Refinancing Mortgage, any experts out there?

Question by sarah m: Refinancing Mortgage, any experts out there?
My husband and I are moving out of the country, we want to lower our payments for the next 3 years so we can rent our home out and not be burdened by such high payments. We currently have a 30 yr fixed at 6.5%. Our home is worth 360,000. Is it feasible to refinance after owning our home for only a year and a half and get a lower interest rate/lower payments? It’s our first home and we need professional advice. Who would we ask for real advice, we live in the DC Nova area and the market is in bad shape.
also, my parents live 5 minutes away so they would deal with my renters

Best answer:

Answer by Serge M
Call several mortgage brokers and ask them what rates they offer. Be careful, you may have offers for low interest rates on renewable rate mortgages, but these can quickly revert to much higher rates than you are paying now. However, such a mortgage might be feasible if the low initial rate is guaranteed for 3-5 years. You may be able to refinance to a fixed rate when you get back.

Also check on your current mortgage about pre payment penalties. If there is a pre payment penalty, refinancing may not be feasible.

The general rule is that you should refinance if the interest rate on the same term of mortgage is about 1 percentage point lower. That means you should get a 30 year fixed rate mortgage at 5.5 percent which is probably not possible today. To refinance, there are closing costs and possibly points, so you need at least that 1% lower rate to make up for the costs and still provide some savings in monthly payments.

Add your own answer in the comments!

This entry was posted in Q&A and tagged , , , . Bookmark the permalink.

5 Responses to Refinancing Mortgage, any experts out there?

  1. Ryan M says:

    Right now you could refinance into a 30yr fixed for at best 5.875%. This ofcourse is depending on a ton of variables. Credit score, LoanToValue, as well as debt to income ratio. You say your house is worth 360k 80% of that is 288000. That is how much you can finance with-out paying some serious fees.
    So I’m guessing your loan is around there or else you wouldn’t be looking at it. So lets run some theoretical numbers.
    So at roughly $ 290k loan 30yr fixed 6.5% payment = $ 1833
    a $ 290k loan 30yr fixed at 5.875% payment = $ 1716

    So you would save roughly $ 117 per month or $ 1404 per year. Long term that would be a good move, but you are only looking to rent it out for 3 years. Closing costs on a house loan that size probably will run in the neiborhood of $ 3k-$ 5k depending on a ton of variables. So you won’t even payback the closing costs in the time you rent it out.
    What does all this mean? If you are planning on selling the house in less than 5yrs I probably wouldn’t do anything. And your going to need over $ 1700 a month is rent to cover the mortgage, not including taxes and insurance. So $ 117 isn’t that much in the scheme of things.
    If you’re going to own the house at least 4 more years and can refi into another 30yr fixed at at least 1% lower rate I would recommend it, otherwise I would sit tight till you can.

  2. acermill says:

    The rate you now have is not much higher than you will obtain by refinancing with a new loan. Generally speaking, it does not pay financially to refinance unless you will get a rate at least one point below what you now have. Current rates are just below 6.0%.

    You do not indicate how much of the value of the property is financed. If you are close to the full value, you may discover that your home is no longer worth the $ 360,000 figure, once a refinance appraisal is completed.

    Since you appear to desire to rent, I strongly recommend that you engage the services of a good property management firm to handle the property in your absence. A landlord out of the country will have a difficult time handling issues, should any arise with the rental itself.

    Good luck !

  3. Shazam365 says:

    Rates change daily. Right now 6% is the norm for a 30 year. Get a 30 year only if you can recoup the savings in a few years.

  4. Mortgage Man says:

    There are things you could do, but you’d probably wind up kicking yourselves if you did. There’s interest only loans, and payment option loans, etc….However, they’re not the best idea. Also, who knows where the market will be if you took a 5 year ARM. Who’s to say our rates aren’t up to over 8% by then for an 850 credit score?

    Be happy where you are right now. The last thing you would want to do is gamble your fixed 6.5% rate right now. Look at all the people that gambled 3 or 4 years ago. Back then they could have gotten a rate in the 4%’s, now they’re looking into the 6%’s. Thats one of the few reasons why the market is in such as mess as it is!

  5. HEATHER says:

    You may want to rethink renting it. As someone else has already mentioned, you are going to need someone to manage the property, which costs money. That, and if you are doing things legitimately, your property taxes would go up because you would no longer be able to claim the homestead exemption if you aren’t living there.

Leave a Reply

Your email address will not be published. Required fields are marked *