had bottom ticked a 40 year period.

For those who are thinking about buying gold as an inflation hedge, probably better to refi your house and have a big fat loan out at 4.35% or so.

No better inflation hedge than owing a lot of money you can repay in cheap dollars…

By: kate

kate — Wed, 21 Jul 2010 00:59:46 +0000

We are at the end of a 7 year ARM in Sept which we rode out because the rate was so low at 4.25%. Now we are refinancing into a 30 year at 4.75% (we are in IL) and there is no cost to us – I guess they roll the costs into the new principal? Not sure, I need to look at the paperwork when we get it. I think we are getting a good rate.

I pushed for a 15 year, since this mortgage is totally affordable to us (equal to 1.5 year of our income)- but my husband (and the broker) were wary because of the economy, unforseen expenses with kids, etc. Paying down principal early will be our plan going forward.

Thanks for the post and interesting comments.

By: acoward

acoward — Tue, 20 Jul 2010 23:38:38 +0000

Don’t forget inflation… Money upfront today is more valuable than money 10 years from now.

By: Ryan

Ryan — Tue, 20 Jul 2010 20:04:21 +0000

How would you calculate your breakeven point going from a 30 year 6.5% mortgage to a 15 year 4.25% mortgage? You’re going to end up paying more a month because of the shorter term but the principle will be paid faster too. My wife thinks we are wasting money to refinance and I’m trying to prove her wrong. Any help is appreciated.

Also, what exactly would you put for “other closing costs”?

By: MIF

MIF — Tue, 20 Jul 2010 16:27:40 +0000

I refinanced from 30 years to 20 this past December at 4.5% and will do it again now to 15 and pay points which I have never done before. I am now getting 3.625% with 1 pt and 2,500 in closing costs. I calculate breakeven at 2.5 years. This is an amazing opportunity to lock in an incredible rate. Of course I could be wrong again and rates continue to decline but that seems extremely far fetched.

If you will be staying in your home more than 3 years points may be worth considering to buy the rate down to extremely low levels. Finally you do need a pretty high FICO to get this kind of deal. Mine is usually in the 770-780 range.

By: enonymous

enonymous — Tue, 20 Jul 2010 16:13:37 +0000

Why not just obtain a quote for a true no-cost refi rate?

This essentially amounts to negative points, as this is how the borker/lender’s closing costs for title etc are paid to te lender/broker.

WIth a true no cost quote, there is no break even period – if the rate is lower than your current rate, you save money. Period.

I’ve always done no cost refi’s since I prefer to keep the put optionality of a mortgage intact immediately, especially given that I always choose a 30 yr fixed, have lowered the loan amount with each refi, and have been consistent in my belief that rates are stgnant and or will continue to fall. Could get a better rate by paying points? Sure. BUt then I would NEED to know how long I am keeping the home and/or need to know what rates will do in the future.

The other benefit of a true no cost refi is that you never feel like you can get cheated or bait/switched on closing costs (inflated title insurance or lender fees etc).

By: Steve N.

Steve N. — Tue, 20 Jul 2010 13:49:47 +0000

Have you considered refinancing into a 15 year mortgage? In the past, you have talked about paying extra principal on your mortgage anyway. It would be interesting to see how much more your payment would increase on a 15 year vs. a 30 year mortgage. Given the 15 year mortgage has a much lower interest rate and you have already paid a bunch of the principal off, my guess is your payment would not increase that much.

By: ChrisMR

ChrisMR — Tue, 20 Jul 2010 12:28:54 +0000

When we refinanced I had the following goals:
(1) keep monthly payments close to what they had been (~$150/mo window)
(2) cut length of mortgage (went from 25 left on 30yr to a 20yr)
(3) have a break-even point within 2 years – for me that meant interest not paid to the bank vs refinancing costs.

I accomplished all 3, so it was a no brainer. I think looking at knocking a couple of years off the length of the mortgage is a good way to go, it helps you save a lot of interest paid very quickly.

By: Phil Royal, CFP

Phil Royal, CFP — Tue, 20 Jul 2010 10:26:10 +0000

Another consideration is to find a good mortgage broker that will find a lender to do a no-points no-closing cost refinance. Recently I refinanced at 4 5/8% on a 30 yr. fixed rate mortgage. This way from day 1 your ahead of the game and if rates do drop further, you refinance again at the lower rate.