Bruddah IZ
DA
So they are quoting you on a 25 year loan? The real interest rate is 42.9%. You won't see 2.25% until the 289 month of 300.
To Refi or Not?
- Thread starter Dominic
- Start date
So they are quoting you on a 25 year loan? The real interest rate is 42.9%. You won't see 2.25% until the 289 month of 300.
Bruddah IZ
DA
Did you reset the 30 years on your refi?
Bruddah IZ
DA
But at 2.86% on a 30 year loan the real interest rate that you'll be paying is easily over 50%. You wont see 2.86% until around the 349th month. If you're really worried about interest rate risk I have a suggestion.
My solution is to reinvest the savings on the rate reduction back into the principal balance. Will cut the duration of our loan6 to 7 years. Something we’ve been doing with each refi.
Bruddah IZ
DA
Your real interest rate is easily over 50%. Why not use your equity to accelerate the mortgage instead? Trade amortized interest for simple interest and use the same account as a checking account.
Bruddah IZ
DA
But if you're going to "reinvest savings on rate reduction back in to the principal balance", you might as well do it with cheaper money (simple interest (HELOC) vs. amortized (MORTGAGE) and drop the total term of the loan to 7 maybe 9 years.
Just closed on a cash out refi. Need the money for these AZ trips. Took about 30 days. (30 yrs, 2.74, 2.75 APR.) I have used the Zillow mortgage marketplace for the past 10 years—that’s the online banks. Surprisingly this refi went very smoothly. Did a refi last year at 3.6 during a similar refi boom. Couldn’t believe we’d see rates this low. I remember scoring a great rate at 5%!! when I bought the house many years ago.
Bruddah IZ
DA
5.25 was an amazing rate in 2003. Of course I didnʻt know that at the time the real interest rate that everyone was paying at 5.25% was actually 79 percent according to the amortization schedule. Today, we are down to a real interest rate of about 56% with a loan amortized at 2.75 percent.
thedudeabides
SILVER
absolutely. I just got 2.375, no points. In my case it will pay for itself in 7 months and was about a 1 point drop. Best way to check what fees they are adding on, just compare interest rate to the APR on your disclosure. You want them to be the same or very close so in your 2.49 example you want the APR to be no higher than around 2.55.
Bruddah IZ
DA
In addition to refinancing to a lower mortgage rate, each of you should think about simultaneously getting qualified for a HELOC. Most banks will allow 70% CLTV. Some will do 70% to 100% CLTV. Then think about doing the following:
1. Use the HELOC to accelerate your mortgage by making bulk payments to the mortgage from the HELOC. Yes you are moving the balance from one account to another. But your HELOC is a simple interest account and your mortgage is an amortized interest account. That's makes a huge difference. And in most cases, the interest savings easily outperform the Mortgage Interest deduction.
2. Use your HELOC as you would your current checking account. Move all your income from your conventional checking in to the HELOC. Yes, the bank sees that transaction as a payment. But it's a deposit in to your Smart banking account (HELOC) that you can use to pay your bills as they come due.
If you are responsible and on top of your finances, there will be no change to your lifestyle......for now.
But when you pay your 30 year mortgage off in 7 to 9 years. What will YOUR lifestyle be like?
Questions?
1. Use the HELOC to accelerate your mortgage by making bulk payments to the mortgage from the HELOC. Yes you are moving the balance from one account to another. But your HELOC is a simple interest account and your mortgage is an amortized interest account. That's makes a huge difference. And in most cases, the interest savings easily outperform the Mortgage Interest deduction.
2. Use your HELOC as you would your current checking account. Move all your income from your conventional checking in to the HELOC. Yes, the bank sees that transaction as a payment. But it's a deposit in to your Smart banking account (HELOC) that you can use to pay your bills as they come due.
If you are responsible and on top of your finances, there will be no change to your lifestyle......for now.
But when you pay your 30 year mortgage off in 7 to 9 years. What will YOUR lifestyle be like?
Questions?
Soccerfan2
GOLD
Works nicely as long as interest rates stay as low as they are. But if they go up, if your expenses increase unexpectedly or if your income is interrupted, this can be risky for someone who doesn’t have other accessible savings. It can also be counterproductive if you have to refi out of it later on at a less desirable rate.
Bruddah IZ
DA
This actually works relatively nicely regardless of the interest rates. Amortized loans will always be more expensive than simple interest loans. Simple interest loans make it easier for people to save and make it less risky. Some simple interest loans also don't need to be paid back when income is interrupted and can be found in the private insurance market. Oh yeah and simple interest loans are not taxable. Using a HELOC to pay off your mortgage is way cheaper than refinancing and having to worry about points, etc..
Bruddah IZ
DA
How the interest rate is calculated is much more important than the actual rate itself.
Soccerfan2
GOLD
As long as you can make your HELOC payment
Bruddah IZ
DA
Your HELOC payment is easily made each month because you're depositing all of your income in to the HELOC via your conventional checking account. You pay all your bills from the HELOC to include your mortgage. You have to meet the banks Debt to Income ratio to qualify for the CLTV. I'm making some favorable assumptions about the financial integrity of those that are posting here.
notintheface
GOLD
I think we found the REIT manager.
