How far does the interest rate have to drop...

[NuclearNed]

Is there a rule of thumb or a calculator somewhere? The mortgage I took out this summer is a fixed rate 30 year loan at 6.4% Right now the 15 year fixed rate loans are at 5%. Would it be worth it to refinance? Even if it is, I'm probably inclined to wait a while longer to see if the rates don't drop even more - signs say they are going to.

EDIT: "rate", not "rage". Although I've had interest rage before.

 

[FoBoT]

i "think" the rule of thumb used to be 1.5%

 

[JS80]

Interest - it's all the rage right now.

 

[NuclearNed]

Originally posted by: FoBoT
i "think" the rule of thumb used to be 1.5%

I've heard around 2% from some, 1.5% from others.

 

[Mxylplyx]

If the # of years you plan to stay in the house times the amount saved per month is greater than the closing costs on the refi, then do it. Definately wait until the funds rate is slashed next week before you lock a rate though. I'm currently looking to refi my 6.5 to a 5.5, which will save me almost $200/mo.

 

[NuclearNed]

Originally posted by: Mxylplyx
If the # of years you plan to stay in the house times the amount saved per month is greater than the closing costs on the refi, then do it. Definately wait until the funds rate is slashed next week before you lock a rate though. I'm currently looking to refi my 6.5 to a 5.5, which will save me almost $200/mo.

I'm definitely going to wait. I would really like the rate to drop enough that the payment on a 15 year loan would be real similar to what I'm paying on the 30 year loan. That's kind of what I did on my old house. Nothing beats building equity even faster, while paying lots less interest over time.

 

[ElFenix]

Originally posted by: Mxylplyx
If the # of years you plan to stay in the house times the amount saved per month is greater than the closing costs on the refi, then do it.

you forgot to add in your personal time value of money.

 

[Vette73]

Depends on current rate, length left, fees that come from the new mortage, etc...

For some .5 might be enough to be worth it for others it might have to be 2%.

 

[PingSpike]

I just put in to refinance mine. We had 6.875% 30 year fixed from this summer from a credit union. I locked at 6% 30 year fixed with my bank on wednesday. It should save me at least $115 a month. The closing costs are estimated at like $900-1000...which is pretty amazing. The sweetest part though is the bank has a "you win" rate lock. If the rate on the day the closing docs are prepared is lower then the 6%...I get that rate. Otherwise, 6%.

The point is probably different for everyone. I'd like to get the rate as low as possible since we want to start a family soon and every little cost reduction helps. At the closing costs they quoted me, I'll just refinance again if the rate drops enough to save me $100/mo or so. I think that would be 5.375 or something.

 

[Turkey22]

Originally posted by: PingSpike
I just put in to refinance mine. We had 6.875% 30 year fixed from this summer from a credit union. I locked at 6% 30 year fixed with my bank on wednesday. It should save me at least $115 a month. The closing costs are estimated at like $900-1000...which is pretty amazing. The sweetest part though is the bank has a "you win" rate lock. If the rate on the day the closing docs are prepared is lower then the 6%...I get that rate. Otherwise, 6%.

The point is probably different for everyone. I'd like to get the rate as low as possible since we want to start a family soon and every little cost reduction helps. At the closing costs they quoted me, I'll just refinance again if the rate drops enough to save me $100/mo or so. I think that would be 5.375 or something.

I wish our mortgage company did that. We ended up closing later when a new rate was in effect. Ended up having to pay an additional $600 to drop .5%. I did the math and knew I would get the money back in 6 years or so.

 

[sciencewhiz]

Originally posted by: NuclearNed
Is there a rule of thumb or a calculator somewhere? The mortgage I took out this summer is a fixed rate 30 year loan at 6.4% Right now the 15 year fixed rate loans are at 5%. Would it be worth it to refinance? Even if it is, I'm probably inclined to wait a while longer to see if the rates don't drop even more - signs say they are going to.

EDIT: "rate", not "rage". Although I've had interest rage before.

15 year loans always have a lower interest rate, then 30. Can you afford the higher payment?

 

[PingSpike]

As a compromise, OP might consider getting a 30 year and just paying the extra amount that would reduce the term to 15 years. That way, if the shit hits the fan he still has the option to pay the lower amount. I can't remember what the difference usually is with rates right now...but I remember not being impressed with the amount the rate was reduced.

 

[DBL]

Originally posted by: PingSpike
As a compromise, OP might consider getting a 30 year and just paying the extra amount that would reduce the term to 15 years. That way, if the shit hits the fan he still has the option to pay the lower amount. I can't remember what the difference usually is with rates right now...but I remember not being impressed with the amount the rate was reduced.

Seriously, for the 1% or so gain you get by going 15yr, it seems to make little sense. Just increase your mortagage payment if you want. Personally, I'd invest the extra money.

 

[murphy55d]

we got a 6.1/30 yr rate in march, i have been wondering about this as well.

 

[BlahBlahYouToo]

Where are these 15 year 5% loans? Or are u including points?

 

[PingSpike]

Yikes, bankrate says rates spiked 1/8-1/4 yesterday because of a good jobs report and that subprime bailout plan.

Regarding the 15 year plan, lets assume two different fixed 200K mortgages:
5.5 30 year - $1135
5.0 15 year - $1581

Which seems about correct to me, its usually only a half of a point difference but you might be able to find larger differences elsewhere. Now lets assume your goal is to pay it off in 15 years.

With the 15 year, you just make payments as planned. With the 30 year, add just the difference in monthly payments. $1135 + 446 and the loan gets paid off in 15 years and 10 months. So that half a percentage point buys you 10 months off the term. Or, alternatively you could pay an extra $54/mo and make it the even 15 years. 15 years of $54 is certainly some money, but not a lot. And it buys you some flexibility. If you lost your job, or had more expenses then expected you always have the option of switching to the 30 year plan or even just taking a break from it for a few months.

Its just one way to go. But I personally don't feel like the loss of flexibility is worth the saved money.

DBL pointed out you could invest the extra for a better return. Personally, at this point I'm going to sock my extra into HYS since I'm pretty risk averse and need to build back up our emergency fund, which was depleted from putting a down payment on the house. If things go to plan and its still around later on...I can also use it as a lump sum to pay off the mortgage.

 

[iRONic]

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