[kanaloa]

Hi guys, need some advice.

Since my current situation is what it is, I'm thinking about refinancing my home. Technically I'm going to have to anyway in the next year because it's in my agreement with my ex-wife. I figure I'll have to do it before the divorce is finalized next year.

I have been doing some research and since my credit score is just below 800, I feel I can get a pretty good rate. In fact, I think if I pay off my last remaining credit card this month, I can probably get a superb rate, maybe under 5%. That would lower my current home payment by over $400 a month.

Since we didn't put any money down, I'd be borrowing almost as much as I originally borrowed (minus like $7K or something really low). I see most good loans ask for a 1-2 points (which is only $3.5K or so at the high end). I hate to spend $3500 on points, but I'd make up the difference in just 7 and a half months ($400 I'd save monthly * 7.5 months = $3500).

But I think my real benefit would be consolodating my mortgage. Bank of America got crafty and split our mortgage into two pieces so we'd never have to pay PMI. But the downside was technically having two mortgages.
First there was the 6.29% rate on the largest part of the loan (30-year fixed)
And then the outrageous 8.75% (15-year fixed) + 28K lump payment at the end

I really don't like that lump at the end, even though I doubt I'll still live in this house 15 years from now (or 13 now I guess).

Seeing as I can lower my rate by almost 1.5 points on the first loan, and cut it in half on the second, even if I did have to pay PMI, 2.5 points, and closing costs again - doesn't this seem worth it?

Thanks for your input,
John

[Grav!ty]

I'd say go for it John, if only to get the house solely into your name. What you're outlining seems to have financial benefits to you but I do believe in getting solid professional advice on issues like these. It's worth paying a professional financial adviser you can trust (like a Chartered Accountant without mortgage industry affiliations), who would have experience of doing the same for others and give impartial advice. Everything from anyone else is opinion in my view.

I don't know if you can do such things in the US, but here we can contribute additional monthly amounts to settle home loans early, which significantly reduces the absolute amount one ends up paying, with huge interest savings.

[mnemonicj]

Getting a lower interest rate is a great idea. Even lowering your interest rate of a 30 year loan by 0.5% can save you thousands over the life of the loan. Bad news though, refinancing costs suck! We bought our home 4 years ago and refinanced after 1.5 years to lock in a fixed rate. A few months ago we finally paid the principle enough to reduce our loan amount to lower than what we originally borrowed 4 years ago. Refinancing itself costs thousands of dollars, something I don't really understand because the bank you refinance with will get about 150% over the loan amount in interest over a 30 year fixed rate loan.

Are you certain that you can get a refinanced loan right now? Banks are really tight on giving out loans and are requiring money down more often now.

[kanaloa]

Thanks guys.

BOA pre-approved me for what I owe in principle, and they are who I have my loan with now. I figured it may just be easier to stay with them versus switch to my primary bank. I may also look at USAA though (I can't remember if they do mortgages or not). I think BOA was offering like 5% with 1 point. So that plus closing again I figured it approximately $5-$7 in costs, but it may be worth it in the long run. PMI is my main concern, as that alone may put my payment right back near where it is now. That's what I really need them to really tell me. If I'm only going to save a minute amount of money, it's probably not worth all the costs right now (though again, I have to do this eventually).

Edit: On reviewing all these closing costs, I may just wait until later this year and see how the economy goes. Right now I would hate to dump so much money into a closing - especially with everything going on. You'd think refinancing would be EASIER than buying new, but it's practically the same process. Could they make this any more complicated? And apparently most banks are using national appraisers who don't know the areas as well - so I could get screwed on my appraisal.

[imnuts]

You may make out better going to another bank rather than sticking with BOA if that is who is already doing your mortgage. The reason being is that refinancing is currently really big and some banks are offering to cover closing costs for you on the refinancing. I know someone that just got that offer and refinanced to drop their rate and since a majority of the costs were also covered, it worked out well for them.