Hi all, I was hoping to get some good advice on refinancing my home loan. I've lived here for 5 years with a fixed 30 year loan @ 6.25%. A lending company contacted me yesterday stating that they could refinance me @ 4.5% with a new fixed 30 year loan, so the loan starts over in time frame with a lower monthly payment (about $150/month less than current) So I'd save $150 per month, but end up paying for 30 years again and loose the 5 years I've already been paying.

Or they could refinance @ 4% with a fixed 15 year loan. These payments would be about $100/month more than current, but I would have the house paid for in 15 years, shaving 10 years off the current loan. Seems to me like a no-brainer, but I'm afraid I may be over looking some important aspects of things?

There's more.

My house is old. 1965. While I am happy to be here, and I like the house well enough, it is not by any means the house I want to spend the rest of my life in. Very small at 900 sq ft, but it's just the two of us here, so it is big enough (just barely). The shop on the property is about the same, it's just me working out there so I don't NEED a lot of room, but I sure wouldn't mind having more. The shop is 28'x40'.

The house needs a new septic because it doesn't pass code. It still functions fine, but the county sent me a letter last week saying that it must be replaced within the next 18 months due to it failing it's last inspection (old ring style tank seeping, drain fields still working fine). I knew this was comming, so not a big suprise. I have gotten estimates for this and it's about $4,000 all said and done. The house also needs new siding and windows, which I had gotten quotes for at about $21,000. So the house needs about $25,000 in repairs right now. That's not taking into consideration that the kitchen or bathroom have not been updated in quite a while.

I have about 30K in savings, but this is my entire life savings. Do I dump it into this house and refinance, or just refinance, or buy down the interest rate with the savings and refinance, or start looking for a new house? If I sell this house, I would have to do two things for sure. I would have to replace the septic and I would have to at least repaint the house. The one nice thing about this house AND shop is that it's on the same property (shortest commute to work ever) and the payments currently are under $1,000/month.

I have to admit that moving to a larger, newer, house has crossed my mind quite a bit. It would have to be at least 2 acres in an area that isn't governed so closely by they county as far as running an automotive repair shop (in other words, outside of town). It would have to either have an existing building that could be turned into a shop, or would need to be cheap enough that I could afford to build a new shop. I would have to pretty much start over with building a customer base because I'm assuming I would be too far away from my current customers for them to travel to the new location. I would likely have little to no amountable income in the first year after the move. Basically, I would like to move, but I'm scared too!

Any thoughts? Words of wisdom?

Thanks guys!

Do the 15 year thing, if you can afford the extra $100 per month. You will save a HUGE amount of money NOT making payments for that 15 years. Just a rough estimate of saving is multiplying the amount of your monthly payment x 12 x 15, and that's how much you save. If you think you will be staying there for another 5 years, definitely the way to go.

You aren't saving much (if anything) by going back in at 30 years term, as mortgage interest is very top-heavy - meaning your payments initially are mostly interest, very little principle.

I recently (about year and a half ago) refinanced from 7.5% to 5.25%, from 30 year to 15, and the payment was within a few dollars, but trimmed 10 years off of the term (we were in same boat as you, and rolled a second mortgage into it as well).

Oh, your house isn't old. Mine was built in 1856, and around here, that's 'new' compared to some of the stuff built around revolutionary war times. Of course, we had to renovate much of it, as it hadn't been updated since 1934. Still had knob and tube wiring, and a three-seat-double-stall outhouse!

It's likely that your septic system will need to be replaced in order to sell the house anyway. If the drain field is still good, you could probably just replace the main tank. I installed a new system for about 5k, but that included a new field as well. The main tank was about 900 bucks, two compartment 1500 gallon capacity. The backhoe operator was a few hundred bucks and some pizza

Windows aren't a big deal to DIY. I replaced all of mine (about 30 of them, 36 inches by 76 inches each) for 5k, using 'Jeld-Wen' replacement sashes. Spent extra because I wanted wood sashes to match the rest of the woodwork - vinyl is less expensive if your windows are already white or ivory. Takes about an hour to do an opening, and the savings are pretty significant if your old windows are single-pane type. Your house being about 900 sq ft shouldn't have many windows. And your quote for siding seems high for that kind of square footage, unless you have 12 foot ceilings!

Siding is another area where price quotes are going to vary wildly. You CAN do it yourself, but IMHO, it's kind of like drywall installation: Just makes sense to have professionals do it. If your quote was from one of the biggies (i.e., 'Sears home improvements' or such), you should be able to get a much better quote from local contractors, who, in this market, are VERY hungry for work.

Other than the septic, though, I think you need to honestly think about how long you are planning on staying where you are. If you really don't think you will be there much longer, then I wouldn't do anything but fix the septic, and maybe some light cosmetic stuff to give more 'curb appeal'. If you think you will move within the next 5 years, I wouldn't even refinance, as the fees and such take a bit of time to recover with the lower interest rate.

