Hi everyone, I’m looking for some advice on whether I should refinance now or wait to see if interest rates drop more. I still owe $198k on my mortgage, which I got in June 2023 at a 6.625% interest rate. I have an offer to lower it to 5.25%, which would save me $133 a month. But the new loan would be $208k to cover the refinancing costs, and I’d only pay around $500 for the appraisal. Both loans are 30-year FHA, and I don’t plan to move anytime soon.
I know predicting rates is tough, but if anyone has some insight or advice, I’d really appreciate it. Also, I’ve been paying about $50 extra on the principal each month and plan to double that with the new mortgage.
Thanks in advance.
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It sounds like the 5.25% rate involves you buying points. If that’s the case, you’re essentially betting that rates won’t drop below that and that you won’t be refinancing soon. With a $10k cost to save $133 a month, your break-even point is around 75 months. Do you plan to stay in the house longer than that? If you share the second page of your loan estimate, it would be easier to evaluate whether you’re getting a good deal.
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I haven’t been informed about points, and I’m not even sure what they are. At this point, I do plan to stay in the same house for at least five years.
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Don’t add the refinancing costs to your loan amount. Instead of sticking with a 5.25% rate, ask for a closing credit at a slightly higher rate, like 5.5%, to avoid increasing your loan balance. By adding $10k in costs, you’re not only paying that upfront, but also accumulating interest on it over the life of the loan. You should be able to get a no-cost refinance at 5.5%, or at least 5.625%, without increasing your loan balance.
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I’ll look into this, thanks.
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I’m still trying to find a lender who will allow this. Whenever I ask, they either say it’s not possible or ignore the question entirely.
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Consider trying major banks like Wells Fargo, Bank of America, Chase, or HSBC. It’s quite common, and if it’s not available, simply request a no-points rate.
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Terrible advice to go to the “big banks” for a mortgage. While banks offer mortgages as a service, it’s not their specialty, and their pricing is far from competitive. Unless you have millions with them, you’ll likely deal with a glorified teller who can’t adjust the rates or fees, and you’ll be stuck with higher upfront costs baked into the rate.
Instead, consult with a local mortgage broker.
There are situations, depending on the program and credit score, where credits may not fully cover closing costs, but it’s certainly not impossible to find a better deal.
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If local brokers aren’t offering what the OP mentioned, what should one do? Are there any brokers providing sub-5.5% no-closing-cost loans? If so, I’d love to get a referral.
As for big banks, there might be other requirements, but the focus here is on getting the lowest rate and no closing costs. Wells Fargo quoted a 5.0% FHA refinance rate; would it hurt to ask a representative?
Here’s a link to a screenshot of an image from the Wells Fargo website. It indicates that an FHA refinance loan with 20% equity and a 740 FICO score at 5% would incur nearly a point, but it doesn’t provide any details about potential additional lender costs, such as underwriting fees.
I’ve noticed some loans with no lender costs definitely below 5.5%, depending on the loan amount.
wells Fargo rates
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For the OP, this would equate to a 5.25% rate with $10,000 in closing costs. It’s a useful benchmark for comparison, as Wells Fargo and other banks offer competitive pricing. Getting a quote from various lenders can be beneficial.
The takeaway here is to shop around for a more comprehensive view and find a lender that offers a no-closing-cost refinance.
I typically check with at least one bank, broker, and credit union to get a clear understanding of my options.
In all fairness, that $10,000 likely includes prepaids and third-party costs. Without a clear breakdown of the allocations, it’s difficult to determine what he’s truly paying for the loan. Moreover, since it’s not even a loan estimate but rather something from a worksheet, its accuracy is questionable at best.
Please take a moment to review your loan estimate document or request it as soon as possible. This document provides details on your loan costs, prepaid expenses, and taxes. While $10,000 may seem high, I’m not sure what fees are included in that total. If you notice any points or origination fees, I recommend continuing to compare offers. Good luck.
I notice a line for discount points listed at $421.
I think the rates will remain the same in three months, so it’s best to refinance now.