Refinancing: How Sweet It Is
We’ve had a 6 percent 30-Year fixed mortgage since we bought our house in 2005. With rates at historic lows, we, like many people, started looking into refinancing earlier in the year, but had to put it on hold until we got tax extensions, and then returns, filed. When we spoke with the mortgage specialist…
We’ve had a 6 percent 30-Year fixed mortgage since we bought our house in 2005. With rates at historic lows, we, like many people, started looking into refinancing earlier in the year, but had to put it on hold until we got tax extensions, and then returns, filed. When we spoke with the mortgage specialist at Chase in February the conforming loan limit for a two-family house in Brooklyn was just south of $800,000. When we got on the phone yesterday morning we were pleased to learn that the conforming limit had recently been raised to $934,200; the single-family limit is $729,750. We were able to do a 90-day lock for a 1/4 point at 5 percent. Here’s where you have to start to question how low prices can really go: With rates where they are right now, you could, say, buy a $1.2 million house and lock in mortgage payments of $5,000 a month; assume you make $1,500 on your rental and you’re down to $3,500; throw in the tax breaks and you’re down to $2,500; add back in $1,000 a month for taxes and insurance and you’re back up to $3,500. $3,500 a month to own your own house in New York City and have, say, 2,400 square feet of living space for yourself (three out of four floors). The trickier part comes when you need to finance more than that $934,200. Have any readers gotten financing for significantly more than that recently? How did you structure it? We heard from Chase that HELOCs are quite hard to get right now?
Well, we have had all our business and personal accounts with Chase for 15 years so they’re keeping the costs pretty low, but thanks for the offer! So you really think this is the low point for rates?
As a landlord in the trenches trying to get apartments rented in one of the most desirable parts of NYC, I don’t think you folks (especially Brownstoner) has any idea what’s happening right now.
I hate to admit it, but there’s tons of rental inventory out there and very few new NYC renters (folks moving to NYC to start new jobs). To me, it feels like the rental market is dead — just a few tire kickers looking to get better deals.
Rents have effectively dropped to 2000 levels (nearly a ten year price retraction) on new rentals and it logically follows that the same thing will happen with sales prices.
The hypothetical $1.2 million dollar two unit townhouse Brownstoner believes is such a reasonable deal could easily be worth eight or nine hundred thousand by this time next year — and don’t forget, who the hell knows where interest rates will be by then?
Mr B- I think the 4.75 would have been a better choice for 1 pt. After thinking about it you did good compaired to other lenders. I don’t want to start any squabbling. I just would have slashed my margin for you and done the loan at cost since I get some business from your site. Sort of repaying you for allowing me to comment on mortgages all the time on your site.
I’m closing my parents loan on Monday and locked them yesterday. I told them that they can’t tell anyone what they got because everyone would be on my for the same. They did give birth to me. I think a mortgage rate at cost is the least I could do. 🙂
Today is slightly better but be careful as when rates get this good bond traders selloff taking profits driving the rates back up for a few weeks. When rates get this good they stay for about 2-3 days and move higher for a few weeks. The same pattern has been in effect since late December.
Congrats-90 day rate lock is good.
Petunia, I am arguing the “lost interest” previously paid is irrelevant. I don’t care if you been there for 20 years and your montly payments are now 75% principal…refi can still make sense. As long as there is enough time and a large amount left on the principal to make up the fees for the refi, it can makes sense.
I feel like people are arguing that you pay a higher rate in the early years to get a lower rate in the later years, but this is not true. You are not going through some rite of passage in the early years, you are merely paying the same interest rate on a higher base, a higher base which is the same regardless of whether you refi or not
Problems with the initial calculation:
1. maintenance costs on a building +$1K/month
2. utilities costs +$0.5K/month
3. money lost investing your $300K downpayment. @5% (historically pretty conservative) that’s $15K per year lost.
So you’re back up to $6K/month to live in whatever you can buy for $1.2 million, if you have $300K down.
This seems to be the best calculator I’ve found:
http://www.forthebestrate.com/java/MortgageRefinance.html
Adam,
We locked our rate yesterday…are you saying we could have gotten a better deal with another lender? we could have gotten 4.75 if we’d paid a full point…
I basically agree with Dcorreale – in Mr. B’s case, without having the amortization tables I used previously (a real estate lawyer ran the numbers for us) it seems pretty certain that the savings in interest going forward will quickly surpass the 3.5 years of interest paid that is essentially thrown out. Of course, this “lost” interest does become relevant if you’ve already lived in your house for, say, 5 years, and you’re thinking of leaving in another 5. The old interest minus tax-deduction should be added in along with closing fees as non-reimbursable costs.
The tables for the old mortgage should be near the back of all the closing docs you got, and can be compared if you request the tables on the new mortgage.
Petunia: According to our broker the big change is that banks not brokers pick the appraisers now. Obviously in both cases the appraisers know who is paying their bills and they act accordingly. While I don’t believe the value of our apartment went up 50% I don’t believe it went down 20% either.
I have heard other people have had issues with recent Citibank appraisals (We got 24 hour Appraisers) undervaluing properties. Not sure what if anything we can do.