Should i refinance?

When should you refinance? I am currently sitting with a house worth 130,000. I have a first mortgage at about 94,300 @6.75% and a second at $9,400 @ 8.5%. I am looking at refinancing the 94,000 at 5.625% with closing costs rolled in at about $2,350. The total loan is going to be $96,500. I would be lowering my payment by roughly $67 a month. My question is this worth doing it? And should i just do it?

I plan on applying the savings each month to the second mortgage since their is a balloon payment due in about 12 years. I also know that in the long run, it is worth doing over the course of 30years as i would be saving almost $30,000 in interest without applying the $65 a month savings toward my principal. I need to act fast if i am going to do this, but the only thing i can think of that would make it not worth doing is if i were to sell the house within a couple years

It sounds like you have answered your own question. it will take you approximately 35 months to break even on your refinance. If you think you may be selling in the next couple of years then skip it. If not…pull the trigger.

Yeah, i kinda knew i did, but just wanted some other thoughts. It would take 35 months to break even by saving the $65/month but if i reinvest that back to paying off principal, I would have my loan paid back down to the same principal as if i stayed in the present mortgage by March 2011. So although it wont be going back into the new mortgage and into the 2nd instead, i think it would definitly be worth going ahead with it.

Is there a way you can come up with an extra $65/mo. by reducing expenses and or increasing income? I was amazed at how much money I can generate by taking a hard look at improving those areas. You may even be able pay the 2nd loan off faster than you thought. At the very least, you could save the closing costs and not have to worry about breaking even in 35 months.

I could definitly do that, but i dont see much sense in doing it that way. The biggest reason i am doing it is to free up more cash if needed. I recently went through a seperation and had to buy her out of the house out of my pocket and then refurnish most of the house and now take on her portion of the expenses. Im fine right now, but if an emergency expense came upon me, id have some free’d up cash if needed, plus im not paying near as much in interest.

Why not just refi both the 1st & 2nd mortgages into one loan? If you can get that same 5.65% rate, would that be less than what you’re paying now for both? A loan pmt. for $104K at 5.65% is $600/mo.

I would do that, but i would have to pay all the closing costs out of my pocket as i would be over 80% Loan to value ratio or i’d have to pay lik $55 PMI per month till i got that down to 80%. Shoot, i dont know, maybe it would be worth doing that, but they said closing costs would also be about $3,300 to combine them into 1

I just saw on CNBC that the Treasury may lower mortgage rates down to 4.5% as early as tomorrow. If that happens, I’m going to refi my house. It would save me $200/mo. I believe that you’d be better off in the long run. Remember that if you rolled the closing costs into the loan and it put you a little over 80% LTV, it won’t take long for you pay it down to below 80%. At that time you can request the lender drop the PMI. Just make sure you get all the details on that.

In reading through this thread, I noticed that noone told you that you cannot just refinance your first mortgage without also including the second in the refinance.

Lenders want to be in first position when they lend you money. There is not a lender I am aware of that will just refinance your first mortgage, then subordinate their lien to your second mortgage lien.

If you look at the two mortage loans together, you have $103700 now at a blended rate of 6.91%.

If your lender only allows up to 80% LTV on a refinance, then your current loan balances are right at that threshold. You may not have any room to roll in closing costs.

I would suggest that you aggressively pay off that second over the next year. Then next year, if you still want to refinance, consider doing so. Mortgage interest rates will still be in the same ballpark they are in today.