This is getting ridiculous. Regular readers will recall I bought my home in Fall 2010 on a 15 year fixed mortgage at 3.625%. After taxes and inflation, that was basically free money for me. I did a no-cost refinance just 7 months ago into a 3.375% 15 year fixed loan with Rate One Mortgage, who did my original loan. That was good for a couple hundred bucks a month in interest savings which would add up to thousands over the life of the loan.
Mortgage interest rates have continued to plummet this year. In fact, if you haven’t refinanced yet this summer, you need to. I started into the process several weeks ago with Utah Physician Home Loans, one of this blog’s paid advertisers. I interviewed Josh Mettle, Senior Loan Officer with Fairway Independent Mortgage who runs the website Utah Physician Home Loans, a few months ago for a blog post, so I knew he was a good guy who would treat me right. He sure did. I got a great rate and just had to cover the appraisal. I didn’t even have to leave the comfort of my home to do this, well, except to go sign the closing documents at the title company. The loan application is online, all the supporting documentation can be scanned in and emailed or faxed, and they do the rest. The service was fantastic as well. Rates even dropped sharply while I was in the process and it looked like I was going to have to turn around and restart the process right after closing. Josh readily agreed to match the new going rate as well as the terms (cover the appraisal) I was being offered elsewhere, saving me additional thousands over the years. If you’re in Utah, Arizona, Colorado, or California, I suggest you include them on your short list of lenders. My new loan is a 15 year fixed mortgage at 2.75%. With a 38% marginal tax rate, that’s 1.7% after-tax. Given the current inflation rate of 1.66%, that’s pretty much free money. If we return to the historical inflation rate of around 3%, they’re paying me to borrow money. It reminds me of the 0% student loan I took out in 1993 and paid off in 2010. I ended up borrowing $5K in 1993 dollars, making no payments and accruing no interest for 17 years, and then paying back $3K in 1993 dollars. It looks like this mortgage will be pretty similar, especially if inflation skyrockets. According to calculators on The Mortgage Professor, this refinance will save me $9,339 in interest over 15 years and frees up $187 in monthly cash flow.
Now granted, I’m a bit of serial refinancer. I’m willing to go through the hassle just to save a few thousand dollars. You might not be willing to do that. However, if you haven’t refinanced in a while, you could be in for quite a shock at just how much you could save. Conventional 30 year fixed mortgages are going for around 3.3% and I even had a reader write in last week noting he got a 0% down “physician loan” for under 4% recently.
Consider a 30 year fixed mortgage you’ve been paying for 6 years at 6% that is now down to $400K. If you refinanced that to another 30 year fixed you could lower payments by $883 a month. Even if you still wanted to pay it off in just 24 more years you could still lower your payments by $622 a month. In that scenario, you’d save $179K over the next 24 years with this refinance. Depending on your current interest rate, this might be the best investment of a few hours of your time you’ll ever make. I figure my refinance cost me 2 or 3 hours of time. If I could save $179K, that would be like working for a rate of $60,000 an hour. That’s probably worth getting off your duff for. Physicians are quite appropriately worried about getting ripped off when they do financial tasks they don’t fully understand. Unfortunately, worry sometimes causes them to not do the task at all. After recent rate drops, the biggest refinancing mistake is probably not doing the refinance at all.
Even if you are upside down, you can still refinance if your mortgage is owned by Freddie or Fannie under the HARP program. You won’t get the best rate, but it will still be very good.
Great tip. I had another reader write in recommending National Mortgage Alliance, an internet lender he recently refinanced with and recommends if you are in a state where Rate One or Utah Physician Home Loans doesn’t do business. He got a no-cost 15 year at 2.875% with even a bit of cash back and never even left his house as they sent a notary to his house to do the closing.
you are killing me with good advice…looks like ill have to consider going through this again…I have my jumbo at 3.6. Im planning on paying it off in 10 years.
If you haven’t met the 20% LTV (loan to value) ratio, can you still refinance as easily? I’m not underwater in my mortgage, but the principle on my loan is still > 80% of the assessed value of my home when it was purchased a year ago.
No, it can’t be refinanced as easily, but it can be refinanced. You might look into the “doctor loan” programs.
Sun trust has one. That’s who I used and they didn’t care about LTV
I just refinanced a jumbo loan with Suntrust and only have 12% equity. Got a 15 year loan at 2.99%.
I had a question about the much discussed 15 year vs 30 year mortage .
Currently I am seeing only a 1/2 to .75 % difference between the 15 yr and 30yr…..so why not take the 30 year mortage ?