Why on earth would you get a variable APR heloc when we are effectively at zirp. There is nowhere to go but up? You are literally gambling that the economy is going to be shit the whole time you have your heloc. If you assume that there will be additional stimulus until we're past the virus, rates will have to shoot up afterwards just to cool spending, otherwise we're going to see inflation like we've never seen in our lives.
The secure position here which hedges against rates going up and also against inflation is to get a 15-year fixed rate for insanely cheap. What would possibly be the argument against that? Genuinely curious.
Why on earth would you get a variable APR heloc when we are effectively at zirp. There is nowhere to go but up? You are literally gambling that the economy is going to be shit the whole time you have your heloc. If you assume that there will be additional stimulus until we're past the virus, rates will have to shoot up afterwards just to cool spending, otherwise we're going to see inflation like we've never seen in our lives.
The secure position here which hedges against rates going up and also against inflation is to get a 15-year fixed rate for insanely cheap. What would possibly be the argument against that? Genuinely curious.
Soccerfan2
GOLD
I know the strategy and how it works. I was pointing out the risks, because there are some.
Bruddah IZ
DA
Yeah no worries. I'm not worried about the interest rates going up on a HELOC. They cap out at 16 to 18 percent. A 15 year runs an effective interest rate of roughly 30% with some serious monthly payments. And even if you get a wicked low interest rate on a 15, you wouldn't see an interest payment that low until the 174th of 180 payments. I'm not trying to do the bank any favors. As far as hedging against inflation and rates goes, simple interest is the hedge.
Bruddah IZ
DA
Nothing is without risk. But if you know the strategy and how it works you should also know that all the risk you pointed out are mitigated or even eliminated by the "strategy".
Bruddah IZ
DA
Because you're not effectively at zirp. The interest dollar amount divided by the total payment equals an effective interest of 53%
| LOAN AMORTIZATION SCHEDULE | |||||||||
| ENTER VALUES | LOAN SUMMARY | ||||||||
| Loan amount | $400,000.00 | Scheduled payment | $1,700.00 | ||||||
| Annual interest rate | 2.75% | Scheduled number of payments | 180 | ||||||
| Loan period in years | 15 | Actual number of payments | 181 | ||||||
| Number of payments per year | 12 | Total early payments | $0.00 | ||||||
| Start date of loan | 12/02/2020 | Total interest | $131,714.84 | ||||||
| Optional extra payments | $0.00 | LENDER NAME | notintheface Bank | ||||||
| PMT NO | PAYMENT DATE | BEGINNING BALANCE | SCHEDULED PAYMENT | EXTRA PAYMENT | TOTAL PAYMENT | PRINCIPAL | INTEREST | ENDING BALANCE | CUMULATIVE INTEREST |
| 1 | 12/02/2020 | $400,000.00 | $1,700.00 | $0.00 | $1,700.00 | $783.33 | $916.67 | $399,216.67 | $916.67 |
| 2 | 01/02/2021 | $399,216.67 | $1,700.00 | $0.00 | $1,700.00 | $785.13 | $914.87 | $398,431.54 | $1,831.54 |
| 3 | 02/02/2021 | $398,431.54 | $1,700.00 | $0.00 | $1,700.00 | $786.93 | $913.07 | $397,644.61 | $2,744.61 |
| 4 | 03/02/2021 | $397,644.61 | $1,700.00 | $0.00 | $1,700.00 | $788.73 | $911.27 | $396,855.88 | $3,655.88 |
| 5 | 04/02/2021 | $396,855.88 | $1,700.00 | $0.00 | $1,700.00 | $790.54 | $909.46 | $396,065.34 | $4,565.34 |
| 6 | 05/02/2021 | $396,065.34 | $1,700.00 | $0.00 | $1,700.00 | $792.35 | $907.65 | $395,272.99 | $5,472.99 |
| 7 | 06/02/2021 | $395,272.99 | $1,700.00 | $0.00 | $1,700.00 | $794.17 | $905.83 | $394,478.82 | $6,378.82 |
| 8 | 07/02/2021 | $394,478.82 | $1,700.00 | $0.00 | $1,700.00 | $795.99 | $904.01 | $393,682.84 | $7,282.84 |
| 9 | 08/02/2021 | $393,682.84 | $1,700.00 | $0.00 | $1,700.00 | $797.81 | $902.19 | $392,885.03 | $8,185.03 |
| 10 | 09/02/2021 | $392,885.03 | $1,700.00 | $0.00 | $1,700.00 | $799.64 | $900.36 | $392,085.39 | $9,085.39 |
| 11 | 10/02/2021 | $392,085.39 | $1,700.00 | $0.00 | $1,700.00 | $801.47 | $898.53 | $391,283.92 | $9,983.92 |
| 12 | 11/02/2021 | $391,283.92 | $1,700.00 | $0.00 | $1,700.00 | $803.31 | $896.69 | $390,480.61 | $10,880.61 |