Refinancing mortgage - is this a smart move? UPDATED

[fela]

Would love your thoughts!

Current mortgage with our credit union:
Rate 3.98%
Amount about $540k
Payment $3750 with prop taxes and insurance included (no PMI)
25 years left (30 year fixed originally)

Proposed refinance
With a wholesale lender through a broker
Rate 2.75%
Same amount about $540k (not pulling any cash out)
Payment $3000 including prop taxes and insurance
20 year fixed
Cost is $800 plus some other fees, dont have the details yet

Does this seem like a good deal? What other questions should I be asking?

UPDATE - so my H was wrong and the new $3k monthly payment does not include prop taxes or insurance. Our monthly payment total, including those, would actually go up about $100. And the total fees are around $4k. I’m now wondering if it makes sense to just stick with our current mortgage and contribute to pay extra towards the principal...

I called our credit union and they could offer us a 30 year at 3%, not sure on fees yet, but I don’t know about starting the 30 years over...

[mainelyfoolish]

You’d be lowering your interest rate by more than a point, cutting 5 years off the repayment time, and lowering your monthly payment. You’ll have to get the total cost to find out how long it would take you to break even on savings vs. the cost to refinance, but as long as you aren’t planning to sell the house anytime soon, it certainly looks like a good deal.

The only thing I can think of to ask is, if you’re otherwise happy with the CU, check with them to see if they can match or come close to the refinance offer you have from the broker.

[brooke77]

Find out the total fees, but yes, it seems like a smart move.

[twilightmv]

This is DH’d area of expertise. He said it’s very much worth it.

[winecat]

I'd definitely ask your credit union if they can match. Years ago I refi'ed with a broker. The original lender was CitiBank. Everything was fine for a while but then my mortgaged started being sold every couple of years to super sketchy servicing companies. I'm refinancing now to get my loan owned by my credit union so that it won't ever be sold.

[k3am]

Sounds worth it to me. Shorter term, lower monthly payments? And like PP's said, you can always take that offer to another lender and see if they'd match or beat it.

Based on my personal experience, if you go this route, you may want to consider not escrowing for taxes and insurance and handling that yourself. Going through a broker ups the potential that your mortgage gets sold. Our first two mortgages got sold 2-3 times within the first year, which was an easy process. The mortgage on our new house (same broker) was sold 3 times in the first year and the escrow account was a PITA every single time. We refinanced to BofA (they had the lowest rate AND said it was highly unlikely they'd ever sell our loan), and the biggest headache of the whole process was the escrow acount again (on the old lender side, not BofA), so we decided.. never again.

[wildrice]

What are you seeing as the downside here? That $800 will be made back in just over 1 month in your savings in payment. Even if the fees are a few thousand dollars (which is quite possible), it sounds like you'll make that back quickly. Refinancing will save you 9k in payments each year, so even if your fees were like 20k, it would take only a couple of years to come out ahead. I am guessing the fees will be less than that, though.

[fela]

Nov 13, 2020 15:21:28 GMT -5 wildrice said:

What are you seeing as the downside here? That $800 will be made back in just over 1 month in your savings in payment. Even if the fees are a few thousand dollars (which is quite possible), it sounds like you'll make that back quickly. Refinancing will save you 9k in payments each year, so even if your fees were like 20k, it would take only a couple of years to come out ahead. I am guessing the fees will be less than that, though.

I guess it seems too good to be true? I’m wondering if there are more probing questions I should ask, downsides I’m not aware of (like someone upthread mentioned the mortgage being sold).

[imojoebunny]

Looks like a great deal to me. We have always had to pay more in fees than that, by a lot, and we have much smaller mortgages (we have 4 houses, 3 with mortgages). Mortgages usually get sold, so that would not be a consideration for me. I do wonder what a 30 year rate would be, as I have never been quoted a 20 year rate that made sense, over a 30 year. You can still pay it off like a 20 year, if you want, but it gives you more flexibility to invest the difference in payment.

[orangello]

Nov 13, 2020 16:46:51 GMT -5 fela said:

Nov 13, 2020 15:21:28 GMT -5 wildrice said:

What are you seeing as the downside here? That $800 will be made back in just over 1 month in your savings in payment. Even if the fees are a few thousand dollars (which is quite possible), it sounds like you'll make that back quickly. Refinancing will save you 9k in payments each year, so even if your fees were like 20k, it would take only a couple of years to come out ahead. I am guessing the fees will be less than that, though.

I guess it seems too good to be true? I’m wondering if there are more probing questions I should ask, downsides I’m not aware of (like someone upthread mentioned the mortgage being sold).

We just refi’d on similarish numbers - it was well worth it for us and we jumped at the chance. I say go for it - that is a huge reduction in monthly payment.