(just my .02 cents)

-Darryl

I don't think I would risk a move and living off of no profits for a year. Especially with all the uncertainty that is currently going around. I think I would do the septic, at the last minute mind you. Any chance you can refinance for the 15 year and blast down the mortgage. No mortgage payment is my current goal. After you have that I think you can financially do anything you want. Also 20k for siding and windows? GEEZE.

So fix septic. Refinance to 15 years. Pay that crap down fast. Live the easy street. All this is my opinion and I don't honestly know anything about you like: age, income, wifes income etc. A financial adviser might be good to speak with.

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What you just decide that I'm drunk? You can't decide that I'm drunk. I make that decision! That decision is mine and God's!

Short and sweet: If you can afford the extra $/month without digging into your savings, I'd go for the 15 year mortgage. Shop around for windows and siding and I'd put money from savings into the septic and windows and probably do the siding myself in a weekend.

I should have said that the $21,000 for siding was for siding and windows on the house (5 "regular" sized windows and 7 "small" slider windows) and siding on a single stall detatched garage. The quote also included a new overhead door and walk in door for the single stall garage. The quotes (I got 2) were both from private contractors and within $200 from each other. The shop is all steel and needs nothing.

The house and single stall garage both have new roofs (3 years old). The plumbing and electrical are all new within the last 5 years. So, even though the house and garage need work, they have had some of the major repairs done already.

The old Adage that you don't get something for nothing applies here equally.

Banks are offering to refinance for a reason and it is not because they care. They like to refi for 2 reasons; the first is the cash they will make ont he refi itself (usually enough to more than cover the offset of the interest rate for a period of years), and second, they make you give up a lot of your rights and protections.

A primary home loan is a non-recourse loan. In other words, if you fail to make the payments the bank gets the house and that is all. They can not come after you or your personal assets for the difference. When you refi, they can. So if you lose your job a year from now they not only get your house but they can get a judgement against you for the difference and garnish your wages.

Some states have enacted legislation to prevent this but not all. You should check on the laws in your neck of the woods and ask your lender if the new loan is a recourse loan or not before you sign ont he dotted line.

If there is no early payoff fees or anything, take the 30 and put more on your principle whenever you can.

quote Originally posted by tbone42: If there is no early payoff fees or anything, take the 30 and put more on your principle whenever you can.

Exactly. Take the 30 year and pay your current rate ($150 more than the monthly payment), and pay it off in 20 years. You come out ahead by 5 years. No?

I would also recommend NOT putting your whole savings into the house.

[This message has been edited by ryan.hess (edited 08-25-2011).]

Um, how much is the total?

Brad

I stay in this house. Take out the 30 year take out a third of what you need to fix it (10K). Fix the spetic now and start replacing the windows. As time progresses spend 10K per year on other projects on the house.


If you outgrow the house but wand to keep the business you coudl always rent the house but still use the shop.

Personally, Id be looking for a new bigger house that dont need the required work. Your going to get the same lower rate and the market is so low now your still going to end up with lower payments and keep your savings. My roof is 25 years old and im not replacing it. Ill wait for a storm to blow it off and let insurance do it. My life expectancy isnt worth spending the money.

quote Originally posted by Toddster: The old Adage that you don't get something for nothing applies here equally. Banks are offering to refinance for a reason and it is not because they care. They like to refi for 2 reasons; the first is the cash they will make ont he refi itself (usually enough to more than cover the offset of the interest rate for a period of years), and second, they make you give up a lot of your rights and protections. A primary home loan is a non-recourse loan. In other words, if you fail to make the payments the bank gets the house and that is all. They can not come after you or your personal assets for the difference. When you refi, they can. So if you lose your job a year from now they not only get your house but they can get a judgement against you for the difference and garnish your wages. Some states have enacted legislation to prevent this but not all. You should check on the laws in your neck of the woods and ask your lender if the new loan is a recourse loan or not before you sign ont he dotted line.

I'd never heard that. Definitely something to look for in the fine print for anyone getting a refi.

I agree with Toddster with what he said.
I would also recommend you take the 30 year mortgage when possible and pay the 15 year payment. That way if hard times come along your not stuck with the higher payment, just remember to write in the memo box on your check ( extra payment to be applied to principal )
Today it's a buyer's market, which means what do you get when you sell your house to buy a larger house.
I would also ask your Mortgage Broker about a FHA 203k loan which would allow you to make the repairs based on the future appraised value with the repairs completed.
And at today's rates you should be able to obtain a 30 fixed at 4%

I'm wondering why you are worrying about paying a mortgage if you could possibly pay at least a large part off with your savings, and not worry about it again/soon.

Hence the "how much do you owe" question that was never answered.

Brad