Dave ~

That is incredible!!! I have never heard of such rates. We were thinking about refinancing and last week our credit union stated 4.5% with no points and their fees are nearly half of what banks and "loan specialists" that advertise on the radio are charging.

We have decided to sell and move in with my dad and help take care of him. I might suggest to him that he look into refinancing. His current rate is 6%.

Robyn

Dave ~

Would you send me your website info, please? Email to jrdown@kc.rr.com

Thanks,

Robyn

Hey Dave,

Where do you find rates like those? Can you send me some infor on it too? Thanks.

Leel,
I think I've been posting here just about a decade now... if you think that's spam, you haven't been reading my posts.

================

Kal,

Where do you find rates like those?

These are the rates available to brokers through wholesale funding bankers. You need to get them through a broker (not a retail loan officer.)

Can you send me some infor on it too? Thanks.

There's nothing particularly more to send, as far as information. The link to the bond markets is a subscription site, so I snip & post it when its relevant. The markets shift & move daily (sometimes hourly.) The snip of the wholesale rates is also password secured, thus the snip & post... and is just one of many sources available to brokers.

The key (as in anything in large finance) is in finding the right professional. DIY finance is generally far more expensive (usually due to a failure to properly integrate all the pieces) than the fees for a qualified advisor.

Cheers,
Dave Donhoff
Leverage Planner

Geeze! I have been working on my refi for the last month and I'm locked in at 4.5. By the time I get this wrapped up it will be time to start over!

@ leel - I, and many others on here can assure you that Dave is no spammer. I have learned so much from his posts in the past & have hated it that he hasn't been around as much as he used to be. Almost makes me want to get a loan --- even though both of my properties are paid off.

Also miss triciae & wonder what happened to that big beautiful foreclosure house that she was interested in.....

what happened to triciae? She hasn't been around for a long time.

Dave isn't spam, the people that have posted here for a while know that.

I've wondered about triciae also. Funny how these forums get to be like a second home.
Dave spam??? naaaah
So he gets a little overexcited about a good loan, we all have our weird things, Dave has mortgages??

Hi Dave,

That is my whole problem. I don't know were to find a mortgage broker that I can trust. So far the lowest refinance rate quoted to me is from a credit union: 4.5% with no points and no closing costs. How does that sound?

Hi Kal,

That is my whole problem. I don't know were to find a mortgage broker that I can trust.

That's a problem... and the larger the proportion of your personal net worth is affected by the size of your loan and your home equity, the bigger a problem it is.

So far the lowest refinance rate quoted to me is from a credit union: 4.5% with no points and no closing costs. How does that sound?
Sounds like poor advice & extremely expensive to me. The major financial reason to pay the premium of a fixed interest rate for a 30 year loan is because you strongly expect to be in the LOAN (not just the home) for at least 8-10* years or longer.

(*8-10 because the less costly alternative of a fixed protection for 5 years has a "worst case"** cost that only catches up & becomes more costly than the premium 30 FRM after 8-10 years.)

(** "worst case" is based on the ignoring of economics and market trend realities. In our current situation, it is becoming grandly accepted by people who argue from various perspectives that we are facing the strong expectations of very low interest rates for anywhere from 10-20 years forward. Even if they are wrong, the opposite (ultra-high rates) are extremely unlikely.)

REMEMBER, the breakeven time between costs and points paid, versus the increase or decrease of the interest rate in order to cover those costs, is generally just 3-5 years.

See;
An Insider's View of Refinancing
http://www.fool.com/imo/2001/a011213.htm

Paying the premium for a 30 FRM,
*AND* permanently locking in an unnecessarily high rate permanently...
Will cost you *MORE* interest if you are right, and you stay in the loan longterm,
and will cost you *MUCH MORE* if you are wrong, and need to refinance or sell before you make up the difference from a "worst case" market which is "least likely."

Does that all make sense (I know that is a really heavy concept, above.)

Cheers,
Dave Donhoff
Leverage Planner

Here is a link that might be useful: An Insider's View of Refinancing

I have the same question. We just refinanced a few months ago from 5.75 30 year fixed to 4.875 30 year fixed thinking that we were reaching near the bottom of fixed rates and now can get 3.875 15 year fixed from our broker and it doesn't increase the payment that much. So trying to decide whether we should go ahead and refinance again. We do pay a little extra each month but I don't seemed to be inclined enough to make myself pump up the extra payments beyond that. We are already maxing out all retirement vehicles, plenty of emergency reserves and no revolving debt other than one small car note with low interest that will be paid within the year. We do have a heloc with floating interest (but right now that is pretty low) with a balance of about 30k on it. Just not sure we should incur the fees to refinance again to takea advantage of the rate drop. We do NOT plan to move anytime soon.