[formerlyak]

I’d say yes. We had a 30 year fixed with 28 years left in it when I moved in with DH. When I moved in, we refinanced with a lower rate for 15 years. Our payments went up $500 a month, but now there were two incomes in the household so that wasn’t a big deal. We now have only 6 years left to pay. We have never once regretted the decision.

[awkwardpenguin]

I'm guessing you are moving from a jumbo to a conforming loan, and that's why the interest rate is so different. You can check the conforming limits for your county here: www.fhfa.gov/DataTools/Tools/Pages/Conforming-Loan-Limits-Map.aspx

It's totally worth it. Honestly at rates this low I'd personally refi into the 30 year for the extra cash flow, but I am more comfortable with mortgage debt than a lot of folks are.

[fela]

Nov 16, 2020 11:47:29 GMT -5 awkwardpenguin said:

I'm guessing you are moving from a jumbo to a conforming loan, and that's why the interest rate is so different. You can check the conforming limits for your county here: www.fhfa.gov/DataTools/Tools/Pages/Conforming-Loan-Limits-Map.aspx

It's totally worth it. Honestly at rates this low I'd personally refi into the 30 year for the extra cash flow, but I am more comfortable with mortgage debt than a lot of folks are.

Could you say more about this? I just posted an update in my OP, but the fees and monthly payment are more than I originally thought. Our current lender can offer a new 30 year at 3%, but I’m not sure about starting the 30 years over again?

[ny96]

We recently refinanced almost the exact same mortgage amount as you from a 30 year at 3.72% to a 30 year at 3%. We paid approximately $3000 in fees all together. I think the question you have to figure out is whether you want to refinance to a 20 year or a 30 year. We looked at 20 and 25 year numbers, but for many reasons it didn’t make sense for us to go those routes. We were only 8 months into a new mortgage (refinanced in January 2020), but when we crunched the numbers after getting a call from our mortgage broker it made sense to refinance again to the 3%. I think if you are planning on staying in your house for at least the next couple years you should consider it.

[azalea]

Try plugging numbers into an online calculator. It will give good insight on ROI, interest paid, etc. Here is one I've used in the past: www.calculatestuff.com/financial/refinance-calculator

[statgirl]

I second using a calculator to analyze. I played with this one: www.nerdwallet.com/mortgages/refinance-calculator and even refi at 3% for 30 years pays off quickly (and more so if you commit to paying extra after you repay yourself the fees in the first 18 months or so).

[Deleted]

We just refinanced in to another 30 year loan. We had 25 years left on our original loan. Took out cash and rolled the fees in to the new loan, so the new loan is the exact same amount that we originally financed 5 years ago. We were able to get rid of PMI with this. In total, our payment went down $300/mth, but we're actually paying an extra $400/mth to pay off the loan in 20 years, so at the end of the day, we'll have shaved 5 years off from our original purchase date. We chose this route, because there wasn't a whole lot of difference in the interest rates between the 15, 20, and 30 year loans we were looking at, plus, we have the flexibility that if something comes up and we need the extra money one month, we can just pay the regular mortgage payment without the extra.

[awkwardpenguin]

Nov 16, 2020 15:41:35 GMT -5 fela said:

Nov 16, 2020 11:47:29 GMT -5 awkwardpenguin said:

I'm guessing you are moving from a jumbo to a conforming loan, and that's why the interest rate is so different. You can check the conforming limits for your county here: www.fhfa.gov/DataTools/Tools/Pages/Conforming-Loan-Limits-Map.aspx

It's totally worth it. Honestly at rates this low I'd personally refi into the 30 year for the extra cash flow, but I am more comfortable with mortgage debt than a lot of folks are.

Could you say more about this? I just posted an update in my OP, but the fees and monthly payment are more than I originally thought. Our current lender can offer a new 30 year at 3%, but I’m not sure about starting the 30 years over again?

So in general, investing is a better deal than paying down a 3% mortgage.  So you borrow for 30 years to get increased cash flow, invest the difference, and if you choose to at some point, you can use your investments to pay off the mortgage.

There are sort of two schools of thought on this.  A mortgage is "forced savings" - you get a lot of what you put in back as equity, so having a larger mortgage payment (at the lowest possible interest rate) means that you have to save as equity rather than spending the extra cash flow on whatever.  But if you are disciplined enough to invest the extra cash flow, the math works out in favor of investing over paying down the mortgage.  I also like the increased flexibility of the longer mortgage term.

[imojoebunny]

On a $540K mortgage, going from 3.98% to 2.75, your going to save about $6600 the first year alone in interest. It is a no brainer. I would sign up today. That's a car payment, for doing almost nothing. You can always keep paying the same payment you have been paying, and pay it off sooner, or invest the $500+ a month in a mutual fund, and use that to pay it off early, if you need to.