230k left on the loan at 7.125%. Been in the house for 9 months so 29 years and 3 months remaining on the loan. Current offer is 5.875% with no points, $1,700 in closing costs not counting prepaids. Is it feasible I could get 6% or 6.125% and have all costs paid by the lender? If so, what would be the downside of me doing this other than resetting my amortization schedule? It seems like it would be a no brainer to cut a whole % or more for no cost.
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If your comfortable with the current payment why not take a lower rate and shorten the term to a 28 or 25 year and justify the cost in interest savings
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Because I can always take a lower required payment and pay extra. I can’t predict the future but if for some reason no longer was comfortable with where the payment is now, I would be glad I took the lower required payment.
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Yeah, you’re right that it’s not totally “free.” You’ll end up paying a bit more in interest because of those extra 360 payments—like 1/8th of a percent. So, you should figure out how long it’ll take to pay back those $1700 in closing costs through the monthly savings. If it pays for itself in a year or two, then it might be worth it for you.
But either way, you’ll be saving a good chunk of money compared to what you’re paying now!
Oh, and by the way, interest rates might keep dropping, so you could score an even better deal in the next 6 to 9 months!
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In a falling mortgage rate environment, paying the extra 1/8th basis point interest is worth it because we are likely to refinance at least once in the coming year. I saved $500 a month and hoping to save another $1000 next year
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Exactly! If you think you’ll refinance again in about a year, it might make more sense to go for the higher rates with lower or no fees. That way, you won’t have to worry about those closing costs right now, and you can always look for a better deal later on!
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Yes but getting to 6% would save me $160 a month. So then every month I would wait for 6-9 months that is an extra $160 per month that I wouldn’t have paid if I refi’d now. And at 10-11 months I would break even and could refi if rates drop a bunch. The alternative is what if in 10 months from now the rates have only dropped .5%… do I keep waiting for a bigger drop? Then I would kind of be in limbo.
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Yes, get a slightly higher rate with lender credits to cover all loan costs. Rinse and repeat as rates go down.
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And then my only real “loss” is my time in amortization, correct?