This isn't really an area where people should have "opinions." This should be a numbers driven decision.

"Rules of Thumb" are great for everyday decisions, but when hundreds of thousands of dollars are at stake, you really need to work with the exact figures. If you don't have the knowledge to run those numbers yourself, then you need to consult a broker.

BTW - I saw an advertised (no broker) 30 year fixed at 3 7/8 this weekend too. You don't need to know a secret handshake or anything to get a great rate right now.

Hi Twit,

We just refinanced a few months ago from 5.75 30 year fixed to 4.875 30 year fixed thinking that we were reaching near the bottom of fixed rates and now can get 3.875 15 year fixed from our broker and it doesn't increase the payment that much.

A 15 yr FRM ought to be significantly lower than 3 7/8... that's the target on the 30 FRM right now.

Besides... on a financial basis (assuming you're a responsible manager of your money,) a 15 FRM is not your best option. It increases your amortization burden, which in essence forces you to "invest" more of your money into your real estate equity that yields you no better than your after-tax mortgage interest rate (significantly less than 3.875%) IF you are in a still-softening real estate market, that long-term return (interest savings) could be reduced EVEN FURTHER by the drop in area values... even to the point of a net GREATER loss by paying against your mortgage faster.

You can do better than that, safely, right now... and its virtually a lock-in for sure that you'll be able to blow that AWAY in the future as investable options increase their safe rates of return... but if your discretionary growth & retirement money is locked away in the amortization scheme of a 15 yr FRM, you lose the equivalent of the available returns above the paltry 3.875% (or 50%-ish of it, after taxes.)

So trying to decide whether we should go ahead and refinance again.

Going from 4.875% to 3.875% is an OVER 20% REDUCTION in your interest charges. If you are in a position to stay in the same loan longer than 8-9 years, its a very easy decision... and if you stay longer, its likely a no-brainer.

We do pay a little extra each month but I don't seemed to be inclined enough to make myself pump up the extra payments beyond that.

You'll retire your liabilities faster & more safely by focusing on building a side growth "Mortgage Freedom Account" whereby you can eventually stroke out a single huge check to wipe out the mortgage... than you will be trying to kill the elephant one pebble at a time.

We are already maxing out all retirement vehicles,

I rather doubt this... as tax-free non-government options are available with much MUCH higher limits than the so-called "qualified" plans of 401(k)s (and their public employee siblings,) IRAs, and the ROTH versions of each. You can invest in these offered from insurance companies on a "universal" plan that actually have lower costs than the fees your likely paying now in your 401(k) and/or IRA.

Just not sure we should incur the fees to refinance again to takea advantage of the rate drop. We do NOT plan to move anytime soon.

The potential of moving is one small issue... but is a fraction of the cause for loan turnover. People historically exit & re-enter into a mortgage almost 3 times more frequently than they actually move. Of course, very few people acknoledge this in their planning considerations, and thereby over-pay for their interest coverage.

1. If you are approaching retirement age, and your home is already "senior sized" such that downsizing won't be an issue, and located near family & social circles... then you have a much better chance of staying put.

2. If you are firmly on track for a reliable retirement guaranteed income stream, and if your kids have flown the nest, completed their education, and wed or paired-off and established themselves in stable careers, then you have a much better chance of not finding yourself in pressure to access equity (and thereby turnover the loans again.)

If both of the above are true, then you need to consider how much less interest you will pay (at a 1% reduction on your total balance) over the coming 10-20+ years... and compare that to the up-front costs of the transaction (stretched out into the future by the opportunity returns you'll forego on that transaction cost money.) If the saved interest is greater than the cash plus its returns, then its a "go."

IF, however, #1 and #2 are NOT true... then the odds are dramatically stacked against your sitting tight in your loan beyond 8-10 years... and in that case (FIANCIALLY SPEAKING) you are better off utilizing a 5 or 7 year ARM, as the accumulated interest savings over their fixed-rate period on either will cover any worst-case imaginable rate increases up to and beyond your statistical 8-10 year loan lifespan.

In anything LESS than a "worst-case" economic interest rate future (which is *HIGHLY* expected to be very low, for a very long time going forward,) your savings & safety on the 5 or 7 year ARM stretches out much longer.... which actually makes it EASIER AND FASTER to retire your total liabilities.