At age 35, I would rather invest the money that would be going into higher monthly payments for a 15yr mortage than obtain the debt-free/ Dave Ramsey state of mind.
WCI and others….have you calculated/considered how much lower the 15 yr mortage has to be compared to the 30yr mortage for you to invest vs take the 15 yr rate
It all depends on the difference on APR amounts, your risk tolerance, and what you think you will reasonably get from investing. As the difference gets less between a 15 and 30 then sure take the 30. Worst case, just pay it off at a 15 year pace. If the home interest mortgage deductions go away then you can speed up your paying (not that i believe this will happen at least any time soon).
Alan-
That is a remarkably good rate on a 15 year with less than 20% equity. Was that a true no-cost loan or did you have to pay some closing costs?
Sean-
You’re right that it is a relatively small difference in order to get the freedom to pay the loan off over a longer period of time. I choose 15 year loans for two reasons- first I get a slightly lower rate and second, being mortgage free is a requirement for me for retirement, and I want the option to retire in about 15 years. I certainly couldn’t fault anyone for opting for a 30 year loan though, even if they wanted to pay it off in 15 years. Think of it as a bit of “insurance” against both high inflation and partial loss of income in the future. Given interest rates, the mathematical answer might be to take out as much money as you can and delay paying it off for as long as possible. Behaviorally, I don’t think that’s the right answer.
By closing costs are you referring to origination fees. I was charged a 1% fee, but was given a credit which made the fee roughly 0.1% of the loan amount. There were some other fees (title insurance, appraisal, etc.) but it was very cheap to refinance.
That’s what I figured. The mortgage I just got didn’t cost me any of those fees (appraisal, title insurance, origination fee etc.) The credit I got covered all of them. If I had paid them I suspect I could have gotten the rate down to 2.5%, perhaps even 2.375%.
How does the no cost loan differ in regards to the interest rate a bank will give you? I was very much ok with paying the little bit that I did to refinance, especially since it will only take 3 1/2 months to make back my money with saved interest.
The more the lender has to pay, the higher the interest rate they must offer you to still make the same profit. It’s all the same to the lender to offer you 2.75 no cost, 3.00 and hand you $3K or 2.50 and you hand them $3K. They make their $800 or whatever on the loan and go about their business.
Love your blog and your posts at SDN.
I bought a house while a resident, but couldn’t sell afterwards. We are now renting it out and have a variable rate loan. So far, interest rates have been low, but I do worry about it rising. I know most of these great rates are for people in their primary homes. Any leads on a refi for rental properties?
Thanks
Thanks for the love. I have the same issue with my rental property, currently at 5.3%. I haven’t looked too hard since you really need 20-30% equity to refinance these days and I’m not quite there yet. Expect to get rates that are 1-2% higher than an owner occupied property for a similar loan.
I know this is an old thread, but still pertinent! Love the website!
Can I ask would you do in my situation? I am having a hard time working through these numbers. I have a rental property with 326K left on the loan. (value of property ~490k) I am 1 year into a 20 yr mortgage. The rate is 5.7% for 4 more years, then resets. I have a refinance option at 5.1% 15 yr fixed on a 15 yr loan with min closing costs. But there is a 13K prepayment penalty on the original mortgage. (doh!) My current bank offered to reset my rate now at 4.7% for 5 years, (not true refinance, they would just charge me a $250 fee) then adjustable every 5 years after that.
Would you bite the bullet and pay the prepayment penalty to refinance or take the current bank’s 5 year rate reduction offer? I plan to keep the property indefinitely…
If you will have the property paid off in 5 years or something close to it, it’s a no brainer, take the bank’s offer for a 4.7% 5-year ARM. (Although I’d shop around. Since you have 20% down, I wouldn’t be surprised to see you get a 15 year fixed far lower than 5.1% or even 4.7%.)
If you won’t, then you need a crystal ball to know what the right thing to do is. The first thing I’d do, is find out what rate you would be able to get on a true no-cost refinance into a fixed 15 year loan. That means the lender has to get a credit of at least $13K to cover this refinance prepayment penalty of yours (you got screwed with that by the way.) It might be too high to consider.
But if your only two choices are what you outline, and you plan to keep the loan for 20 years, you’ll be better off with the reset ARM at 4.7% than with the 5.1% fixed option if rates stay low, and better off with the 5.1% fixed option if rates go up. I have no idea which will happen so you roll the dice and you take your chances.
