Spur of the moment refinance

[lynnerself]

So it's 10 pm and we just applied to refinance the balance of the house! With less than an hours deliberation.
Got an offer in the mail from our current lender, went on line and found the rate had dropped even more.
We are going from 4.875 to 3.875 with no closing costs and a 15 year term.
Our current mortgage would have been paid off in 5 years, right at the time we retired. So the biggest impact is the decision to carry a mortgage (although a small one) into retirement.
But we couldn't resist the rate . Payment will decrease by more than $400 a month which we will use to invest.
Hope this is a good move!

[Deleted]

Are you with Wells Fargo, by any chance? DH and I got an offer in the mail yesterday from them. We're at 4.625% and they're offering 4% for a 15-year. My plan would be to keep paying the same amount but get it paid off faster. I'm 58 and we're 8 years into the loan so I don't want to start the 15-year clock again. Yeah, I know that at 4% I should be taking my good old time paying it off and investing the savings elsewhere, but I don't want a mortgage payment when I'm 70.

ETA: Actual rate they quoted when I went on-line was 3.75%. I've filled out the application.

DH and I were trying to figure out why they'd do this. A pre-emptive strike to keep us from refinancing elsewhere?

[resolution]

I did one of those no fee refinances with Wells Fargo about 8 years ago. It was fast and easy, I just took the packet to work and one of the secretaries there notarized it for me. I would love to do another but my balance is too low to qualify. I would pay more in fees than I would save in interest at this point.

[Wisconsin Beth]

Jun 21, 2011 8:53:26 GMT -5 resolution said:

I did one of those no fee refinances with Wells Fargo about 8 years ago. It was fast and easy, I just took the packet to work and one of the secretaries there notarized it for me. I would love to do another but my balance is too low to qualify. I would pay more in fees than I would save in interest at this point.

Ours from Wells Fargo had an asterisk next to the figures where they said something about there being no benefit if you meet X and Y conditions, which we do...

[Small Biz Owner]

We're at 4.625% and they're offering 4% for a 15-year. My plan would be to keep paying the same amount but get it paid off faster. I'm 58 and we're 8 years into the loan so I don't want to start the 15-year clock again.

Just because you have a 15 yr note does not mean you cannot pay it off faster, and not have that mortgage expense in retirement.

[Small Biz Owner]

Just make sure it does not have a pre-payment penalty in the mortgage contract.

[Deleted]

Jun 21, 2011 11:41:22 GMT -5 Small Biz Owner said:

Just make sure it does not have a pre-payment penalty in the mortgage contract.

I'm not too concerned about that- most pre-payment penalties apply to paying it off in the first year or two. In this case, we'd be paying off a 15-year in 7 years. Worth checking, though, especially since our current mortgage is with WF. My information so far indicates zero refinancing costs. If they throw a penalty at us for paying off the current mortgage (15-year, taken out in 2003) early, the deal is off.

[lynnerself]

Yes it is from Wells Fargo. We did our first refinance 10 years ago with them and it was very easy.
We have no intention of paying it off early. (We could pay if off now, if we wanted to).
We hope to use the money freed up for investing. We will start by maxing out his 457 account for the next 5 years. In fact, my DH looked into taking out some of the principal, but that wasn't possible in this loan at this rate.

[Deleted]

FYI Federal law (that nifty Garn St. Germain Act that I like to quote) REQUIRES that a residential 1-4 unit loan be assumable or a borrower is allowed to pre pay up to 20% of the original loan balance per year without penalty. And most FNMA Freddie Mac loans are allowed to be prepaid any time without penalty.

Most lenders follow the FNMA/Freddie Mac guidelines but there are a few stinkers out there. Know your rights!

[thyme4change]

You know the $400 "savings" is from stretching the loan out by 10 years, not from the reduction of interest, right?

I have no problem carrying a loan that has such a ridiculously low rate - I just want to make sure you understand that you are financing your savings.

[Deleted]

Jun 21, 2011 12:36:58 GMT -5 thyme4change said:

You know the $400 "savings" is from stretching the loan out by 10 years, not from the reduction of interest, right?

I know your question was directed at the OP. In my case, I just got into my trusty amortization spreadsheet and figured that if we kept paying the amount we're paying now, we'd pay the mortgage off 3 months faster and save over $4K in interest. Even though, at 3.75% I ought to be making only the minimum P&I payments because I can do better investing the difference, our game plan is to pay the mortgage off earlier.

[lynnerself]

Jun 21, 2011 12:36:58 GMT -5 thyme4change said:

You know the $400 "savings" is from stretching the loan out by 10 years, not from the reduction of interest, right?

I have no problem carrying a loan that has such a ridiculously low rate - I just want to make sure you understand that you are financing your savings.

Yes, of course I know that most of the savings is from the extended term. We are choosing to borrow at 3.875 in the hopes that we can earn significantly more in investment. That's why we considered even taking out principal.
Most of our discussion last night revolved around if this was a strategy we were comfortable with.

[Deleted]

Another point in favor of this type of refinancing is that it gives you some flexibility. Right now I'm paying $1700 a month P&I. The new payment would be about $850. If, heaven forbid, I lost my job, we could cut back to $850 a month and still stay current on the mortgage. As I said, though, my primary motivation would be to pay off the mortgage earlier than planned.

[Deleted]

Update: I got a call yesterday. They approved it, at 3.75% fixed. Insane. They're not even bothering with an appraisal- the house is worth maybe $280K and we want to borrow $116K.

DH and I talked about it and decided that at 3.75% it's crazy to pay it back in 7 years, which we'd planned to do. Instead we're making the minimum payment and putting the remainder in something relatively safe but higher-yielding, most likely a bond fund, every month. I've got a Fidelity account so there are plenty of choices. That way, we can separately track the amount and use it to pay off the mortgage when and if we want.

[lynnerself]

My update:
Still waiting for the final packet of papers to come to be signed and notarized.
Yesterday we got the result of our credit check.
And my credit score was 20 points higher than DH!
Boy was he surprised. Although both score were great (780 and 800).
It's because we opened a new credit card less than a year ago and they would not put both names on it.

[busymom]

I guess I'd better watch my mailbox this week!


DH & I have been talking about doing a refi for awhile, but this spring was rather chaotic, and we didn't get to it. As long as there are no fees, and no penalty for paying it off early, it sounds like a great deal!