Make sense?
Dave Donhoff
Leverage Planner

PS. Regardless whether you hire a broker (which funds from discount wholesale rates) or retail lender (which funds on a marked-up retail basis,) the *MOST* important thing to do is to have your financial portfolio (and family balance sheet) integrated with your financing, as I am explaining above.

Poorly integrated personal finances is far more costly and dangerous to your security than any individual rate of interest or rate of return.

PPS. I freuently hear (and read) people saying "it just would FEEL SO GOOD to be completely mortgage free!" And I totally understand.

Consider which of the following feels better (and is actually SAFER, and MORE free);

A) You own a home worth $500,000, free and clear, with a $100,000 nest egg,

B) You own a home worth $500,000, with a $400,000 mortgage, and a $500,000 nest egg (in insured accounts gauranteed against market loss, but growing to the market upsides.)

In this last acse, a single check stroke can cancel out the outstanding mortgage on any day of any week... yet the owner has the safety of liquidity, PLUS the advantages of growth.

Chew on that.

Consider which of the following feels better (and is actually SAFER, and MORE free);

A) You own a home worth $500,000, free and clear, with a $100,000 nest egg,

B) You own a home worth $500,000, with a $400,000 mortgage, and a $500,000 nest egg (in insured accounts gauranteed against market loss, but growing to the market upsides.)

In this last acse, a single check stroke can cancel out the outstanding mortgage on any day of any week... yet the owner has the safety of liquidity, PLUS the advantages of growth.

I went through a similar evaluation last year. My other considerations were that my 'safe' investments were either losing money or treading water at ~1%. I was paying 5.75 and about to refi to 4.75 at the time, when I looked at the fact that I would still be paying nearly 5% to get back less than 1/3 of that in tax deductions, plus pay taxes on the measly investment.

I decided to pay it off and feel GREAT, being debt-free for the first time in 25+ years. Since then my mortgage 'payment' has been going into savings and the nest egg has grown back, of course not to previous levels but pretty nicely. I also factored in the personal viewpoint that I really HATE debt.

Not saying this is the only way to view it. Each person has different priorities and such priorities will drive behavior. Witness the lavish, leveraged lifestyles which have driven this economy to the brink.

Hi herus,

My other considerations were that my 'safe' investments were either losing money or treading water at ~1%. I was paying 5.75 and about to refi to 4.75 at the time, when I looked at the fact that I would still be paying nearly 5% to get back less than 1/3 of that in tax deductions, plus pay taxes on the measly investment.

YIKES!!! Whoever sold you on that investment strategy as "safe" ought to be tarred & feathered! With no knowledge of tax-free, principal-gauranteed market index accounts, its no wonder you felt no alternative but to pay into your real estate equity.

Everyone has to decide based on the best they know... certainly can't blame you for that!

Dave

Hi Dave,

Please forgive my ignorance. I have a question concerning the investment vehicles you are referring to in your notes above. Are you referring to variable or fixed annuity products? Or something else? I am a federal employee so as you probably know my TSP fees (the government's version of a 401k) are extemely low. I am under the old CSRS pension plan, so will retire with a fixed annuity. We have no children.

However, we do invest in my husband's 401k, IRA's, Roth IRA's and SEP-ira's and stocks. We have investment rental property that is pretty much either breaking even or in some instances generating some income. I even contribute regularly to the Voluntary contribution plan to bump up my CS annuity or I may take those proceeds and roll them at retirement into something else. I have pretty much determined that we are not going to refinance but would be interested in knowing what other products you are referring to.

Hi Twit,

Whenever we're talking about "Mortgage Freedom Accounts" we are talking about money that would/could have been used to incrementally pay into home equity... and in my opinion, home equity money is sancrosanct, so any investment strategies used for the purspose of safely and rapidly accumulating money for the retirement of a home mortgage must be insured and gauaranteed from loss to market volatility or fluctuations.

That eliminates any "variable" annuities or "variable" whole life or universal life insurance products, along with non-guaranteed securities products (like mutual funds, or common stocks,) as these programs are directly invested into the non-guaranteed stock and mutual funds markets and are vulnerable to losses. They also incur some pretty heavy fees which drag down their average net returns even when the markets do well.

That leaves 2 categories of choices;

A) principal guaranteed securities products (such as structured notes, and/or guaranteed investment contracts... both of which are either complicated to access, carry heavy fees, require significant minimums to even be considered, or are unpopular among securities salespeople due to uncompetitive commission structures.)

