Author Topic: Close refi on Monday, start new refi on Tuesday... what then?  (Read 3240 times)

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Offline USCTrojanCPA

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Re: Close refi on Monday, start new refi on Tuesday... what then?
« Reply #45 on: October 22, 2020, 04:40:58 PM »
@Mety

As long as the loan to value isn't adversely impacted, you often can add to loan. This can make sense to do in a few, well defined circumstances.

Curious about deductibility in cases like this. The points paid are considered prepaid interest, but the rate itself will generate so little deductible interest compared to the larger individual deduction.

Should ask a frequent poster from a local private college who moonlights as a Realtor to chime in on this as it would take a Certified Public Accountant to unravel this question....

The owner would need to run an analysis on comparing taking the big deduction for the points buydown versus no buydown and the slightly higher rate.  Generally speaking, you don't want to pay points unless the payback period is less than 3-4 years (paydown amount divided by the lower monthly payment from buying down versus not buying down the rate). Plus, you can always refi again to a lower rate for free if rates drop.
Martin Mania, CPA
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Offline Soylent Green Is People

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Re: Close refi on Monday, start new refi on Tuesday... what then?
« Reply #46 on: October 22, 2020, 04:59:30 PM »
Not knowing the loan amount, it's over 4 points on a $510k loan, over 3 for a $700k loan (I'm assuming the $23k is "points and fees") I've had High Balance Conforming finance 2.0 points to get a rate very, very close to 2.0%, but 4 points? No thanks!

@Cares - some questions

"10 years?!?! Some people will have moved twice during that time frame." - For an investment property, something that's a long term hold, it might work. We're on the same page with a 3-4 point buy, but to lower costs for non-owner doesn't seem to be a bad idea in all circumstances. What say you?

"$23k? Invest in a conservative fund earning 3% compounded annually? FV of $23k after 10 years is $30k. So you lost $7k in investment growth which should be accounted for which then is the equivalent of 35 more months of mortgage payment savings to make up for it." -

Hard to find a guarantee of 3% without some risk - harder still as rates continue to level out at .001% As well the $23k is "post tax" money if paid out of pocket, not if financed. There is already plenty of ground to make up with that $23k really being $31ish to start with. This is also assuming one had $23k to spend. In a best case scenario you're starting out with untaxed funds being financed.   

We could go very, very deep in the weeds to see each and every scenario case through to reasons why, or why not to buy a rate down. I'm neutral on it, except when we reach the level of 3-4 points. That's an automatic no-go. Less than 2.5 points? Never hurts to work through it and see. Sometimes it works, sometimes not. 
My .02c

SGIP

Offline woodburyowner

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Re: Close refi on Monday, start new refi on Tuesday... what then?
« Reply #47 on: October 22, 2020, 05:14:25 PM »
@Mety

As long as the loan to value isn't adversely impacted, you often can add to loan. This can make sense to do in a few, well defined circumstances.

Curious about deductibility in cases like this. The points paid are considered prepaid interest, but the rate itself will generate so little deductible interest compared to the larger individual deduction.

Should ask a frequent poster from a local private college who moonlights as a Realtor to chime in on this as it would take a Certified Public Accountant to unravel this question....

The owner would need to run an analysis on comparing taking the big deduction for the points buydown versus no buydown and the slightly higher rate.  Generally speaking, you don't want to pay points unless the payback period is less than 3-4 years (paydown amount divided by the lower monthly payment from buying down versus not buying down the rate). Plus, you can always refi again to a lower rate for free if rates drop.

The big wrinkle is whether the person itemizes or not.  If they are borderline, it could help to pay the discount points in order to push them over the threshold and part/all of it would be deductible. 

Offline USCTrojanCPA

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Re: Close refi on Monday, start new refi on Tuesday... what then?
« Reply #48 on: October 22, 2020, 11:06:37 PM »
@Mety

As long as the loan to value isn't adversely impacted, you often can add to loan. This can make sense to do in a few, well defined circumstances.

Curious about deductibility in cases like this. The points paid are considered prepaid interest, but the rate itself will generate so little deductible interest compared to the larger individual deduction.

Should ask a frequent poster from a local private college who moonlights as a Realtor to chime in on this as it would take a Certified Public Accountant to unravel this question....

The owner would need to run an analysis on comparing taking the big deduction for the points buydown versus no buydown and the slightly higher rate.  Generally speaking, you don't want to pay points unless the payback period is less than 3-4 years (paydown amount divided by the lower monthly payment from buying down versus not buying down the rate). Plus, you can always refi again to a lower rate for free if rates drop.

The big wrinkle is whether the person itemizes or not.  If they are borderline, it could help to pay the discount points in order to push them over the threshold and part/all of it would be deductible. 

Agreed, there are too many variables to make blanket recommendation that applies to everyone because everyone has different circumstances and tax considerations.
Martin Mania, CPA
AgencyOne
CA BRE License # 01799007
CA CPA License # 107675
mmania001@yahoo.com
714-747-3884 cell

Often imitated....Never duplicated!

Offline Cares

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Re: Close refi on Monday, start new refi on Tuesday... what then?
« Reply #49 on: October 23, 2020, 05:27:37 PM »
Hard to find a guarantee of 3% without some risk

Moving 10 year average of S&P since 1871 has about 9-10% return on average. That is, take any 10 year period since the data was tracked and it has returned this much over 10 years. 3% is extremely conservative over a 10 year time horizon. I would dare to say it is guaranteed return.

Offline Soylent Green Is People

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Re: Close refi on Monday, start new refi on Tuesday... what then?
« Reply #50 on: October 26, 2020, 01:02:38 PM »
FYI - If there is a Disaster Area declaration (State OR Federal) lenders will need to send the appraiser back out to the community to verify no damage to your home. This could add 1-3 days to your closing timeline - purchase OR refi.

NO DECLARATION as of yet (10-26-2020) but be advised.
My .02c

SGIP

Offline Cares

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Re: Close refi on Monday, start new refi on Tuesday... what then?
« Reply #51 on: October 26, 2020, 11:25:54 PM »
And added cost too unless the lender or MLO absorbs the cost for you.

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