Personally, I’d probably take the 4.7% rest ARM for basically free (it’s a better deal than what you currently have), make darn sure it doesn’t have a prepayment penalty, and then in a few months, you have a lot better options without a prepayment penalty.
This is maybe an old thread but I am sure I could get sound answers from here. The value of the property of a friend of mine has declined and could not get a regular refinancing, I did my research and found about HARP but I also found out that it is not for everybody. My friends mortgage is not owned by Fannie Mae, so where does she go from here? Thanks
Not sure I understand your question, or even that you’ve provided enough information to give any kind of advice. One possibility is paying down the mortgage enough that a bank is a willing to refinance her for instance. Another would be to stop making payments and hope to be approved for a short sale.
I’m considering going from a 30-yr doctor’s loan at 4.75% that I got during residency (currently over 20% equity thanks to increasing values since I bought close to 3 years ago) to a 15-yr refinance at 2.75% since I’m now an attending with a moonlighting gig to boot. The current principal amount is $170,000 and I plan on staying put for at least 5 years and probably renting it out when I do move. The difference in interest rates with the lifetime interest savings makes it seem like a no-brainer to go ahead and refinance since the monthly payment will only go up a couple hundred bucks, but the offer I got (which I shopped for based on interest rate) includes about $6k in expenses that gets rolled into the principal of the new loan. That’s about 3.5% of the principal amount. Is that about as much as I should expect to pay? Should I just go for it and stop wasting time?
Ask for the rate for a no cost loan. If you’re willing to take 3-3.25% you can probably avoid that $6K cost.
I recently found your site, amazing! Clearly I have been living in a cave- just working, working. I did not refinance 2-3 years ago, now I have 2 properties- one is interest only at 3%, the other 30 year at 4.75%. Is it too late to get a good rate on refinancing? what companies do you recommend? I live in Maryland.
No, it’s certainly not too late. Rates are still low. I don’t know of any companies in Maryland, but you can probably beat your current rates.
I’m freaking out… lenders are giving me @#!#@ quotes on my refi like I’m an idiot that cannot sort though bloated fees?!
I want to refi to get rid of mortg insur…
Have 3.5APR now, FHA 30 year fixed, $287K loan bal $2000 a month
I want a new loan with no mortg insur and decent rate without getting killed by fees. (especially code “800” fees) or bloating my loan balance either.
Can anyone recommend a lender that will “play” fair and not bloat the fees?
Thank you
Robin
Are you going for a conventional loan or a doctor loan?
Ventura CA btw
🙂
Robin
I am trying to decide if I should move forward with this refinance? I currently owe about 430k, the appraisal value is 520k. To avoid PMI I will have to pay about 14k plus closing costs which include 1% point. The rate for 15 term is 2.875%
I do have the cash but it will deplete my reserves, plus my monthly payment will increase by $100. My current mortgage is 4.875% on a fha 30 year, I’m about 5 years in. I know I save money in long term from interest, just not sure if I should wait for more equity and better terms and hang onto my cash. Plus my bank has been a real pain to work with but they had the best rates.
Hard to say. Have you calculated the break even point? I bet it isn’t that far off dropping 2%. I’d probably try to do that.
I will be paying more each month. How do I calculate break even point? Also l could not find the forum on the WCI website
Thanks!
In my mind, you break even when the interest savings and PMI savings will equal the refinancing costs not including the additional down payment.
The link to the forum is at the top. Here’s a direct link:
https://www.whitecoatinvestor.com/forums/
okay so closing costs are about 10k (not including additional $ for down payment), by going to 15 yr mortgage, I’m saving about almost 200k over the long run, plus eliminating PMI (although paying more monthly), so break even about 1 year? I’m sorry, I am really trying to understand all this stuff. Thanks again, your site and book have thought me so much!
Okay, so you’re going from 4.875% to 2.875% on $430K. So in year one, you will save 2%*$430K in interest, or about $8500. Actually a little less if that’s deductible to you. Plus, you get to save PMI. You don’t say what that is, but I bet you would make your $10K back in about a year, certainly less than two. So I think refinancing is a great idea for you. Going from 30 years to 15 years is huge and the fact that you can do it for only $100 more a month is pretty impressive. This is a no-brainer for me, and seems a great use of $14K. I assume, of course, that you’re not moving in 6 months or anything.
thanks so much, I thought it was a good decision, but all the hoopla with bank was having me doubt if it was worth it. PMI is about $160/month
I just got a 10/1 ARM physician loan for my house. Anyone know at what point i can refinance to a conventional fixed rate loan?
At any point when you have a 20% down payment.