OR
B) principal guaranteed fixed/indexed accounts offered by insurance companies (either in annuities (tax-deferred,) universal life (tax-free,) or advance-premium accounts (normally taxed.))

The latter are currently better for most of the clients we work with for the purpose of accumulating safe, principal-guaranteed money that grows at a tax-free market rate (typically 6-8% on average.) When properly designed, the costs on these accounts are 20-50% LESS than managed indexed mutual fund strategies... and managed securities investment strategies can't offer the principal guarantees against market losses, or default insurance. The life product strategies have easy liquidity (up to 90% immediate cash access without triggering any penalties or surrender clauses.)

BOTTOM LINE: its a conservative strategy... not for everyone. People who just want solid market returns, after-tax, without worry of surprise losses or the need to baby sit their brokerage accounts tend to like it. People who get bored & like to fiddle with their investments aren't so much attracted to this.

Cheers,
Dave Donhoff
Leverage Planner

Just for curiousity's sake, what would be the optimum interest rate for both investors and home buyers and for the economy? One is good for home buyers and the other is good for investors.

Morgy Bonds bust up through resistance (AGAIN... yawn)

Seems like just yesterday everyone was afraid of ARM loans because "rates have nowhere to go but up."

Guess again...

2010-08-26 FNMA 4_0 Quarterly Ratewatch
http://screencast.com/t/MWYxNTkzZD

30 FRM at 3.875% par
http://screencast.com/t/NTZjM2U5Yj

Dave Donhoff
Leverage Planner

Here is a link that might be useful: 30 FRM at 3.875% par

Hi blueheron,

Just for curiousity's sake, what would be the optimum interest rate for both investors and home buyers and for the economy? One is good for home buyers and the other is good for investors.

A *VERY* interesting question...

Here's the thing; markets are never static, they are dynamic and constantly in (irregular) motion from one pendulum cycle swing to the opposite.

Interest rates reflect, adjust for, and compensate for those swings.

If we could look to history and observe where the "meat portion of the sandwich" lies the majority of the time, I would probably say roughly between 5-7% interest rates as a range, in general, is where the markets "prefer to be." That's the "middle magnet" where the market tends to be drawn back to, over time.

Unfortunately/Fortunately/In_reality, the markets consist of the mob-psychological reactions of all the human participants... and in truth we are still just herd-minded critters who have our emotional cycles entrained together.

Swinging through the ranges of the pendulum extremes is inescapable, as long as we remain human (and not Vulcan ;~)

Cheers,
Dave Donhoff
Leverage Planner

While Dave's plan may make perfect mathematical sense, it really hasn't proven to be a way for the average joe to amass wealth. The path that most people seem to have more success with is to just pay off their house early and then live "bill free" in relative comfort.

The issue seems to be that most people aren't robotic investors. They second guess themselves. They have emergencies. They get distracted. We are talking about a commitment to saving that spans 30 years or so. Investors have to be quite disciplined OR have a really simple yet motivating plan. For most people "pay off the house" is that type of plan. It is somehow more psychologically satisfying than "Mortgage freedom accounts" or any more complicated strategies.

It is like another major problem we have as a country - diet and exercise. You could have the best plan on earth to eat only the healthiest foods and do 2 hours of cardio a day. On paper, that plan is going to make you an elite athlete. However, since few people ever stick to that type of plan, you are better off with a plan like "eat more fruit and go for a walk with your family each night." The walk you actually take does a lot more good than the training session you skip.

Hi Billl,

While Dave's plan may make perfect mathematical sense, it really hasn't proven to be a way for the average joe to amass wealth.

Actually yes, it has, in big, bold spades. It not only proves to be *A* way, it is indisputably the safest & fastest way.

The path that most people seem to have more success with is to just pay off their house early and then live "bill free" in relative comfort.

Actually, "MOST" people (literally 9 out of 10, per bond turnover records) who try that approach;
A) have more risk of default (and subsequent loss of home) from insufficient reserves,
B) Back-slide on their "pay-off plan" when they (completely contrary to their "for sure this time" plans) statistically move every 5-8 years, and/or refinance every 3-5 years.

Anyone with the discipline & presence of mind to make a habit of paying a "little extra" to the mortgage will generally have zero problem instead paying that same "little extra" toward a safer Mortgage Freedom Account instead.

They don't have to be financial super-athletes... in fact, the action to follow is identical, the difference is simply the safety and speed of payoff (the MFA trumping in both categories.)

