Close refi on Monday, start new refi on Tuesday... what then?

[Irvinehomeseeker]

Been two weeks for us as well, and we wait. Lender's Interactive.

Interactive came to me last week for 2.375% .... just for a few days they had that offer. That was the lowest I got for a High Balance conforming. Since I had the loan docs from the local lender at 2.5% in front of me to sign, I forgo the interactive offer.

 

[sgip]

@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....

 

[mads]

Interactive came to me last week for 2.375% .... just for a few days they had that offer. That was the lowest I got for a High Balance conforming. Since I had the loan docs from the local lender at 2.5% in front of me to sign, I forgo the interactive offer.

They tend to repeat their offers, you'll just have to keep checking in with them. We made the mistake of thinking that we missed out on it and locked a higher rate. Our lending officer was barely accessible. When the offer came back, another LO at the helpline said that we should be able to switch rates, but our LO refused.

 

[Cares]

Lenderfi is offering 2.0% with $23,666 points for 30-yr fixed conventional now. Do they usually roll over the points into the loan amount instead of you paying out of the pocket?

I would never take that loan for myself or advise any clients to. Use $510,400 as loan amount compared to 2.75% with no closing cost. You save $197 per month. It'll take 120 months of payments to breakeven. 10 years?!?! Some people will have moved twice during that time frame.

This isn't even taking into account the TVM. What else can you be doing with $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.

 

[Mety]

Thanks SGIP and Cares for your insights.

I just wanted to know how people use points in refinancing. If people actually pay out of pocket or add to loan, etc. I personally would never pay points like most of you here, but I'm sure it could be used well for some.

 

[usctrojancpa]

@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.

 

[sgip]

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. 

 

[woodburyowner]

@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. 

 

[usctrojancpa]

@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.

 

[Cares]

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.

 

[sgip]

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.

 

[Cares]

And added cost too unless the lender or MLO absorbs the cost for you.