Need help tonight re refi Dave or ??

peegeeFebruary 2, 2009

I really need advice!!!!!My bank is allowing a lock-in on the same day the rate goes up by making an online application. I just started this process late last week, and already missed the lowest rate; today it went up again, and I need to make a decision on whether to pay one, two, or no points. History: I've been in my home for 6 3/4 years; current rate is 6.125 fixed 30 years on 1st and second, which is a complicated subsidized soft second that I really want to get out from under, as my payments in just a few years will be nearly $100. more per month than what I'm paying. Since I don't make a lot and do not receive cost of living increases, I'm concerned about retaining this mortgage which will become increasingly unaffordable as taxes rise. HOWEVER, it appears that I will have to payback i.e. roll into my refi the approx. $5,300. that I received in reduced payments on the soft 2nd since the inception of the loan. Then if I add points to the cost of the fees, I will be paying nearly what I took out for the orig. loan - despite making extra payments to principle for 2 or so years. I am single, mid-fifties, but didn't get into the full-time workforce until late in life. The pressure of having to make a decision tonight is driving me crazy, as I was expecting to have another day or two to spend researching...

Current rates 30 year (same as 20) 5% no points; 4.75% one point; 4.5% two points. My preference would be to move closer to one of my children, but without winning a lottery, unlikely in the next 4-5 years or maybe ever!

Thank you thank you!!!! Penny G.

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peegee

Sorry - I meant to say "Dave or anyone knowledgable out there??"

    Bookmark   February 2, 2009 at 9:30PM
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dave_donhoff

Hi Penny,

OK... right off the bat I *HAVE* to ask;
Is your bank providing you with an experience financial loan officer (not a loan salesman... but a financial planner & analyst that can weigh out your numbers & options and show you what they mean?) These questions are EXACTLY what a good planner knows how to sort out for their clients.

If not... I have to ask... WHY are you GOING to that bank?
(.... and then coming to ask us 'out in space' for analytical advice without the internal specifics? GRANTED; I am appreciative of your respect for me... but I'm still blind to most of your details, and you've not engaged me to your fiduciary responsibility... that is something you deserve!)

Your 1st question is on market timing... whether the market for locking is more likely to reward you if you are patient, punish you, or be neutral. I certainly have my own market opinions, but I can't suggest what's best for you without knowing more of your financial situation (not just your loan rates & balances) as your total picture would tell me your stability, your security, and your income strengths.

Your 2nd question relates to how much interest (points) makes sense to prepay in order to secure a permanent longterm lower cost of interest. The answer to that depends on what your alternative returns are in the accounts that you would be starving to withdraw those points from... as well as whether you have sufficient safety reserves to even consider such a strategy.

TRULY... there is no question that a drop in your mortgage interest rate ought to be beneficial... but do you know what your blended household costs/rate of consumer credit and insurance coverages are? Do you know what kind of cash burden any consumer account amortizations may be creating?

You could be overpaying on other consumer interest accounts, and may have too little of deductibles on certain insrance policies (potentially from a perceived lack of cash reserves... reserves you may be raiding to consider paying those "points.")

You see... its not a "one thought" analysis... and if you are only talking to mortgage salespeople at the bank (regardless how truly friendly & well-meaning they may be,) you are as likely to "get it dialed in just right" as a random walker is going to make it from NY to LA.

I'd suggest taking the time to find a worthy advisor you can trust.

(HINT: that means my opinion is you are likely to be rewarded for doing so more than any potential punishment from rate market fluctiations.)

Luck,
Dave Donhoff
Leverage Planner

    Bookmark   February 2, 2009 at 10:20PM
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peegee

Dave, Thank you for your quick response, but I have a little bit of a hard time following some of what you say. I really wasn't considering paying points if I take them or the fees from my limited cash (CD's) reserves (only 14K) as the funds I have are all I have, and will be needed should I loose my job. That's why I'm a little nervous about the amt of the total loan adding up so much. I am going to try to lock in the rate before midnight and need to make a decision. It will not cost me anything to apply and lock. P.G.

    Bookmark   February 2, 2009 at 10:32PM
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