Of course, the CORE issue all about education... which is the entire reason most people show up to financial communities like this. If our community were the financial equivalent of the average "McDonald's diners" they wouldn't waste their valuable undisciplined time learning about dry topics like finance.

FORTUNATELY, the presentation of the best of current financial strategies, and the integration of classic mometary principles, is a worthwhile pursuit for all.

Cheers,
Dave Donhoff
Leverage Planner

While Dave's plan may make perfect mathematical sense, it really hasn't proven to be a way for the average joe to amass wealth. The path that most people seem to have more success with is to just pay off their house early and then live "bill free" in relative comfort.

I look at this a little different, paying off my house early will not create wealth for me, I doubt it creates wealth for anyone. Doing that will allow you to live "bill free" in relative comfort if you have adequate income. My house value doesn't change irregardless of the mortgage amount. Why not take the money invest it some where else, right now home mortgages are the cheapest money out there and almost always are, but tax laws may change that in the future. Why not buy a rental, let your tenant pay off your mortgage, do that a few times, now that is wealth.
I know, I know you are thinking huh. RE is in the toilet, tenants are awful.
But RE is the best long term wealth builder in this country. Yes, we are in a downturn, recovery is slow, buy now, buy low for the long term.

Dave,
I tried doing the lendingtree.com to refi my 5.75 1st (181k)& 7.8 home equity (41k) & they're telling me that since I'm in NJ I can't go below 4.5% because of some section 32 or 4.5% law. She said look it up and what I am finding has nothing to do with that. House appraises at $265k. Granted 4.5% will save me each month but but if there is lower I definately want it. (And would love to know where I can go to find it).
Also - is $3300 closing normal now for a refi?
thanks a bunch
A

btw I'm looking for another 30 yr fixed - that's what my first is at this time.

Damn! We just refi'd (closed a couple weeks ago) from 5.75 to 4.25. Not too shabby and it reduced our payment over $200, but it stings a bit to see even lower rates! lol

I just did an amort and to refi to 3.875 would bring the payment down less than $50 and save 15K interest over the life of a 30 year loan. Bummer not worth it.

Just goes to show how this process is a coulda/shoulda/woulda kind of thing.

Hi Annie,

I tried doing the lendingtree.com to refi my 5.75 1st (181k)& 7.8 home equity (41k) & they're telling me that since I'm in NJ I can't go below 4.5% because of some section 32 or 4.5% law. She said look it up and what I am finding has nothing to do with that.

Exactly... it has nothing to do with it, she's trying to blow smoke up your tukai in a gamble you won't actually research it.

She's just setting her minimum revenues (likely required by her employer.)

House appraises at $265k. Granted 4.5% will save me each month but but if there is lower I definately want it. (And would love to know where I can go to find it).

We're doing it for our clients now. Granted; our way of business isn't for everyone... so if you were curious we could have an exploratory chat... but I'm not "soliciting" because most of our business comes from return clients & their friends & references now.

Also - is $3300 closing normal now for a refi?

"Normal"? Impossible to say... the more profitable the rate-lock (i.e. the higher the locked rate above the current cost of money to the lender) the more the lender can cover the closing costs for the borrower, making it look cheaper.

the problem, of course, is that the borrower then pays the higher rate FOREVER... ultimately paying many multiples more in interest than had they paid the actual cash value of the closing costs up front.

A well structured loan, in a well integrated financial plan, will save exponentially more money than a tunnel-focused grab of just one piece (like the "lowest" closing costs, at cost of higher rates, etc.)

Cheers,
Dave Donhoff
Leverage Planner

"Also - is $3300 closing normal now for a refi?
thanks a bunch "

Not where I live. Of course it depends on whether you are talking about prepaids also or just the fees.

We're refinancing this month with a 7/1 ARM @ 3.5% amortized for 30 yr and the closing costs are in the 1300 to 1400 range. This does not include the prepaids of taxes & insurance.

Hi orvl,

Yours is an excellent example. Today's pricing on a 7/1 ARM is such that a 3.5% locked rate gives the bank plenty of up-front profit that they can then use to pay down much of the cash amount of the closing costs for you.

The same loan at "par" (meaning no rebate profit to the bank) would have higher closing costs, since the bank wouldn't be paying from them from the excess upfront profits.

Having said that... rebate-priced rate locks on shorter-term ARMs can make good sense, in some cases.

Dave Donhoff
Leverage Planner