good loan terms?

rjones2005 · Joined: 18 Oct 2005 Posts: 1

Okay, i have a family member that is trying to refinance from 30 year fixed to 15 year fixed. Initally loan was 95K with 8.5% interest rate. Now the balance is 89K. So much for 30 year loans that take forever to pay off! The family member has sub-par credit (lender pulled 550-570) Is a quote of 6.75% for 15 years fixed at 5 points (tacked into the loan for a refiance) a good deal?

Haplo · Joined: 20 Jan 2005 Posts: 2406 Location: Springfield, IL

:shock: Five points????????

I would slap them silly.

m2c · Joined: 03 Aug 2005 Posts: 761

Hard to believe the LO could present this with a straight face (well, not really) or would at least give a long list of caveats.

The P&I on the existing 30-year should be $730.47 and at $89K, he should be around 78 months into the loan (282 months left). By the time you add 5 points (!!!!) to the balance plus other closing costs, he’ll be right back to around $95,000. He’s running real fast to stay in place!

P&I on new loan should be approximately $840.66. Pay the difference between the P&Is on the existing loan and it will pay off in 197 months. OK, he “saves” 17 months (197-180) but that’s 15 YEARS IN THE FUTURE. With “cost of funds”, that’s not worth much in today’s dollars but 5 points means a whole lot to the LO since it is “today’s dollars”! Say we discount this “savings” at the 15-year note rate, 6.75%. In today’s dollars that’s $4,952 – not much and would be in negative territory if relative sells home or pays off loan early.

Refinance may well be in your relative’s future but MUCH less expensive if and when he makes it into conforming territory. FHA MIGHT be a possibility now but FHA has it’s own baggage even though rate and points, if any, would be much lower.

chow · Posted: Wed Oct 19, 2005 5:03 pm Post subject:

What is it about those refi's that don't make sense? :lol: :roll: